Sentry Insurance a Mutual Company v. Brand Management Inc.

Filing 197

MEMORANDUM AND ORDER. Sentry's motion to declare that it has a contract right to assume all claims handling, and to order defendants to permit it to do so, is denied without prejudice to Sentry's right to seek such relief upon its proper showing that there are no material issues of fact in dispute or at trial. Ordered by Judge Eric N. Vitaliano on 10/12/2013. (Siegfried, Evan)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

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SENTRY INSURANCE A MUTUAL
COMPANY,

Plaintiff,

MEMORANDUM & ORDER

-against-

10-cv-347 (ENV) (RLM)

BRAND MANAGEMENT, INC., BUDGET
SERVICES, INC., and HERSHEL WEBER,

11-cv-3966 (ENV) (RLM)

Defendants.

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VITALIANO, D.J.,
On January 27, 2010, plaintiff Sentry Insurance A Mutual Company
("Sentry"), initiated this action against Brand Management, Inc. ("Brand"), alleging

inter alia a breach of contract arising out of two workers' compensation insurance
policies (the "policies") issued by Sentry to Brand and co-defendant Budget
Services, Inc. ("Budget").' Brand appears to be a professional employer
organization ("PEO"), which, among other things, provides workers' compensation
coverage to client companies and handles claims on such coverage. See (Com pl.~~
6-8, 11-cv-3966, Dkt. No. 1). In its filing of February 6, 2012, Sentry appears to seek
an order directing that all responsibility and authority with respect to the handling
of claims under the policies be vested in Sentry. For the reasons that follow, Sentry's
application is denied.
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On August 17,2011, Sentry brought a separate suit against Budget. (Compl., 11-cv-3966,
Dkt. No. 1). This Court, finding the claims against Budget and Brand to be related, and
arising from the same set of operative facts, consolidated the cases on January 19, 2012.

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Background
Sentry seeks an order "that Sentry may assume all claims handling under the
[policies]." (PI. Mot. Proposed Order, Dkt. No. 58). In an interesting explanation of
the status quo, Sentry claims that it "has continually coordinated its efforts with
Brand's claims adjusters, not out of any contractual obligation, but simply based on
an understanding that Brand and Budget ... [were] interested in assisting with
claims handling in an effort to keep costs as low as possible." (PI. Mem. 1-2, Dkt.
No. 58). Sentry pegs its request for relief to its contention that defendants have
engaged in "inappropriate or unfair claim management activities", and that Sentry
retains the right to assume sole responsibility for claims handling. (/d. at 2). By
Sentry's admission, however, neither the contractual terms of the policies, nor the
casualty agreement executed by the parties, actually speak to the division of
responsibility for claims handling. (PI. Reply 2, Dkt. No. 60). Instead, Sentry points
to a "Claims Handling and Responsibilities Summary" (the "summary"), allegedly
sent from Sentry to Brand after the parties first contracted, which asserts, in
relevant part, that, "[i]f Sentry determines that any inappropriate or unfair claim
management activities are occurring we retain the right to immediately take over
any and all actions and communications related to the ongoing management of the
specific case as well as potentially other cases." (PI. Mem. 2, Dkt. No. 58). Sentry's
pronouncement was unilateral; plaintiff does not contend, as defendants confirm
they did not, consent. (Def. Aff.

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2, Dkt. No. 59).
Discussion

Sentry does not formally proffer a legal basis for the relief it seeks, other than

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to assert that "[f)ederal courts may invoke their equitable power in order to fashion
a remedy." (Pl. Mem. 4, Dkt. No. 58). True enough, but a wrong to be righted is still
required. With this hint, Sentry's request might best be viewed as an application for
an injunction under Rule 65, directing specific performance by defendants to
vindicate Sentry's claimed "right" to exclusively handle claims under the policies.
At the same time, though, Sentry has made no effort to meet the full complement of
requirements that Rule 65 sets.
Putting aside the application's failure to offer persuasive proof of widespread
mismanagement, and the fact, Sentry asserts, that the claims are now being jointly
handled, Sentry's application rests heavily on the content of the summary it
conceived on its own, which purports to authorize Sentry to assume by fiat claims
handling in the event of perceived misconduct by defendants. Again, there is no
dispute that the contracts do not expressly include the terms set forth in the
summary. Nonetheless, Sentry argues that the summary should be considered as
extrinsic evidence "to fill in the missing terms" of claims handling, because the
policies and casualty agreement are silent on that issue. It cites for support Am.

Home Products Corp. v. Key Pharmaceuticals, Inc., 615 F. Supp. 131 (S.D.N.Y. 1984).
(Pl. Mem. 3, Dkt. No. 60). In particular, Sentry invokes the principle that "the parol
evidence rule will permit the parties to offer extrinsic evidence of their intentions
regarding an aspect of their agreement as to which their writing is silent or
ambiguous." (/d.)
Certainly, parol evidence is admissible in various circumstances. That
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argument standing alone is, however, tautological. Indeed, while parol evidence can
be used to address silence in a contract, it is generally only permitted when the
omitted term is essential to the contract. Kirschten v. Research Institutes ofAm., Inc.,
94-civ-7947, 1997 WL 739587 at *7 (S.D.N.Y. 1997) ("when a contract is silent on a
point that the parties dispute, evidence outside the language of the contract itself
may be considered only if the point in issue is one that is 'essential' to the contract,

i.e., without which a contract could not be found."); see also Henry L. Fox Co., Inc.
v. William Kaufman Org., Ltd., 74 N.Y.2d 136, 142-43, 542 N.E.2d 1082, 544
N. Y.S.2d 565 (1989) ("Parol evidence is admissible only to connect the papers, not to
establish missing terms of the agreement"); Schmidt v. Magnetic Head Corp., 468
N.Y.S.2d 649, 654, 97 A.D.2d 151 (2d Dep't 1983) ("An omission or mistake in a
contract does not constitute an ambiguity"). But, even in a case otherwise ripe for
the admission of parol evidence, a document created by a party after execution of
the contract would hardly qualify as parol evidence. In any case, a genuine fact
dispute as to the meaning of the silence here would preclude summary
determination, that is, whether the parties had, in fact, agreed to the terms set forth
in the summary be included in the contracts they admittedly entered.
Sentry alternatively argues that the proffered parol evidence (the summary)
is the belt that goes along with the suspenders and is actually not needed, since the
understanding of the parties is plain enough and that the agreement should be
interpreted in light of trade custom and practice, which is allegedly "for insurers,
rather than the insured, to manage claims handling." (PI. Reply 6, Dkt. No. 60). Put
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another way, Sentry asks to consider extrinsic evidence (custom and practice of the
trade) to show intent-a cul-de-sac with a different name. When any kind of
evidence beyond the four corners of the agreement is required, the intent of the
parties remains a question of fact not ordinarily suitable for summary resolution.
This is especially so in light of the undisputed fact that the parties have been
handling claims jointly all along, that is, in degradation of the claimed custom and
practice. See, e.g., (Pl. Mem. 1-2, Dkt. No. 58 (parties coordinated handling because
"Brand and Budget ... [were] interested in assisting with claims handling in an
effort to keep costs as low as possible."); (Compl. ~ 9, 11-cv-3966, Dkt. No. 1)
("Brand also sought to control claims handling .... ")).
Whether with or without the admission of parol or extrinsic evidence, absent
trial of the facts in dispute, the Court can make no declaration with respect to the
applicability of the provisions outlined in the summary. Nor can the Court
determine the validity, on this record, of Sentry's charges that Brand and/or Budget
have improperly handled any claims to a degree triggering Sentry's alleged right to
assume full control of claims handling, as it argues the provisions of the summary
authorize it to do. See Schering Corp. v. Home Ins. Co., 712 F.2d 4, 9 (2d Cir. 1983)
(delaying resolution of a dispute of interpretation on insufficient facts). Definitively,
there is no basis to support an order compelling defendants to discontinue claims
handling at this juncture.
Conclusion
For the foregoing reasons, Sentry's motion to declare that it has a contract
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right to assume all claims handling, and to order defendants to permit it to do so, is
denied without prejudice to Sentry's right to seek such relief upon its proper
showing that there are no material issues of fact in dispute or at trial.
SO ORDERED.
Dated:

Brooklyn, New York
October 12, 2013

s/ ENV

ERic "N~¥rrALLANo
United States District Judge

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