COLONY NATIONAL INSURANCE COMPANY v. CONTROL BUILDING SERVICES, INC.

Filing 29

OPINION fld. Signed by Judge William H. Walls on 11/18/15. (sr, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

COLONY NATIONAL INSURANCE
COMPANY,
Plaintiff,

OPINION

V.

CONTROL BUILDiNG SERVICES, INC.,
and DDR CORP. (f/k/a Developers
Diversified Realty Corporation),
Defendants.

:

Civ. No. 14-cv-5651 (WHW)(CLW)

Walls., Senior District Judge

Before the Court is a motion for default judgment in a dispute over insurance coverage.
Plaintiff Colony National Insurance Company (“Colony”) brings this action for declaratory
judgment and breach of contract against its first named insured, Control Building Services, Inc.
(“Control Building”). According to Colony, the general liability policy it issued to Control
Building and other named insured parties required Control Building to pay the first $100,000 in
expenses during any covered litigation—a sum known as the “retained limit.” Colony alleges
that it defended Control Building and other named insureds in several personal injury lawsuits,
but that Control Building failed to satisfy the retained limit, breaching the policy’s terms. Colony
seeks damages for the breach and a declaration that it has no duty to defend or indemnify any
named insured under the insurance policies until Control Building fulfills its obligations. Control
Building has not answered Colony’s complaint or otherwise entered an appearance in this action.
Defendant and cross-claimant DDR Corp. (f/k/a! Developers Diversified Realty
Corporation) (“DDR”), an additional named insured under the same policy who has received

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defense services from Colony in one of the lawsuits specified in the complaint, opposes the
motion for default judgment. DDR contends that a declaration in favor of Colony would affect its
own right to satisfy the retained limit and continue to receive legal services from Colony under
the insurance policy. Decided without oral argument under fed. R. Civ. P. 78, Colony’s motion
is granted in part and denied in part.
FACTUAL AND PROCEDURAL BACKGROUND
I.

The insurance policies and complaint

Colony issued Control Building an insurance policy for the period from August 16, 2008
to August 16, 2009, then renewed the policy through August 16, 2010, and extended the renewal
through January 31, 2011. Compi.

¶ 2, ECF No.

1. “Colony’s claims arise out of Control

Building’s failure and anticipatory failure to satisfy the applicable $100,000 retained limit under
the Colony policies with respect to underlying claims falling within the policies’ General
Liability Coverage Part or Products/Completed Operations Coverage Part.” Id.
Under the initial and renewed policies, Colony agreed to “pay those sums that the insured
becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to
which this insurance applies.” Id.

¶ 11. The policy limits Colony’s liability to amounts in excess

of the “retained limit” (the amount that the insured must pay before the coverage kicks in), which
is set at $100,000 per occurrence and $2,000,000 in the aggregate. Id.

¶ 12. The retained limit

includes “damage payments as well as claim handling and/or legal expenses (excluding salaries
of employees and office expenses of the insured) incurred by the insured in the investigation,
negotiation, settlement and defense of any ‘claim’ or ‘suit’ to which this policy applies.” Id.
Colony funded the defense of Control Building and other named insured parties in
several “personal injury lawsuits in various jurisdictions.” Id.

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¶ 16. For some of these claims,

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Control Building failed to satisfy the retained limit. Id.

¶ 24.

Other personal injury claims against

Control Building and other named insured parties, including DDR, are still pending. Id.

¶ 26.

Colony is currently funding the parties’ defenses despite Control Building’s failure to satisfy the
retained limit in these cases. Id.

¶ 32. In early 2014, Colony received notice from an officer of

Control Building that Control Building is “now out of business, no longer operating or merely
insolvent.” Id.

¶ 35. The notice stated that Control Building could no longer fund any portion of

its legal defense. Id.

¶ 36.

Colony filed a complaint in this Court on September 11, 2014. The complaint lists counts
for breach of contract, anticipatory breach of contract and declaratory judgment. Id. 11-18.
Colony seeks:
(a) an award of damages for Control Building’s breaches and anticipatory
breaches of its obligations under the Colony policies; (b) a declaration that
Colony has no duty to defend in connection with such underlying claims unless
and until Control Building, pursuant its obligations under the Colony policies,
satisfies the retained limit for those claims; and (c) a declaration that Colony has
no duty to indemnify in connection with such underlying claims unless and until
Control Building, pursuant its obligations under the Colony policies, satisfies the
portion of the retained limit that Colony considers necessary to complete the
settlement of those claims.
Id. ¶3.
II.

Colony’s motion for default judgment.

Control Building did not respond to the complaint. On October 28, 2014, Colony
requested default against Control Building, which the Clerk entered that day. ECF No. 6. Colony
moved for default judgment against Control Building on January 12, 2015. ECF No. 7. In the
motion for default judgment, Colony alleges that it suffered $115,866.90 in damages by
providing defenses to “Control Building, other Named Insureds, and/or purported additional
insureds under the Policies” in two cases without receiving retained limit contributions. ECF No.

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7 at 7-8 (citing Green v. MVRC Holding LLC, no. 16-11-12686 (Or. Cir. Ct., Lane Cty.),
Mulvaney v. New Jersey Transit Corp., No. L-3297-12 (N.J. Super. Ct., Law Div., Hudson Cty.).
Colony also states that it continues to represent “Control Building and/or other entities that are
additional or omnibus insureds under the Policies” in nine separate pending lawsuits, including

one in which it has occurred an additional $19,548.02 in expenses. Id. at 8-9 (citing Wyse v.
Home Depot USA, Inc., no. 2009/012330 (N.Y. Sup. Ct., Erie Cty.)).
Colony seeks a total of$135,313.92 in damages on Counts I and III of the complaint, the
breach of contract counts for past and pending personal injury claims. Proposed Order of Final
Default Judgment, ECF No. 7-3 at 1. Colony also seeks (a), on Count V of the complaint, a
declaration that Control Building must satisfy the retained limit as a condition precedent to
Colony’s duty to defend in nine pending claims against Control Building and other named
insureds across the country, (b), on Count VI of the complaint, a declaration that Control
Building must satisfy the retained limit before Colony has a duty to indemnify with respect to the
pending claims, (c), on Count VII of the complaint, a declaration that Control Building must
satisfy the retained limit before Colony is obligated to defend any future claim against a named
insured party, and (d) on Count VIII of the complaint, a declaration that Control Building must
satisfy the retained limit before Colony is obligated to indemnify any named insured party in a
future settlement. Id. at 2-3.
III.

DUR’s motion to intervene, counterclaim, and opposition to Colony’s motion
for default judgment.

DDR is an additional named insured on the policy Colony issued to Control Building. See
Ex. A to Aff. of Joseph S. Kavesh, ECF No. 9-2. DDR is a co-defendant in Wyse v. Home Depot
USA, Inc., one of the pending actions listed in the complaint and Colony’s motion for default

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judgment. Kavish Aff.

¶ 3; ECF No. 7 at 8. Colony has been funding the defense of DDR in that

action, spending $19,548.02 on the insured parties’ behalf. Id. Ex. A 9. Despite funding DDR’s
defense thus far, Colony warned DDR in a letter dated January 28, 2015 that it “had no
obligation to provide a defense or indemnification in connection with the [New York litigation].”
Id. 32. Its reasoning was that “Control Building has not complied with its duty to cooperate by
failing to satisfy the Retained Limit for underlying claims

.

.

.

.“

Id. The letter also informed

DDR of the action pending in this Court, stating that Colony seeks “a declaration that Colony has
no duty to defend or indemnify with respect to underlying claims.
Building has not satisfied the Retained Limit.

.

.

.“

.

.

to the extent that Control

Id. “Colony believes that the Underlying

Claim is subject to its claims in the New Jersey Action.” Id. 9-10.
DDR moved to intervene in this litigation, contending that, “[a]s an additional insured
under the 2008-2009 policy and a defendant in one of the ‘Pending Underlying Claims,’ DDR is
an interested party in this declaratory judgment action in which Colony Insurance seeks certain
declarations by this Court with respect to the 2008-2009 policy.” DDR Mot. Intervene, ECF No.
9 at 2. The Court granted DDR’s motion to intervene on August 11, 2015, ECF No. 21.
DDR filed an answer to Colony’s complaint and a counterclaim against Colony on
September 4, 2015, asserting that, “as a named insured on the alleged Colony policies, DDR is
entitled to coverage thereunder for any past, present, or future claim brought against DDR” and
that “payment by DDR in connection with any past, present or future claim satisfies the Self
Insured Retention Endorsement” of the insurance policies, and seeking judgment
(1) declaring that Colony is obligated to defend and indemnif,r DDR under the
alleged Colony policies for any past, present, or future claim against DDR in excess
of the retained limit[;] (2) granting the relief requested in its counterclaims; and (2)
awarding such other and further relief as the Court deems appropriate, including
the costs and disbursements of this action.

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ECF No. 24 ¶f 92-93, 102. Colony filed an answer to DDR’s counterclaims on September 25,
2015. ECF No. 26.
On October 5, 2015, DDR filed a brief in opposition to Colony’s motion for default
judgment against Defendant Control Building, arguing (a) that a declaration that Colony has no
obligation to defend or indemnify in connection with any of the claims specified in Colony’s
complaint would adversely affect DDR’s own right to defense and indemnification under the
insurance policies and (b) that the same declaration would lead to a potentially inconsistent
ruling on DDR’s counterclaim that it is entitled to satisfy the retained limit. ECF No. 27. DDR
contends that Colony’s motion for default judgment should be denied or, in the alternative, that
the scope of the default judgment should be limited to apply only to Colony, so as not to
prejudice DDR or other named insureds not in default. Id. Colony filed a reply brief in further
support of the motion for default judgment on October 13, 2015, arguing that default judgment is
appropriate at this stage because, as first named insured, Control Building is the only party that
can satisfy the retained limit. ECF No. 2$.
LEGAL STANDARD

Because the entry of default prevents a plaintiffs claims from being decided on the
merits, “this court does not favor entry of defaults or default judgments.” United States v.
$55,518.05 in US. Currency, 72$ F.2d 192, 194 (3d Cir. 1984). The Third Circuit has clarified
that, while “the entry of a default judgment is left primarily to the discretion of the district
court,” this “discretion is not without limits,” and cases should be “disposed of on the merits
whenever practicable.” Hritz v. Woma Corp., 732 F.2d 117$, 1181 (3d Cir. 1984) (citations
omitted); see also $55,518.05 in US. Currency, 728 F.2d at 194-95.

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When evaluating a motion for default judgment under Fed. R. Civ. P. 55, courts in the
Third Circuit consider three factors: (1) whether there is prejudice to the plaintiff if default is
denied, (2) whether the defendant appears to have a litigable defense, and (3) whether
defendant’s delay is due to culpable conduct. Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d
Cir. 2000). A court must treat “the factual allegations in a complaint, other than those as to
damages.. as conceded by the defendant.” DIRECTV, Inc. v. Pepe, 431 F.3d 162, 165 (3d Cir.
.

2005).
A court must also make “an independent inquiry into whether the unchallenged facts
constitute a legitimate cause of action” and “must make an independent determination” regarding
questions of law. See Days Inn Worldwide, Inc. v. Mayu & Roshan, L.L.C., No. 06-1581, 2007
WL 1674485, at *4 (D.N.J. June 8, 2007) (citations omitted). Similarly, a court does not accept
as true allegations pertaining to the amount of damages, and may employ various methods to
ascertain the amount of damages due. While the court may conduct a hearing to determine the
damages amount, Fed. R. Civ. P. 55(b)(2), a damages determination may be made without a
hearing “as long as [the court] ensure[s] that there [is] a basis for the damages specified in the
default judgment.” Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Coip., 109 F.3d
105, 111 (2dCir. 1997).
Under Fed. R. Civ. P. 54, “[w]hen an action presents more than one claim for relief—
whether as a claim, counterclaim, crossclaim, or third-party claim—or when multiple parties are
involved, a court may direct entry of a final judgment as to one or more, but fewer than all,
claims or parties only if the court expressly determines that there is no just reason for delay.” If
not, “any order or other decision, however designated, that adjudicates fewer than all the claims
or the rights and liabilities of fewer than all the parties does not end the action as to any of the

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claims or parties and may be revised at any time before the entry of a judgment adjudicating all
the claims and all the parties’ rights and liabilities.” Fed. R. Civ. P. 54(b).
In Frow v. De La Vega, the Supreme Court held that, where one defendant has defaulted
and others have not, a “final decree on the merits cannot be made separately” against the
defaulting defendant while the case is still pending against the non-defaulting defendants. 82
U.S. 552, 554 (1872). Later courts have interpreted Frow to apply only when default judgment
against one defendant creates the possibility of an inconsistent ruling with respect to another
defendant, holding that Frow “at most.

.

.

forbids the entry of a final judgment against one

defendant while others continue to contest liability in the district court.

.

.

in situations where the

liability of one defendant necessarily depends upon the liability of the others.” International
Controls Corp.

V.

Vesco, 535 F.2d 742, 746 (2d Cir. 1976); see also West American Ins. Co. v.

Boyarsld, 2012 WL 4755372, at *2 (W.D. Pa. Oct. 5, 2012) (“In a multiple-defendant case,

default judgment against one defendant should be avoided if the default judgment would create
inconsistent and unsupportable results as to the non-defaulting defendants.” In that situation, “if
default is entered against some defendants in a multi-defendant case, the preferred practice is for
the court to withhold granting default judgment until the action is resolved on its merits against
non-defaulting defendants.”) (citing Animal Sd. Prods., Inc. v. China Nat ‘1 Metals & Minerals
Import & Export Corp., 596 F. Supp. 2d 842, 850 (D.N.J. 2008)) (internal quotations omitted).
Where judgment against a defaulting defendant would not affect the liability of nondefaulting defendants, default judgment may be appropriate. See Farzetta v. Turner & Newall,
Ltd., 797 F.2d 151, 154-55 (3d Cir. 1986) (affirming district court’s order of default judgment
against two defendant asbestos suppliers for causing plaintiffs asbestosis even though third
defendant asbestos supplier, who defended the action at trial, obtained favorable verdict that

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plaintiff had “assumed the risk,” because the facts proved at trial did not “preclude the liability”
of defaulting co-defendants); International Controls Corp., 535 f.2d at 746-47 (default judgment
against defaulting defendant was final despite unresolved claims against non-defaulting co
defendants because defaulting defendant’s “liability in the instant setting does not depend upon
that of any of his co-defendants”); Charles A. Wright, Arthur R. Miller & Mary Kay Kane,
federal Practice and Procedure

§ 2690 (3d ed. 2015) (“The key in deciding whether to extend

Frow outside situations in which liability is joint and several is to recognize that the Frow
principle is designed to apply only when it is necessary that the relief against the defendants be
consistent. If that is not the case, then a default against one defendant may stand, even though the
remaining defendants are found not liable.”) (citing frow, $2 U.S. 552).
DISCUSSION

Plaintiff Colony states that default judgment is appropriate because it has presented valid
claims against Control Building for breach of contract and declaratory judgment, Control
Building has not answered or otherwise contested these claims, and Colony

—

which continues to

incur expenses funding the settlement and/or defense of claims for which Control Building has
not satisfied the “retained limit”

—

will be prejudiced absent a declaratory judgment that it no

longer has a duty to defend or indemnify.
Defendant DDR claims that, by granting the declaratory judgment Colony seeks, the
Court would improperly adjudicate DDR’s own rights as a named insured under the insurance
policies. DDR argues that the declaratory judgment Colony seeks would require the Court to
hold that only Control Building can satisfy the retained limit and would free Colony from the
obligation to defend or indemnify DDR, even if DDR seeks to satisfy the retained limit or to
defend this action on the merits. This holding, the Defendant says, would directly contradict

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DDR’s counterclaim that it may satisfy the retained limit and obligate Colony to continue
providing DDR defense and/or indemnification.
The Court first detenuines whether Colony is entitled to default judgment against Control
Building as a single defendant and then determines whether the particular judgment Colony
seeks is appropriate at this stage under Frow.
I.

Plaintiff Colony makes a facially valid claim for breach-of-contract against
Defendant Control Building.

Colony makes a facially valid claim that Control Building has breached the terms of the
insurance policies. The elements of a breach-of-contract claim are “(1) a contract between the
parties; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that the party
stating the claim performed its own contractual obligations.” Frederico v. Home Depot, 507 F.3d
188, 203 (3d Cir. 2007). Colony alleges that it issued two insurance policies to a group of named
insured parties, including Control Building. ECF No. 1

¶J 8-10. The policies state, in part, that

Colony has the “right and duty to defend the insured against” any suit seeking damages because
of property damage or bodily injury, Id.

¶ 11, but that coverage will only apply “in excess of the

Insured’s Self Insured Retention” in the amount of $100,000 per occurrence or $2,000,000 in the
aggregate, and that that Colony does “not have the duty to investigate or defend any
‘occurrence,’ claim or ‘suit’ unless and until the Retained Limit is exhausted with respect to that
‘occurrence,’ claim or ‘suit.” Id.

¶ 12. The policies also inform the named insured parties that,

“upon [Colony’s] written request, you shall tender such portion of the self-insured retention as
we consider necessary to complete the settlement of a claim or ‘suit.” Id.
Colony alleges that Control Building has breached the insurance policy contracts by
failing to satisfy the retained limit for several past and pending claims against named insured

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parties, despite Colony’s requests, Id.

¶J 23-24, 31-32. Colony also charges that Edward Turn, an

officer of Control Building, sent Colony a letter in early 2014 announcing that any “pending,
open, or future claims” against Control Building “can no longer be handled, funded or litigiously
defended” by the company, indicating Control Building’s intent to breach the contracts. Id.

¶J

33-36.
Despite this, Colony alleges that it has continued to perform its own obligations under the
insurance policies, suffering damages as a result. Colony claims that it provided defenses and
funded settlements on behalf of named insured parties in past underlying claims, Id.

¶ 25, and

continues to provide defenses and fund settlements in the pending claims, all without receiving
the requested retained limit contributions from Control Building. Id.

¶ 32.

II. Plaintiff Colony satisfies the Chamberlain factors against Defendant Control

Building.
The Chamberlain factors

—

(1) whether there is prejudice to the plaintiff if default is

denied, (2) whether the defendant appears to have a litigable defense, and (3) whether
defendant’s delay is due to culpable conduct

—

also weigh in favor of granting Colony’s motion

for default judgment. Chamberlain, 210 F.3d at 164. To repeat, Colony makes a facially valid
breach-of-contract claim against Control Building, and the Court sees no obvious litigable
defense available to the Defendant. Control Building, which has not filed an answer to Colony’s
complaint, has not “engaged in the litigation process and ha[s] offered no reason for this failure
or refusal,” which courts have found “easily qualifies as culpable conduct with respect to the
entry of a default judgment.” Eastern Elec. Corp. ofNew Jersey v. Shoemaker Const. Co., 652 F.
Supp. 2d 599, 606-07 (E.D. Pa. 2009).

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Colony has also demonstrated that it would be prejudiced if default is denied. As
discussed, Colony has provided and continues to provide defenses and fund settlements in
actions against the named insured parties, including Control Building. ECF No. 1

¶J 25, 32.

Without a declaration that it no longer needs to perform its obligations under the insurance
policies, Colony will continue to incur expenses defending these actions and will suffer
mounting harm as a result. Because of the continuing nature of the harm caused by Control
Building’s breach, there is “no just reason for delay,” and default judgment is also warranted
under Fed. R. Civ. P. 54(b).
III. The declaratory judgment Colony seeks is inappropriate.

Though default judgment against Control Building is warranted, the declaratory judgment
Colony seeks is overly broad and is inappropriate under Frow and its progeny. As Defendant
DDR argues, a judgment freeing Colony from the obligation to defend or indemnify any of the
named insureds until Control Building satisfies the retained limits would effectively foreclose
DDR’s counterclaim that it may satisfy its own retained limit. The declaratory judgment would
also be non-binding against named insureds who have not been named defendants in this action.
A. Granting the requested declaratory judgment would lead to a potentially
inconsistent ruling on DDR’s counterclaim.
1. DDR is a named insured under the insurance policies.

As an initial matter, Plaintiff Colony argues that DDR cannot challenge its motion for
default judgment because DDR is not a named insured under the policy at all. Colony claims that
“it is undisputed that the policies do not identify DDR Corp. or Developers Diversified Realty
Corporation as named insureds” because the Named Insured Endorsement identifies “Oxford
Building Services/DDR, Inc.” together on the same line. ECF No. 28 at 4. Colony cites cases in

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California and Illinois state court finding that subcontractors who were not named insured parties
under insurance policies could not satisfy retained limits. ECF No. 7 at 17-19 (citing Forecast
Homes, Inc. v. Steadfast Ins. Co., 105 Cal. Rptr. 3d 200 (Ca. Ct. App. 2010); American Nat ‘1

Fire Ins. Co. v. Nat’l Union Fire Co., 796 N.E.2d 1133 (Ill. App. Ct. 2003)).
These cases are not relevant here. This Court already found, when granting DDR’s
motion to intervene, that DDR is “an additional named insured under the same policy.” ECF No.
20 at 1.
2. DDR claims that the insurance policies require named insured parties
—

not just Control Building

—

to pay the retained limits.

DDR argues in its counterclaim that, “[a]s an additional insured on the alleged Colony
policies, payment by DDR in connection with a claim satisfies” the retained limit. ECF No. 24 ¶
101. According to DDR, the policies refer to the retained limit as “your” retention, Id., define the
retained limit as “the amount or amounts which you or any insured must pay for all
compensatory damages which you or any insured shall become legally obligated to pay,” ECF
No. 7 at 17 (emphasis added), and require that, “upon [Colony’s] written request, you shall
tender such portion of the self-insured retention as we consider necessary to complete the
settlement of a claim or ‘suit.” ECF No. 1

¶ 12 (emphasis added). The policies define “you” and

“your” as “the Named Insured shown in the declarations, and any other person or organization
qualifying as a Named Insured under this policy.” ECF No. 27 at 15. According to DDR, under a
plain-language reading of the insurance policies, any “you”

—

any named insured

—

must pay the

retained limit specified by the policies.
Colony agrees that “it is clear from the policy language that the obligation to satisfy the
Retained Limit belongs to a Named Insured,” but then argues that, “[m]ore specifically, the duty

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to satisfy the Retained Limit belongs to Control Building, which the Policies designate as not
simply a Named Insured but the first Named Insured.” ECF No. 7 at 15. Colony points to a
district court ruling in a parallel proceeding against Control Building that “the policy imposes the
obligation to satisfy the retained limit upon Control Building, notwithstanding that Control
Building was not a defendant in the underlying claims at issue.” ECF No. 28 at 5 (citing Colony
Nat’l Ins. Co. v. Control Bldg. Servs., Inc., 2013 WL 6050959, at *1 (M.D. Fla. Nov. 15, 2013)).
The court in that case, though, merely held that Control Building, “as a Named Insured, may be
obligated to pay the self-insured retention” on behalf of other parties, not that other named
insured parties could not pay the retained limits themselves. Id. Colony also argues that, as the
first named insured, Control Building has certain delineated rights and responsibilities that the
other named insureds do not, including “obligations relating to premium audits” and the
exclusive right to “make changes in the terms of the Policies with Colony’s consent.” ECF No.
28 at 4-5. But Colony doesn’t explain how these rights and responsibilities

—

which, unlike the

obligation to pay the retained limit, are explicitly reserved for the first named insured

—

demonstrate that only Colony can pay the retained limit.
3. DDR’s counterclaim should be resolved on the merits.

Without ruling on the merits of DDR’s counterclaim at this time, the Court finds that this
is similar to a “situation[] where the liability of one defendant necessarily depends upon the
liability of the others.” International Controls Corp., 535 F.2d at 746. As the Court will discuss,
a finding that Control Building is liable for breach of contract will not lead to a finding that DDR
is liable for breach of contract, but the default judgment against Control Building that Colony
seeks will bind DDR in another way: as Colony acknowledges, “[i]f the Court grants the relief
that Colony seeks.

.

.

the Court will have necessarily determined that the policies do not permit

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additional insureds like DDR to fulfill Control Building’s obligation to satisfy the retained limit.”
ECF No. 2$ at 2. This holding is the opposite of the declaration DDR seeks in its counterclaims.
ECF No. 24

¶J 100, 102.

Colony says the Court should grant the declaratory judgment it seeks without waiting to
resolve DDR’s counterclaims because, “{i]n that event, DDR’s counterclaims will be mooted and
there will be no chance for a logically inconsistent result as to DDR.” Id. It is not clear why
default judgment would moot DDR’s claims about its ability to satisfy the retained limit, rather
than creating the very possibility of a logically inconsistent result that frow’s progeny warn
against. In any event, legal issues like this one should be “disposed of on the merits whenever
practicable.” Hritz, 732 f.2d at 1181. The Court will not rule on an issue by default if it is
contested on the merits by another party.
Courts have declined to grant default judgment in similar situations. As example, in
Centuiy Stir. Co. v. Whispers Inn Lounge, Inc., the Southern District of New York denied an

insurance company’s motion for default judgment against one defendant in an action seeking
declaratory judgment that the defendant’s insurance policy did not require coverage for a
wrongful death suit brought against the defendant. 2014 WL 8392302, at *1 (S.D.N.Y. Dec. 15,
2014). The court followed Frow and held that delaying entry of default judgment was
“particularly appropriate” because a non-defaulting co-defendant claimed that it was an
additional insured under the policy. The court held that “declaring that the underlying action is
not covered or that the policy be rescinded ab initio would, in effect, decide the case for [the non
defaulting co-defendant], even though it disputes [Plaintiffs] claims.” Id. Similarly, the
declaratory judgment Colony seeks would, in effect, decide DDR’s counterclaim, even though
DDR has not defaulted.

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B. The requested declaratory judgment may be unenforceable against nonparties.

DDR’s counterclaim also raises the possibility that the declaratory judgment Colony
seeks would violate the “principle of general application in Anglo-American jurisprudence that
one is not bound by a judgment in personam in a litigation in which he is not designated as a
party or to which he has not been made a party by service of process.” Taylor v. Sturgell, 553
U.S. 880, 884 (2008) (quoting Hansberiy v. Lee, 311 U.S. 32,40(1940)). Colony seeks a
declaration that it has no obligation to defend or indemnify any of the named insureds until
Control Building satisfies the retained limit in any pending or upcoming claim, but Colony has
not named any of the other insureds as defendants in this action. Nor, as a result, has the clerk
entered a default against any of the named insureds under Fed. R. Civ. P. 55(a), as is necessary
for Colony to obtain default judgment against them under Fed. R. Civ. P. 5 5(b). These nonparties have not had a “full and fair opportunity’ to litigate the claims and issues” raised in the
complaint against Control Building. Taylor, 553 U.S. at 892 (quoting Richards v. Jefferson
County, Ala., 517 U.S. 793, 798 (1996)).
To the extent that the declaratory judgment Colony seeks would define the rights of these
non-party named insureds under the insurance policies, the judgment would violate the nile
against non-party issue preclusion. Id. To the extent that the judgment would not bind other
named insureds seeking to enforce their own rights under the policies, it would create the same
possibility of inconsistent rulings that courts should avoid under Frow. For this reason, again, the
broad default declaratory judgment Colony seeks is inappropriate.

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IV. A narrowly tailored declaratory judgment against Control Building only is
appropriate.

Unlike the line of multi-defendant cases denying default judgment under frow, a
narrowly tailored default judgment against Control Building does not necessarily create the
possibility of inconsistent rulings regarding other defendants. As example, because the issue
before the court in Whispers Inn Lounge was the scope of an insurance policy covering multiple
insured defendants, the court’s declaratory judgment against one defendant that wrongful death
suits were not covered by the policy would have meant, logically, that wrongful death suits were
not covered by the policy for the other insured defendants. Whispers Inn Lounge, 2014 WL
8392302, at * 1. In contrast, this Court’s ruling that Control Building is liable for breach of
contract does not mean that other named insureds are also liable for breach of contract; Colony
has not alleged that they also failed to pay retained limits upon request. Similarly, a limited
declaratory judgment stating that Colony has no obligation to defend or indemnify Control
Building specflcally does not create the possibility of an inconsistent decision because it says
nothing about whether Colony is obligated to defend or indemnify other parties, such as DDR,
nor whether those parties can satisfy retained limits themselves.
V.

The amount of damages is satisfactorily established.
In counts I and III of the complaint, Colony seeks damages for Control Building’s

breaches of the insurance policies totaling $135,414.92. This amount includes (a) $100,000,
representing the full unsatisfied retained limit in Green, for which Colony incurred $107,672.77
providing a defense and $875,000 funding a settlement; (b) $15,866.90, representing the
expenses Colony incurred providing a defense in Mutvaney; and (c) $19,548.02, representing the
expenses Colony has incurred providing a defense in the pending Wyse litigation. ECF No. 7 at

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8-9. Though Colony has not submitted any documentation of the damages, it has submitted a
sworn affidavit testifying as to the amounts. See Affidavit of Regina L. Tuggle, ECF No. 7-2

¶J

12-22. In at least one of these cases, Wyse, Colony has incurred expenses defending named
insureds other than Control Building. As the Middle District of Florida held, though, because
Control Building is the first named insured under the insurance policies, the policies “impose[]
the obligation to satisfy the retained limit upon Control Building,” even if Control Building is
“not a defendant in the underlying claims at issue.” Colony Nat’l Ins. Co., 2013 WL 6050959, at
*

1. Colony has demonstrated a “basis for the damages specified in the default judgment,”

Transatlantic Marine Claims Agency, 109 F.3d at 111, and entering judgment against Control
Building in the full amount of$135,414.92 would not lead to the possibility of an inconsistent
ruling with respect to other parties.
CONCLUSION

Plaintiff Colony National Insurance Company states a facially valid claim for breach of
contract against Defendant Control Building Services, Inc., and the Chamberlain factors favor an
entry of default judgment. With respect to counts I and III of the complaint, which seek damages
for breach of contract, default judgment is entered against Control Building in the amount of
$135,414.92. With respect to counts V-VIII of the complaint, which seek a declaratory judgment
that Colony is not obligated to provide defense or indemnification in any pending or future
action against named insureds unless and until Control Building satisfies the retained limit in the
action, the Court enters default judgment declaring that Colony is not obligated to defend or

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indemnify Control Building only unless and until Control Building satisfies the retained limit. An
appropriate order follows.

DATE:4mfl

zg

William H. Walls
Senior United States District Court Judge

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