Axis Surplus Insurance Company v. Universal Vision Holdings Corporation et al
Filing
42
MEMORANDUM AND ORDER The motion for judgment on the pleadings is granted. ORDER ATTACHED. Ordered by Judge Eric R. Komitee on 3/26/2024. (ALR)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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AXIS SURRPLUS INSURANCE COMPANY,
MEMORANDUM & ORDER
21-cv-5590 (EK)(CLP)
Plaintiff,
-againstUNIVERSAL VISIONS HOLDINGS
CORPORATION and JUNIPER LEGEND
CORPORATION
Defendants.
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ERIC KOMITEE, United States District Judge:
Plaintiff Axis Surplus Insurance Co. seeks a judicial
declaration that the Miscellaneous Professional Liability
Insurance Policy it issued to the defendant travel agencies does
not afford coverage for a series of civil actions in Canada.
Axis also seeks to recoup certain moneys already paid in defense
of these actions.
Following the defendants’ Answer, Axis now
moves for judgement on the pleadings.
For the reasons set forth
below, that motion is granted.
Background
Axis Surplus Insurance Co. (“Axis”), an insurance
company incorporated in Illinois and doing business primarily in
Georgia, Am. Compl. ¶ 6, ECF 24, sold an errors and omissions
policy (the “Policy”) to the defendants, Juniper Legend
Corporation (“Juniper Legend”) and its parent company, Universal
Vision Holdings Corporation (“Universal Vision”), id. ¶ 1.
Both
defendants are travel agency companies incorporated in Delaware
and based in New York.
Id. ¶¶ 6-8.
Defendants sought coverage
under this policy for five civil actions filed in Canada (the
“Canadian Actions”), id. ¶¶ 2-3, as the Policy was in effect
when the alleged losses from these actions were incurred, id.
¶ 17.
A.
Axis, however, has disclaimed coverage.
Id. ¶ 4.
The Policy
The Policy at issue covers “any Wrongful Act of the
Insured, or someone for whose Wrongful Acts the Insured is
legally responsible.”
Compl. Ex. A, Policy § I.A.
“Wrongful
Act” is defined as “any actual or alleged breach of duty,
neglect, act, error, omission, Personal Injury or Breach of
Confidentiality committed solely in the performance of the
Professional Services . . . of the Insured.”
Id. § II.V.
At the same time, the Policy contains an exclusion for
“any Claim based upon, arising out of or attributable to Bodily
Injury or Property Damage” (the “Bodily Injury Exclusion”).
§ IV.B.
Id.
I have assessed analogous language in an insurance
policy before.
See Huang & Assoc., P.C. v. Hanover Ins. Co.,
No. 21-CV-4909, 2023 WL 3346761 (E.D.N.Y. May 10, 2023), appeal
dismissed, No. 23-888, 2023 WL 5675503 (2d Cir. July 5, 2023).
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B.
The Canadian Actions
Juniper Legend arranged a bus tour of Canada for a
group of Chinese nationals.
For transportation, they engaged a
third-party bus company and a third-party driver. Am. Compl.
¶¶ 3, 12.
The bus allegedly crashed into an embankment and
caused thirty-two hospitalizations and three fatalities.
Id.
Several victims of the crash, as well as some family members,
brought suit against Juniper Legend and Universal Vision (as
well as the tour bus company and others), alleging professional
negligence in engaging and overseeing the tour bus company, as
well as vicarious liability for the tour bus’s actions, in some
cases.
Id. ¶ 9, 15.
These plaintiffs allege a variety of
serious injuries, pain and suffering, and in some family-member
suits, wrongful death.
Id. ¶¶ 12-16.
Between 2018 and 2021,
Axis denied coverage in response to a pre-lawsuit demand, and
then for the Canadian Actions themselves, under the Bodily
Injury Exclusion.
Id. ¶¶ 21-23.
They did, however, agree to
make defense payments to the Defendants in the Canadian Actions
while reserving rights to deny defense and indemnity coverage
and recoup any amounts paid under the policy. Id. ¶ 29.
Legal Standard
Under Rule 12(c), “[a]fter the pleadings are closed –
but early enough not to delay trial – a party may move for
judgment on the pleadings.”
The standard of review for such
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motions is identical to that for motions to dismiss under Rule
12(b)(6).
Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir. 2010).
Thus, “the court’s task is to assess the legal feasibility of
the complaint; it is not to assess the weight of the evidence
that might be offered on either side.”
Lynch v. City of New
York, 952 F.3d 67, 75 (2d Cir. 2020). 1
“When a plaintiff is the
movant, courts must accept all factual allegations in the answer
and draw all reasonable inferences in favor of the defendants,
who are the non-movants.”
Lively v. WAFRA Inv. Advisory Grp.,
Inc., 6 F.4th 293, 305 (2d Cir. 2021).
Discussion
At the heart of this action is the Bodily Injury
Exclusion.
The parties do not dispute the events underlying the
Canadian Actions or the contents of the Policy in any way
relevant to this motion.
See Pl.'s Mem. of Law in Supp. Of Mot.
for J. on the Pleadings (“Pl.’s Br.”); Defs.’ Mem. In Opp’n to
Mot. for J. on the Pleadings (“Defs.’ Br.”), ECF 38.
There is
similarly no dispute regarding whether the claims at issue would
fall within the Policy’s coverage, absent the exclusion.
Id.
Indeed, Axis effectively concedes that the claims allege the
Defendants’ professional negligence, within the coverage period
of the Policy.
See, e.g. Pl.’s Br. 3-6; Defs.’ Br. 2-4.
Unless otherwise noted, when quoting judicial decisions this order
accepts all alterations and omits all citations, footnotes, and internal
quotation marks.
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Instead, the disagreement centers around the meaning
and scope of the exclusion: specifically, on whether the claims
in the Canadian Action can be said to be “based upon, arising
out of, or attributable to Bodily Injury” or whether the alleged
supervisory negligence of the Defendants is conceptually
independent from the events causing the victims’ injuries.
Pl.’s Br. 7-13; Defs.’ Br. 6-16.
See
Given the clarity of language
in the Policy itself, both parties make their arguments based
primarily on legal precedents and principles of contract
interpretation.
See id.
Such sources are well within the
Court’s purview on a motion for judgement on the pleadings.
Neopharm Ltd. v. Wyeth–Ayerst Int'l LLC, 170 F. Supp. 3d 612,
615 (S.D.N.Y. 2016) (“If the contract is unambiguous, the Court
may award judgement on the pleadings, assuming no material facts
are in dispute.”).
A.
As This Court has Previously Determined, the New York Court
of Appeals Would Apply a But-For Test in Construing the
Exclusion at Issue
In May 2023, this court addressed an insurance dispute
that, like the instant case, revolved around the question of
whether a given liability fit within an exclusion for claims
“arising out of” a particular situation — in that case, willful
misconduct.
In Huang & Associates, P.C. v. Hanover Insurance
Company, the underlying loss was alleged to have arisen when a
law firm’s negligence (in misdirecting a confidential email)
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facilitated a third-party’s intentional fraud.
No. 21-CV-4909,
2023 WL 3346761 (E.D.N.Y. May 10, 2023), appeal dismissed, No.
23-888, 2023 WL 5675503 (2d Cir. July 5, 2023).
The law firm
sought coverage under an errors and omissions policy when its
client sued for negligence and malpractice.
Id.
This court
held that coverage was properly denied under the policy’s
exclusion of losses “arising out of” or “relating . . . to”
“[a]ny actual or alleged conversion, commingling, defalcation,
misappropriation, intentional or illegal use of funds, monies or
property . . . .”
Id. at *1.
The Huang decision wrestled primarily with two New
York state precedents: the New York Court of Appeals’ decision
in Mount Vernon Fire Insurance Company v. Creative Housing Ltd.,
and the Appellate Division’s later decision in Watkins Glen
Central School District v. National Union Fire Insurance Company
of Pittsburgh.
In Mount Vernon, the Court of Appeals considered
whether an insurance policy provided coverage for a claim
against a building owner for negligent failure to maintain safe
premises, when a third party assaulted the plaintiff in the
building.
88 N.Y.2d 347 (1996).
The policy in that case
included an exclusion for claims “based on Assault and Battery.”
Id. at 350.
First, the court held that “[t]here is no
significant difference between the meaning of the phrases ‘based
on’ and ‘arising out of’ in the coverage or exclusion clauses of
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an insurance policy.”
Id. at 352.
Next, the court held that
the scope of such an exclusion is governed by a but-for test:
“If no cause of action would exist ‘but for’ the assault, it is
immaterial whether the assault was committed by the insured or
an employee of the insured on the one hand, or by a third party
on the other.”
Id. at 353.
The exclusion applies in that case
despite the insured’s alleged negligence.
In Watkins Glen, the Appellate Division declined to
apply the Mount Vernon but-for test, because the policy at issue
was — like the policy here — an errors and omissions policy,
rather than a general liability policy, like the one in question
in Mount Vernon.
286 A.D.2d 48, 74 (2d Dep’t 2001).
The issue
in Watkins Glen was whether exclusions for intentional acts or
bodily injury barred coverage for a negligent hiring and
supervision lawsuit regarding a teacher’s sexual assault of a
student.
Id.
The Watkins Glen court reasoned that the Mount
Vernon test “would completely undermine the purpose of [] errors
and omissions coverage.”
Instead, the intermediate court
Id.
opted to conduct an analysis roughly akin to a proximate cause
determination, finding the defendant’s alleged negligence to be
“conceptually independent” from the intentional act that formed
the basis of the exclusion.
The Appellate Division
Id.
followed this new test notwithstanding the fact that nothing in
the Mount Vernon precedent framed the but-for test as applying
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only to the specific type of general liability policy involved
in that case.
Therefore, in Huang, this court considered the rule in
diversity cases that, if the New York Court of Appeals “has not
ruled on the issue in dispute,” a district court is “bound to
apply the law as interpreted by New York’s intermediate
appellate courts unless it were to find persuasive evidence that
the New York Court of Appeals would reach a different
conclusion.”
Covington Specialty Ins. Co. v. Indian Lookout
Country Club, Inc., 62 F.4th 748, 752 (2d Cir. 2023).
In so
doing, I determined that the Mount Vernon decision, unconfined
to any particular type of insurance policy, constituted
“persuasive evidence” — at least — that the New York Court of
Appeals would apply the same but-for test to exclusions in
errors and omissions policies.
Huang, 2023 WL 3346761 at *5-*6.
Given that the rule in Watkins Glen is difficult, if not
impossible, to square with this but-for test, a straightforward
application of the Mount Vernon ruling was called for.
Id. at
*6-*7.
B.
Policy Considerations Do Not Override the Application of
Controlling Precedent
In departing from the Court of Appeals’ but-for test,
the Watkins Glen court invoked a policy argument.
The court
reasoned that, because errors and omissions policies are
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“expressly intended to provide coverage for negligent acts,
including negligence in hiring or supervision of employees”
application of the Mount Vernon test “would effectively
eviscerate the errors and omissions policy altogether.”
Glen, 286 A.D.2d at 74.
Watkins
This does not appear to be a valid
basis, in New York law, to circumvent binding Court of Appeals
precedent.
In State Farm Mutual Automobile Insurance Co. v.
Fitzgerald, the Court of Appeals reversed the Appellate Division
for attempting to distinguish the insurance dispute at issue
from a prior Court of Appeals decision based on the type of
coverage involved.
25 N.Y.3d 799 (2015).
The Court of Appeals
reasoned that, in the prior precedent, the court “never
suggested that we were limiting our holding to a self-insurer or
situations involving the priority or ‘stacking’ of coverage” and
that it did not make sense that a given phrase would have a
certain meaning in one policy context and a different meaning in
another.
Id.; see also Century Indem. Co. v. Brooklyn Union Gas
Co., 74 Misc. 3d 733, 745 (N.Y. Sup. Ct. 2022) (“Even if it were
well-taken, . . . this practical objection would be insufficient
to overcome binding, on-point precedent.”); cf. Jiannaras v.
Alfant, 124 A.D.3d 582, 586 (2d Dep’t 2015), aff’d 27 N.Y.3d 348
(2016) (“Although it is within the province of the Court of
Appeals to reexamine its earlier precedent and determine whether
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a compelling justification exists to overrule [a] precedent
. . ., that right of reexamination is not within [the Appellate
Division’s] province. Simply stated, [the Appellate Division]
cannot discount or disregard the Court of Appeals’ determination
in [controlling precedent] and, if there is to be any shift in
that precedent, the change in the law is for the Court of
Appeals to pronounce.”).
C.
No New Cases Justify a Departure from the But-For Test
Applied in Mount Vernon and Huang
The parties in the instant case have called the
court’s attention to a number of newer cases that wrestle with
insurance policy exclusions.
None, however, squarely addresses
the tension between Mount Vernon and Watkins Glen.
At most,
these cases mention one of the two precedents, without
addressing the other.
See Scottsdale Indem. Co. v. Beckerman,
120 A.D.3d 1215, 1219 (2d Dept 2014) (applying Mount Vernon
without analyzing Watkins Glen); Am. Auto. Ins. Co. v. Sec.
Income Planners & Co., 847 F. Supp. 2d 454 (E.D.N.Y. 2012)
(doing the inverse).
Nevertheless, several recent cases, from both New York
and out-of-state courts, have performed analyses similar to that
in Huang to determine that a given insurance policy exclusion
applies.
See, e.g., Jeffrey Steinberg, What Your Liability
Insurance Might Be Missing: Coverage from Internet Scams, N.Y.
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St. B.J., October 2023, at 32 (analyzing recent cases); ROMCO
Structural Sys. Corp. v. AXIS Ins. Co., 596 F. Supp. 3d 464
(E.D.N.Y. 2022), appeal dismissed (Aug. 1, 2022) (holding that
an unambiguous exclusion for claims regarding bodily injury
applied to employee negligence action); Kavanagh v. P&C Ins. Co.
of Hartford, No. 612180-2017, 2018 WL 10732990 (N.Y. Sup. Ct.
Aug. 10, 2018) (applying exclusion for claims “[a]rising out of”
improper use of funds to legal malpractice action); St. Paul
Fire & Marine Ins. Co. v. Llorente, 156 So. 3d 511 (Fla. Dist.
Ct. App. 2014) (finding professional liability policy exclusion
for claims “[a]rising out of” the failure to safeguard funds
applicable to alleged negligent disbursement claim); Acct. Res.,
Inc. v. Hiscox, Inc., No. 15-CV-01764, 2016 WL 5844465 (D. Conn.
Sept. 30, 2016) (applying exclusion for claims “arising out of”
theft or misappropriation to negligence action based on third
party fraud); Att'ys Liab. Prot. Soc'y, Inc. v. Whittington L.
Assocs., PLLC, 961 F. Supp. 2d 367 (D.N.H. 2013) (same).
Ultimately, none of the cases identified by the parties or the
court changes the analysis in Huang.
D.
Applying Mount Vernon, Axis is Entitled to Judgment on the
Pleadings
Turning to the instant case, the determinative issue
is whether the Canadian Actions can be said to be “based upon,
arising out of or attributable to Bodily Injury or Property
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Damage.”
As discussed above, the Mount Vernon test asks whether
the “cause of action would exist ‘but for’” that condition.
Mount Vernon, 88 N.Y.2d at 406.
Each of the Canadian Actions
relates to a physical injury allegedly suffered by either the
plaintiff or the loved one of a plaintiff, during the Canadian
tour bus crash.
Compl. ¶¶ 3, 12-16.
These claims would not
exist “but for” the bodily injuries experienced by the
passengers.
Defendants’ counsel effectively conceded as much.
See Oral Arg. Tr. 14:1-2, ECF 41 (“I understand that if no one
suffered bodily injury, the case would not exist.”)
This exclusion applies under Mount Vernon, moreover,
even though Defendants did not directly cause the bodily injury,
but merely allowed such injury to occur through alleged
negligence.
Mount Vernon, 88 N.Y.2d at 406 (“[I]t is immaterial
whether the [excluded action] was committed by the insured or an
employee of the insured on the one hand, or by a third party on
the other.”)
Defendants have offered two primary arguments for why
this case should be distinguished from Huang and Mount Vernon,
neither of which is availing.
First, Defendants note that this
case involves the negligence of a third party, layered on top of
the Defendants’ own alleged negligence, whereas Huang and Mount
Vernon involved a third party’s intentional misconduct.
Second,
the exclusion in this case relates to the type of injury giving
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rise to the claim, whereas the exclusions in Huang and Mount
Vernon are keyed to the causes of action themselves, rather than
their outcomes.
These are ultimately distinctions without a
difference.
Just as Mount Vernon did not cabin the application of
its “but for” test to certain kinds of insurance policies, it
similarly did not limit it to specific kinds of exclusions or
fact patterns.
Insurance policies may include various different
types of exclusions, including exclusions for certain conduct,
causes of action, types of injury, and particular factual
circumstances.
See generally 31 N.Y. Prac., New York Insurance
Law § 15:5 (2023-2024 ed.).
To alter the rules of
interpretation for the phrase “arising out of,” or its
analogues, based on the type of conduct and exclusion at issue
would be both untenable and contrary to standard canons of
contract interpretation.
See 11 Williston on Contracts § 32:6
(4th ed.) (“Generally, a word used by the parties in one sense
will be given the same meaning throughout the contract in the
absence of countervailing reasons.”).
Therefore, distinguishing
this case from Huang and thus from Mount Vernon would mean
engaging in the same consequentialist, policy-based reasoning
that this court has rejected from the opinion in Watkins Glen.
Instead, the Bodily Injury Exclusion should be read according to
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the rule laid out in Mount Vernon, and thusly applied to the
facts of this case.
Conclusion
For the foregoing reasons, the motion for judgment on
the pleadings is granted.
SO ORDERED.
/s/ Eric Komitee__________
ERIC KOMITEE
United States District Judge
Dated:
March 26, 2024
Brooklyn, New York
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