Beazley Insurance Company, Inc. v. Ace American Insurance Company et al

Filing 57

OPINION: In summary, for the foregoing reasons, the Court, by Order dated October 20, 2015, granted summary judgment against ACE on Count One, dismissed Count Three with prejudice, dismissed Counts Four and Five as against INIC (but not ACE) without prejudice, and otherwise denied defendants' motions to dismiss. (As further set forth in this Opinion.) (Signed by Judge Jed S. Rakoff on 12/20/2015) (cf)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------x
BEAZLEY INSURANCE COMPANY, INC.,
15-cv-5119

(JSR)

Plaintiff,
OPINION
-v~-------------····--···

ACE AMERICAN INSURANCE COMPANY, et al.,
Defendants.
-----------------------------------------x

U

...-' .~ . .

.,.

~·

.i

!)\.>~~·

:1:'ff:·

JED S. RAKOFF, U.S.D.J.

---···· ....

·c-- ,. -.Jl 1Y
"·N

Q '
\.J·i.3'

'<,,7

,_i

11

FILED I

#:
'iii l~L:fJ:·

..µ.~~--"'""4-+-1,....\--

This dispute concerns which of NASDAQ's insurers is obligated
to provide NASDAQ coverage in connection with an underlying class
action that was filed against NASDAQ in the aftermath of the
troubled Facebook IPO in May 2012

(the "Facebook Class Action"). By

"bottom-line" order dated October 20, 2015, this Court granted
plaintiff's motion for partial summary judgment as to Count One
against defendant ACE American Insurance Company. The Court also
granted in part and denied in part defendants' motions to dismiss.
This Opinion explains the reasons for those rulings.
By way of background, plaintiff Beazley Insurance Company,
("Beazley") was the first-layer excess errors and omissions

Inc.

("E&O")

insurer to NASDAQ during the relevant time. Beazley issued Excess
Insurance Policy No. Vl5NOP120401 to NASDAQ OMX Group,
policy period of January 31,

2012 to January 31,

2013

Inc.

for the

(the "Beazley

E&O Policy"). Non-party Chartis Specialty Insurance Company
("Chartis") was NASDAQ's primary E&O insurer during the relevant

1

time and issued NASDAQ OMX Group,

Inc., an errors and omissions

insurance policy for the same policy period ("the Chartis E&O
Policy"). The E&O policies provided NASDAQ with coverage,
relevant part, for "Damages resulting from any Claim
Wrongful Act

~r1

. for any

solely in rendering or failing to render

Professional Services." Compl., Ex. C.

§

l.I. The Beazley E&O Policy

followed the form of the Chartis E&O Policy and provided its own
excess coverage of $15 million once Chartis's limit of liability was
exhausted.
Defendant ACE American Insurance Company ("ACE") was the
primary directors and officers

("D&O")

liability insurer for NASDAQ

during the relevant period. ACE issued ACE Advantage Management
Protection Policy No. DON G21666944 010 to NASDAQ OMX Group,
for the policy period of January 31, 2013 to January 31, 2014

Inc.
(the

"ACE D&O Policy") . 1 The ACE D&O Policy has a $15 million limit of
liability. Defendant Illinois National Insurance Company ("INIC")
was NASDAQ's first-layer excess D&O insurer during the relevant
time. INIC issued Excess Edge Policy No. 01-656-32-59 to NASDAQ for
the policy period of January 31, 2013 to January 31, 2014

(the "INIC

D&O Policy"). The INIC D&O Policy follows the form of the ACE D&O
Policy and provides excess insurance above that policy's $15 million
limit of liability. However, the ACE D&O Policy contains a policy

ACE acknowledged in an October 8, 2013 letter to NASDAQ that the
underlying class action against NASDAQ qualified as a "Prior Covered
Claim" under the ACE D&O Policy, and ACE does not contend otherwise
in this litigation. See Compl., Ex. F.
1

2

by

exclusion "for that portion of Loss on account of any Claim
or on behalf of a customer or client of [NASDAQ], alleging, based
Upon, arising

OUt:

Ol,

0.L

dl.LL..LDULdDle

LU

Lile

render professional services." 2 Compl., Ex.

LelllleL..lil'::J

D, §III

.Cul1-u.L<..0

V-'-

Lu

(as amended by

Endorsement Nos. 10 and 19). This litigation turns on the scope of
that policy exclusion
In 2012,

(the "Professional Services exclusion").

Facebook opted to list its shares on NASDAQ -- a

choice that was initially perceived as a coup for that exchange.
Amid much fanfare and strong demand,

Facebook went public on May 18,

2012. The honeymoon ended abruptly on the day of the IPO when
trading was allegedly marred by significant technical problems as a
result of widespread NASDAQ system failures.
Shortly thereafter, dozens of plaintiffs across the country
filed suit against various participants in the IPO. On October 4,
2012, the MDL Panel centralized 41 actions relating to the Facebook
IPO in the Southern District of New York before Judge Sweet,
including ten actions brought against NASDAQ by NASDAQ members and
by retail investors in Facebook, alleging federal securities
violations and negligence.

See In re: Facebook, Inc., IPO Sec.

Deriv. Litig., 899 F. Supp. 2d 1374, 1377
Facebook, Inc.,

IPO Sec.

(J.P.M.L. 2012);

& Deriv. Litig., 288 F.R.D. 26,

&

In re

30 n.3

(S.D.N.Y. 2012). Judge Sweet subsequently consolidated the actions

2

Though many capitalized terms in the relevant policies are in
boldface, the Court has chosen not to maintain such bolding in this
Opinion, as it is immaterial to the contractual interpretation.
3

brought against NASDAQ into a separately consolidated action for
pretrial proceedings. 288 F.R.D. at 30.
Un

Aprl.l

complaint

jU,

L.Ulj,

a

CODSOllQdLea

ctmeuueu

Clc1;:;;:;

clGLlUll

(the "CAC") was filed against NASDAQ parties on behalf of

a putative class of all persons "that entered premarket and
aftermarket orders to purchase and/or sell the common stock of
Facebook .

on May 18, 2012

initial public offering .

in connection with Facebook's

. and who thereby suffered monetary

losses" as a result of the NASDAQ defendants'

alleged misconduct.

Compl., Ex. A at 1. The CAC was brought by a "Securities Class"
alleging violations of the federal securities laws and a "Negligence
Class" alleging claims for common law negligence.

See id.

According to the CAC, on the day of the Facebook IPO, NASDAQ
could not timely execute pre-market orders as a result of known
system limitations. Rather than suffer the embarrassment of delaying
trading, NASDAQ opted to resort to an untested backup system. The
subsequent "wholesale breakdown in NASDAQ's trading platforms caused
Class Members substantial damages by,
erroneous and failed trade executions;

inter alia:

(i)

causing

(ii) blinding Class Members

for hours - if not days - as to their then-current positions in
Facebook stock due to late and/or missing trade confirmations;

(iii)

preventing Class Members from executing orders at the National Best
Bid/Offer [] prices for Facebook stock as required by SEC Reg. NMS;
and (iv)

exposing Class Members to related failures of the NASDAQ

trading platform, resulting in, among other things,
4

an artificial

downward pressure on the price of Facebook's stock." Id.

~

15. The

CAC also alleged that the NASDAQ defendants "negligently designed,
developed, testea, ana 1mp1emencea

NA~UA~-~

i~u

~ru~~

a11u,

~urLware

as a result, breached their corrunon law duty of care to Class Members
in connection with the listing and trading of Facebook's IPO." Id.
~

40.
On or about May 13, 2013, NASDAQ's insurance broker provided

notice of the Facebook Class Action to Chartis, Beazley, ACE, and
INIC, among other insurers.

See Pl.'s Rule 56.l(a)

Statement,

~

59.

3

According to plaintiff's complaint, Chartis, which (as noted)
insures NASDAQ for claims arising "solely in rendering or failing to
render Professional Services," issued a reservation of rights letter
and agreed to advance defense costs under its primary E&O policy.
Compl.,

~

36. Beazley, for its part, accepted potential coverage

under its excess E&O policy,

subject to a reservation of rights.

Declaration of Carrie Parikh dated July 31, 2015
~

("Parikh Deel.") at

2, ECF No. 23. ACE, however, disclaimed coverage, relying

primarily on the Professional Services exclusion.
In April 2015, NASDAQ settled the Facebook Class Action for
$26.5 million.

In connection with that settlement, NASDAQ entered

into an agreement with Beazley that required Beazley to contribute
the full $15 million limit of liability on its excess E&O policy
within ten business days of final approval of the settlement and by

3 Facts recited here that are pertinent to plaintiff's motion for
partial surrunary judgment are undisputed.

5

which NASDAQ assigned to Beazley its claims against ACE and INIC in
connection with the CAC.

See Parikh Deel.

~

Id.

~

5; Compl.

~

5. On June 25, 2015,

5. A fairness hearing was held before Judge Sweet

on September 16, 2015, and the settlement received final approval on
November 9, 2015.

See Order and Final Judgment,

In re: Facebook,

Inc., IPO Sec. and Deriv. Litig., 12-md-2389, ECF No.

373.

On June 30, 2015, Beazley filed the instant action against ACE
and INIC, bringing five causes of action. Beazley's first cause of
action seeks a declaratory judgment that NASDAQ is entitled to
coverage for defense costs under defendants'
connection with NASDAQ's defense of the CAC.

D&O policies in
4

Beazley's second cause

of action seeks a declaratory judgment that NASDAQ is entitled to
indemnity coverage under defendants'

D&O policies in connection with

the CAC. Beazley's third and fourth causes of action seek
indemnification and contribution from defendants,

respectively,

for

amounts that Beazley paid in connection with the CAC settlement that
Beazley alleges should have been paid by defendants. Beazley's fifth
cause of action -- brought in its capacity as NASDAQ's assignee
seeks damages for defendants' alleged breach of their insurance
policies with NASDAQ.

4

Under the ACE D&O Policy, "the Insurer shall, no later than
quarterly, advance on behalf of the Insureds covered Defense Costs
which the Insureds have incurred in connection with Claims made
against them, prior to disposition of such Claims." Compl., Ex. D,
§ X.E.
6

On July 31, Beazley moved for partial summary judgment against
ACE on Count One,
obligated to cover

seeking a declaratory judgment that ACE is
NA::JUA\.2' 5

aerenoe cu::; L::o

u11ueL

u1e

fl.GJ:.,

uaiv

r uLLc.;y.

Simultaneously, ACE and INIC moved to dismiss the complaint in its
entirety.
Turning first to Beazley's motion, under Rule 56(a) of the
Federal Rules of Civil Procedure "[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter
of law." Fed. R. Civ.

Proc. 56(a).

Under New York law,

5

to determine whether an insurer owes a duty

to advance defense costs, courts apply the same standard used to
assess whether an insurer owes a duty to defend.
Travelers Prop.
2, 2000)

& Cas.

See Lowy v.

Co., 2000 WL 526702, at *2 n.l

(S.D.N.Y. May

("[T]here is no relevant difference between the allegations

that trigger an insurer's duty to defend and the allegations that
trigger an insurer's obligation to pay defense expenses.").
Furthermore, an "insurer's duty to defend and to pay defense costs
. must be construed broadly in favor of the policyholder,"
Admiral Ins.

Co. v. Weitz & Luxenberg, P.C., 2002 WL 31409450, at *3

(S.D.N.Y. Oct. 24, 2002), while policy exclusions "are to be
accorded a strict and narrow construction," Pioneer Tower Owners
Ass'n v. State Farm Fire & Cas. Co.,

908 N.E.2d 875, 877

(2009)

The parties agree that New York law applies to the policies at
issue.

5

7

(citation omitted). Indeed, the New York Court of Appeals "has
specifically held that for an insurer to be relieved of the duty to
QeieDQ

Da.:OeU

Uil

d

_t.JUl_J_(..;y

eXc;l_U~l_Ullr

J_L

-l.Jt::cl.L0

Lilt::

11ec1vy

lJULU<::::ll

uJ::

demonstrating that the allegations of the complaint cast the
pleadings wholly within that exclusion [and]

that the exclusion is

subject to no other reasonable interpretation .
Co. v.

JBS Const. Mgmt.,

1, 2010)
Mut.

Ins.

Inc.,

. ' " Cont' 1 Ca s.

2010 WL 2834898, at *2

(S.D.N.Y. July

(quoting Frontier Insulation Contractors, Inc.

v. Merchs.

Co., 91 N.Y.2d 169, 175 (1997)).

In disclaiming coverage for defense costs, ACE relies on the
Professional Services exclusion in its D&O policy, which provides
that "[ACE]

shall not be liable for that portion of Loss on account

of any Claim .

. by or on behalf of a customer or client of

[NASDAQ], alleging, based upon, arising out of, or attributable to
the rendering or failure to render professional services." Compl.,
Ex. D, § III

(as amended by Endorsement Nos. 10 and 19). ACE does

not dispute that the CAC constitutes a "Claim" under its D&O policy
that would be covered but for the Professional Services exclusion.

6

6

Insuring Agreement B of the ACE D&O Policy provides coverage for
"all Loss for which [NASDAQ] has indemnified [its directors and
officers] and which [those directors and officers] have become
legally obligated to pay by reason of a Claim .
for any Wrongful
Acts." Insuring Agreement C provides coverage for "all Loss for
which [NASDAQ] becomes legally obligated to pay by reason of a
Securities Claim .
for any Wrongful Acts." The Policy defines
"Claim" to include a "written demand for monetary damages" and a
"civil .
. proceeding .
for monetary damages." "Loss" is
defined to include "Defense Costs," which in turn is defined as
"reasonable and necessary costs, charges, fees and expenses incurred
by any Insured in defending Claims." It is true that INIC, in its
8

Rather,

it argues

(1)

that the CAC was not brought "by or on behalf

of a customer or client of [NASDAQ]," and (2) that the claims in the
CAC are

no~

"a1-1-eging,

Dd:::H::oU

UtJOIJ,

d.LJ..::>.LIJY

UUL

uJ.:,

UL

Cl.LLL.i.lJuLalJlc

to the rendering or failure to render professional services."
Neither "customer or client" nor "professional services" is
defined in the ACE D&O Policy. Beazley argues that "NASDAQ's
customers are the individual companies that choose to list on the
NASDAQ exchange and its members, the so-called market makers,
through which retail investors may purchase and sell stock listed on
the NASDAQ exchange," rather than the retail investors themselves.
Beazley Opening Br. at 20, ECF No. 24. ACE, on the other hand,
argues that retail investors in companies listed on NASDAQ's
exchange

(such as Facebook)

are indeed "customer[s] or client[s]" of

NASDAQ because "each [investor] purchased a service from NASDAQ .
. through a Member," "direct[ing] a transaction in Facebook Stock
using the NASDAQ exchange," and because NASDAQ receives a fee for

motion to dismiss, argues that the CAC is not a "Securities Claim"
because "the emphasis throughout the definition [of 'Securities
Claim']
is on the Company's securities," and the CAC does "not
involve NASDAQ securities." INIC Reply Br. at 3, ECF No. 50.
However, this argument disregards the plain language of Insuring
Agreement C, which provides that a Securities Claim is "any Claim
. alleging a violation of any federal .
. rule or statute
. regulating securities, including but not limited to the
purchase or sale of, or offer to purchase or sell, or solicitation
of any offer to purchase or sell, any securities issued by the
Company.
." Compl., Ex. D, § II.O (as amended by Endorsement
No. 12) (emphasis added). There can be no serious argument (and none
is offered) that the CAC does not constitute a "Claim .
. alleging
a violation of any federal .
rule or statute .
regulating
securities."
9

each transaction. ACE Reply Brief in Support of Mot. to Dismiss at
7, EC F No.

44 . 7

"customer or client" in the Professional Services exclusion, both
parties look outside the D&O Policy to shore up their arguments.
Beazley notes the obvious point that not all end users of goods or
services are "customers" of every goods or services provider in a
distribution chain, and ACE responds with the equally self-evident
point that a retail investor can be the "customer or client" of more
than one service provider. ACE further argues that basic agency
principles dictate that retail investors can simultaneously be the
"customer[s] or client[s]" of multiple service providers -- in this
case, both their brokers

(i.e., their agents)

and NASDAQ. But ACE

fails to establish why "customer[s] or client[s]" must include
retail investors in the context of this policy exclusion.

Indeed,

none of these observations does anything to resolve the ambiguity in
the D&O Policy as to the scope of the exclusion.

8

7

Because the application of the Professional Services exclusion is
thoroughly briefed in defendants' motions to dismiss as well as on
plaintiff's motion for partial summary judgment, the Court draws on
the (largely overlapping) arguments made in both sets of papers.
s The parties also marshal purportedly dueling dictionary definitions
that are not actually at odds or particularly helpful. Compare ACE
Opp. Br. at 8, ECF No. 38 (a customer is "one that purchases a
commodity or service" (quoting MERRIAM-WEBSTER'S COLLEGIATE
DICTIONARY 214 (10th ed. 1998))), with Beazley Reply Br. at 6, ECF
No. 45 (a customer is a "person or organization that buys goods or
services from a store or business" (quoting Oxford Online
Dictionary, http://www.oxforddictionaries.com/us/definition/
american english/customer))

10

The parties' discussion of industry usage is more pertinent.
Beazley focuses on the "Accommodation Plan" that NASDAQ submitted to
the sr..:c in the attermaLh or Lhe

.taceDUQK

_ll:'U

1-Il

dil

eLLULL

compensate its members for the system failures that day.

LV

In the

Accommodation Plan, NASDAQ explained that its "business and legal
relationships are with its members, not its members'
that]

customers [and

Nasdaq has no contractual or other relationships with its

members' customers

." Declaration of Kevin F. Kieffer dated

July 31, 2015, Ex. 10 at 45712
ACE,

(emphasis added), ECF No. 22-10.

less convincingly, observes that the CAC itself appears to

conceive of retail investors in Facebook as "customers" of NASDAQ.
The CAC notes on several occasions,

for example, that NASDAQ's

system failures "prevented the majority of NASDAQ's customer base
from knowing their true positions in Facebook." CAC
id.

~

133

("Defendants .

8; see also

put their own business interests ahead

of the interests of NASDAQ's customers and members .
~

~

.");id.

216 ("NASDAQ's customers were forced to carry significant

positions in Facebook over the weekend

."). However, the fact

that the CAC might allege that the class members are "customers" of
NASDAQ does not make it so. More appropriately, ACE also argues that
NASDAQ itself has, on occasion, described retail investors as
"customers." But the primary example ACE invokes in support of this
argument is not very compelling. Specifically, ACE points to the
fact that in the context of a proposed rule change, NASDAQ stated:

11

The proposed price reduction [for NASDAQ market data and
for trading on NASDAQ] is targeted at retaining the
business of members that represent retail investors and
that redistribute market data to them in a nonfJLULe;::;;::;J_urld.1-

Cd.J:-!d.C_l_Ly.

l\/AoUAl,d

lJel_l_eve;::;

Llld.L

Ll!_l_;:)

fJLUfJU:::id.l

thereby promotes NASDAQ's and the Commission's goal of
better serving long-term, retail investors and restoring
confidence in public capital markets. The participation of
these investors in NASDAQ's market benefits NASDAQ, its
listed companies, its market quality, and the quality of
its data products. The proposal is also a competitive
response to other trading venues that have used price
discounts to entice firms to shift order flow and data
consumption, and that may continue to do so in the future.
In short, NASDAQ is attempting to compete on price for the
business of customers that are highly valued to NASDAQ and
important to the health of U.S. capital markets.
Affirmation of Daniel W. London dated Aug. 14, 2015, Ex. F at 3, ECF
No. 35-6.
But at best, the reference to "customers" in the last sentence
of the passage is ambiguous.

Indeed, the reference is more fairly

read, in context, to refer to NASDAQ's members.
On balance, the Court is in agreement with Beazley that
interpreting "customer[s] or client[s]" to exclude retail investors
in a public company listed on NASDAQ is at least one reasonable
interpretation of the ACE D&O Policy. As a consequence, ACE has
failed to satisfy its "heavy burden of demonstrating that .

. that

the [Professional Services] exclusion is subject to no other
reasonable interpretation" than the one it has proffered to disclaim
coverage, and ACE was therefore obligated to provide NASDAQ with
defense costs coverage in connection with NASDAQ's defense of the

12

CAC.9 Because, moreover, the Court grants partial summary judgment on
Count One against ACE on this basis, it need not at the present time
reach the issue ot whether tne c_!_a.uns

in

u1e cAc ctLe --aiieyl11y,

based upon, arising out of, or attributable to the rendering or
failure to render professional services."
The Court now turns to defendants' many arguments for
dismissing the complaint. To survive a motion to dismiss, a pleading
"must contain sufficient factual matter, accepted as true, to 'state
a claim to relief that is plausible on its face.'"

Iqbal,

556 U.S.

Twombly,

662,

678

550 U.S. 544,

(2009)

570

Ashcroft v.

(quoting Bell Atlantic Corp.

v.

(2007)). With respect to those arguments

made under Rule 12(b) (6), the Court must draw all reasonable
inferences in plaintiff's favor and accept as true all well-pleaded
factual allegations in its complaint.

Litig., 502 F.3d 47,

50

In re Elevator Antitrust

(2d Cir. 2007).

Three of defendants'

arguments raised in their motions to

dismiss apply to all or several of plaintiff's causes of action, and
the Court addresses these arguments at the outset before turning to
defendants'
First,

claim-specific arguments.
for the same reasons that the Court grants plaintiff

partial summary judgment on its first cause of action, the Court

9

To be clear, the Court is not interpreting "customer[s] or
client[s]" to exclude retail investors as a matter of law, as that
is not the relevant question for purposes of plaintiff's motion.
Defendants are free, with the benefit of discovery, to renew their
arguments as to the meaning of "customers or clients" on summary
judgment.
13

rejects defendants'

arguments that plaintiff's claims fail because

the CAC falls within the scope of the Professional Services
eXCl_U::i1-UII.

Second,

in an argument that is only applicable to INIC,

INIC

argues that Beazley's claims against it are not ripe because a
condition precedent to INIC's coverage obligations has not been
satisfied.

10

Specifically, under INIC's D&O policy,

obligations "attach .

INIC's coverage

only after the Total Underlying Limits

[under ACE's D&O policy]

have been exhausted through payments by,

behalf of or in the place of

[ACE] of amounts covered under

on

[ACE's

D&O Policy]." Compl., Ex. E ("Insuring Agreement"). The INIC D&O
Policy goes on to state that "[t]he risk of uncollectability of any
part of the Total Underlying Limits,
retained by the Policyholder

for any reason,

is expressly

." Id. The Court agrees that this

provision plainly constitutes a condition precedent to coverage.
Ali v.

Fed.

Ins.

Co.,

719 F.3d 83,

91

(2d Cir.

2013)

See

(finding that a

substantially similar provision in an excess insurance policy
"establishe[d]

a clear condition precedent" to coverage that had not

been met). Because Beazley does not allege that the ACE D&O Policy

10

INIC oddly appears to limit the reach of this argument in its
opening brief to Beazley's first cause of action for a declaratory
judgment. See INIC Opening Br. at 20-21, ECF No. 33. In its reply
brief, however, INIC casts the argument as a ripeness argument that
is applicable to all claims. See INIC Reply Br. at 7-8
("Accordingly, Beazley's claims against Illinois National are
premature.")
14

limits have been exhausted,

INIC contends that Beazley's claims are

premature.
11\JlL

l5

na11-rignL.

lill::S

v. St. Paul Fire & Marine Ins.
2003)

LUUL L':::;

uec..L::S..LUJI

..LI!

UUdlle

Co., 261 F. Supp. 2d 293

J:\edUe,

_Lile.;.

(S.D.N.Y.

is instructive. There, defendant-insurer sought dismissal of

the complaint on the ground that its claims were not ripe.
Plaintiff's complaint alleged four causes of action,

two of which

sought damages for breach of contract and two of which sought
declaratory relief.

See id. at 294-95. The insurance policy at issue

provided that defendant's payment obligation only arose 30 days
after "presentation and acceptance

[by defendant]

of proofs of

loss," which plaintiff had not filed at the time of suit.
295. Because "payment by defendant

[was]

Id. at

not yet due," plaintiff's

breach of contract claims were premature and the Court dismissed
them without prejudice as unripe.

Id. The Court found that the

claims seeking declaratory relief survived, however, because an
actual controversy existed between the parties and "judgment on [the
declaratory judgment counts would] almost certainly resolve the
primary issue in this case as to scope of coverage." Id. at 296.
The same logic governs here. As to Beazley's three claims
against INIC for indemnification, contribution, and breach of
contract, Beazley has jumped the gun and the claims are dismissed as
unripe. Beazley's claims against INIC for declaratory relief
survive, however, as "there is a substantial controversy, between
parties having adverse legal interests, of sufficient immediacy and
15

reality to warrant the issuance of a declaratory judgment" under the
Declaratory Judgment Act, 28 U.S.C. § 2201. Maryland Cas.
l:'a c.

coa _J_

&

U_l_

_J_

l,U. '

5 L::'.

u . ;:) .

L (

u'

L (5

\

J_

Co. v.

::i q J_) •

Third, ACE argues that Beazley lacks standing to bring this
action,

largely on the basis that because the settlement of the CAC

had not yet received final approval from the district court at the
time the parties briefed the instant motions, Beazley has failed to
allege an actual loss

(either on its part or NASDAQ' s)

.11

While the

settlement of the CAC has now received final approval from Judge
Sweet, ACE's argument is not moot "[b]ecause a plaintiff's standing
to sue is assessed based on facts existing at the time of filing
suit." Sharehold Representative Servs.
4015901, at *7

(S.D.N.Y. Aug.

Recovery Corp.

v.

2015)

LLC v.

Sandoz Inc.,

2013 WL

7, 2013); see also Cortlandt St.

Hellas Telecomms.,

790 F.3d 411,

422

(2d Cir.

("A court may not permit an action to continue, even where the

jurisdictional deficiencies have been subsequently cured, if
jurisdiction [was]

lacking at the commencement of a suit."

(internal

quotation marks omitted)). ACE's argument is, nonetheless,
erroneous.
Specifically, as to Beazley's first two counts seeking
declaratory relief, NASDAQ had already incurred significant defense

ACE purports to make this argument pursuant to Rule 12 (b) ( 3) of
the Federal Rules of Civil Procedure. Rule 12(b) (3) authorizes a
party to move to dismiss on the basis of improper venue -- something
neither defendant has done. ACE's argument is properly made under
Rule 12(b) (1), which authorizes motions to dismiss based on lack of
subject-matter jurisdiction.
11

16

costs and the settlement of the Facebook Class Action had already
received preliminary approval at the time plaintiff filed its
comp..Ld1-Ill.

b1-Ver1

lildL

LI!e

):JdL L..Le::;

V1-YULUU:::>1-y

U1-::S):JULe

Llle..LL

cuveLctye

obligations, the Court again finds that "there is a substantial
controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a
declaratory judgment" sufficient to invoke the jurisdiction of this
Court under the Declaratory Judgment Act. Maryland Cas.
U.S. at 273.

12

Co.,

312

As for Beazley's three remaining claims, as noted,

NASDAQ had already incurred losses in the form of defense costs at
the time this suit was commenced. And,

in any case, the injury-in-

12

It is true, as INIC points out, that the general rule is that
"until the underlying action is decided, dismissal of an insurance
company's declaratory judgment action for indemnity is appropriate."
Specialty Nat. Ins. Co. v. English Bros. Funeral Home, 606 F. Supp.
2d 466, 472 (S.D.N.Y. 2009). However, this is not a "per se rule"
and courts have made exceptions to it where the policy animating the
rule -- i.e., that the duty to indemnify (in contrast to the duty to
defend) often requires consideration of factual disputes -- is not
served. See Atl. Cas. Ins. Co. v. Value Waterproofing, Inc., 918 F.
Supp. 2d 243, 261-62 (S.D.N.Y. 2013) (finding exception to rule
where policy purpose was not served) . That is the case here, where
the dispute between the parties turns on the proper interpretation
of the "Professional Services" exclusion -- a question of law that
will not necessarily require the consideration of factual disputes.
INIC also appears to argue that the Court lacks subject-matter
jurisdiction because a claim for indemnification requires a finding
of liability, and the Stipulation of Settlement in the Facebook
Class Action states that it "shall not be construed as .
. an
admission or concession on the part of [NASDAQ]
. of any fault
or liability." INIC Opening Br. at 17, ECF No. 33. This argument is
borderline frivolous, as the defendants' D&O policies indisputably
insure NASDAQ for "Loss," which is defined to include settlements.
As such, defendants' duty to indemnify is implicated by the
settlement of the CAC unless the Professional Services exclusion is
triggered.
17

fact requirement under the Supreme Court's standing doctrine does
not require injury that has already occurred, but rather a "concrete
and particularized" injury that is "actual or imminent, not
conjectural or hypothetical." Lujan v. Defenders of Wildlife,
U.S. 555, 560

(1992)

(emphasis added)

504

(internal quotation marks

omitted). "An allegation of future injury may suffice if the
threatened injury is 'certainly impending,' or there is a
'substantial risk' that the harm will occur." Susan B. Anthony List
v. Driehaus, 134 S. Ct. 2334, 2341

(2014)

(internal quotation marks

omitted). Here, there is nothing conjectural or hypothetical about
NASDAQ and Beazley's loss. To the contrary, at the time Beazley
filed its complaint, the settlement of the CAC had garnered
preliminary court approval, such that the threatened injury was
imminent. Moreover, the settlement, as noted, has now been finally
approved, and "[a]lthough a plaintiff's standing is 'assessed as of
the time the lawsuit is brought,' post-filing events may confirm
that a plaintiff's fear of future harm is reasonable." Baur v.
Veneman,

352 F.3d 625, 638

(2d Cir. 2003)

(citation omitted).

The remainder of defendants' arguments in support of their
motions to dismiss are claim-specific and addressed in turn.
Defendants argue that Beazley's third cause of action, seeking
indemnification from ACE and INIC for the amounts it has paid or
agreed to pay on behalf of NASDAQ, but for which the defendants are
allegedly principally liable, is not cognizable under New York law.
To state a common law indemnity claim, Beazley must plead a breach
18

of duty by defendants to NASDAQ, as well as a duty running from
defendants to Beazley.

See Perkins Eastman Architects, P.C. v.

Thor

of action for common-law indemnification can be sustained only if:
(1)

the party seeking indemnity and the party from whom indemnity is

sought have breached a duty to a third person, and (2)

some duty to

indemnify exists between them."). "[A] valid claim for indemnity
requires, at the very least, that the party seeking indemnification
was held liable to the injured party." Tokio Marine & Nichido Fire

Ins.

Co. v. Calabrese, 2013 WL 752259, at *19

(E.D.N.Y. Feb. 26,

2013). Beazley has not pleaded a duty running from defendants to
Beazley, nor has it even briefed the elements of the claim.
Moreover, according to its own pleading, Beazley has not been "held
liable" to any injured party -- rather it pleads that "it has no
obligation to [NASDAQ] under the Beazley Policy in connection with
the CAC." Compl.

~

64. As such, the claim is fatally deficient.

Furthermore, the two cases Beazley cites in support of the
viability of its indemnity claim are both unavailing. Clarendon

National Insurance Co. v. Hartford Insurance Co., 1998 WL 230936
(S.D.N.Y. May 8, 1998) involved an insurer suing a co-insurer for
reimbursement of payments to the insured that were covered under
defendant insurer's policy but not plaintiff's,

id. at *l, but the

court never so much as used the term "indemnification." Nor did the
court address the elements of a claim for common law indemnification

19

or confront an argument that New York law did not recognize the
claim as pleaded.
DedLJ_ey

dl_::;u

C1-Le::;

d

ca::;e

J_jj

Wlll.Cll

f"\J_\.:J

.LC_l_llllJU.L;:>CU

Clll

l.ll;:>ULCU

roughly $4 million under a theft insurance policy, while defendantinsurer disclaimed coverage. Luvata Buffalor Inc.
Ins.

Co. of Canada,

2010 WL 826583, at *1

v. Lombard Gen.

(W.D.N.Y. March 4, 2010),

report and recommendation adopted sub nom. Luvata Buffalor Inc.
AIG Europer S.A.,

2010 WL 1292301

v.

(W.D.N.Y. Mar. 29, 2010). AIG

sought indemnification from defendant-insurer for its failure to
reimburse or indemnify it for any portion of insured's loss, arguing
that defendant was the primary insurer for the loss and that AIG was
the excess insurer. 2010 WL 826583, at *2-3. The court held that
"[w]hether AIG and Lombard are considered co-primary insurers of the
loss, or whether AIG is considered to provide excess coverage to
Lombard's primary policy for this loss, AIG has standing to seek
indemnification against Lombard." Id. at *3. However, the cases the
court cited in support of that holding were recognizing a cause of
action for contribution between co-insurers that were liable for the
same loss.

Id. The case is further distinguishable because AIG did

not argue that its policy did not cover the loss at issue per se,
but rather that its coverage was excess of a primary insurer's that
had wrongfully disclaimed coverage. Thus,

Luvata is inapposite, and

the Court finds that New York law does not recognize a cause of
action at common law for "indemnification" between insurers under

20

these circumstances. As such, Beazley's third cause of action is
dismissed.
l::leazJ.ey' s

pOSlLlOn,

as

IlOLeu,

_l_::S

-LildL

_l_L

lld::;

llU

UlJ_j__J_YdL_l_U!l

[NASDAQ]

under the Beazley Policy in connection with the CAC."

Compl.

LU

64. However, with its fourth case of action for

~

contribution, Beazley contends that "in the alternative
Beazley and the Defendants insured the same risk [such] that they
both are obligated to pay defense costs and indemnify the NASDAQ
Parties in connection with the CAC." Id.
Under New York law,

"when several insurers cover the same risk

and payment for loss has been made by one, that carrier has a right
to pro rata contribution from other insurers." State of N.Y.

Blank,

27 F.3d 783,

793

(2d Cir.

1994)

(citation omitted),

v.

abrogated

on other grounds by Ment Bros.

Iron Works Co. v.

Interstate Fire &

Cas. Co., 702 F.3d 118, 121-22

(2d Cir. 2012). Defendants argue that

they do not insure NASDAQ against the "same risk" as Beazley does,
because Beazley provides NASDAQ with E&O coverage while defendants
provide NASDAQ with D&O coverage. Moreover, ACE adds, Beazley
provides NASDAQ with excess-layer coverage while ACE provide NASDAQ
with primary coverage.
The Court agrees with Beazley that both insurance policies need
only be triggered by the same underlying event or action in order
for a claim for contribution to lie.

Vigilant Insurance Co.,

In National Casualty Co. v.

466 F. Supp. 2d 533

(S.D.N.Y. 2006),

defendant-insurer similarly argued that plaintiff-insurer's policy
21

did not insure against the "same risk" as defendant's because
defendant-insurer had a duty to defend while plaintiff-insurer had a
auL.y

L.O

reimDur::H:o

1-UL

(..l(jl_t;IJ::Jt:

cu::;L::;.

J..U.

ctL

;_;qu-LJ..L.

JVJULt::::UVt::::L'

plaintiff-insurer's policy covered "publishing and advertising
liability," while defendant-insurer's policy covered directors' and
officers' liability.

Id. at 537. The court rejected the defendant's

argument, however, holding that "[t]o the extent the 'same risk'
requirement applies at all in the context of defense obligations, it
requires only that both policies be triggered by the same underlying
lawsuit." Id. at 541; see also Nat'l Union Fire Ins.
Pittsburgh, Pa. v. Hartford Ins.
(N.Y. App. Div. 1st Dep't 1998)

Co. of Midwest,

Co. of

248 A.D.2d 78, 84

("The fact that the Hartford policy

was a commercial general liability policy, much broader than
National Union's, does not establish that the policies did not
insure the same risk.").
Significantly, such a rule serves the purposes of contribution,
which is "is to accomplish substantial justice by equalizing the
common burden shared by coinsurers, and to prevent one insurer from
profiting at the expense of others." Everest Nat.
Evanston Ins.

Co., 2011 WL 534007, at *4

Ins.

Co. v.

(D. Nev. Feb. 8, 2011)

If

both the E&O policies and the D&O policies are triggered by the
Facebook Class Action, it would confer a windfall on defendants to

22

allow them to escape pro rata contribution simply because their
policies are triggered for different reasons.
A::S

lUL

A\;!:,'

::s

dL':JU!llellL

LlldL

..LL

..lll::SULe::S

d

13

U...llJ:eLeJJL

than Beazley, the cases it relies on are inapt.

ievei

UL

L..l::SJ\.

United States

Fidelity & Guaranty. Co. v. American Re-Insurance Co., 20 N.Y.3d 407
(2013)

involved the interpretation of an "other insurance" clause

and had nothing to do with whether insurers at different levels of
risk are immunized from contribution to one another. The others
involved the issue of whether an excess insurer was required to
contribute prior to the exhaustion of a lower-level policy and
related issues of priority between insurers.

Ins.

Co. v. Emp'rs Ins.

(S.D.N.Y.

2004)

Co. of Wausau,

See Philadelphia Indem.

318 F. Supp. 2d 170, 173

("[T]he cases that recognize an exception to the

rule of ratable contribution [under New York law]

concern how

to effectuate excess clauses that disclose an intent to trump other,
merely general, excess clauses."). While Beazley may or may not
ultimately be entitled to contribution,

its contribution claim is

adequately pleaded.

13 Admittedly, defendants' position that their policies do not cover
the "same risk" as the E&O policies has some surface appeal given
that the E&O policies cover risk "solely in rendering or failing to
render Professional Services," while the D&O policies preclude
coverage for any claim "by or on behalf of a customer or client of
[NASDAQ]
. arising out of, or attributable to the rendering or
failure to render professional services." The policies need not be
mutually exclusive, however. If a claim were brought against NASDAQ
by a non-customer or non-client arising out of the rendering of or
failure to render "professional services" -- within the meaning of
both the E&O and D&O policies -- such a claim would be covered by
both Beazley's and defendants' policies.

23

The Court also rejects defendants' attempt to dismiss Beazley's
fifth cause of action for breach of contract in its capacity as an
dSSl_C:Jilee

Ul

NA::SUAQ'

s

CUI1LLdCLUd1-

L1-C:JI1L::;

dC:Jd1-n::;L

aerendaflLS.

Defendants first argue in this regard that the ACE D&O Policy's
"anti-assignment" clause renders NASDAQ's assignment of its rights
to Beazley invalid. That clause provides that "[n]o .

. assignment

of interest under this Policy shall be effective except when made by
a written endorsement to this Policy which is signed by an
authorized representative of the Insurer." Compl., Ex.
However,

D,

§

XXIII.

it is well settled under New York law that anti-assignment

clauses do not prevent an insured from assigning its rights after a
claim has accrued.

Ins.
23,

Co. of Wis.,
1977)

See Tenneco Chems., Inc.
1977 U.S.

v. Emp'rs Mut.

Dist. LEXIS 16759, at *7

Liab.

(S.D.N.Y. Mar.

(holding that "[s]uch clauses do not apply to an

assignment of an insurance claim after the loss has occurred"
because "[t]he purpose of such provisions is to protect the insurer
from any added risks in the event the policy is assigned to a less
cautious entity"). To the extent policies purport to limit post-loss
assignments,

"such assignments are contrary to the public policy of

New York." Id. at *8.
ACE contends, without citation to any pertinent authority,

that

NASDAQ's assignment of its rights to Beazley was a pre-loss
assignment because the settlement of the Facebook Class Action had
not received final court approval at the time Beazley filed this
action. The Court disagrees, as to so hold would disregard the
24

policy animating the distinction New York courts draw between
invalid pre-loss assignments and valid post-loss assignments in the

An assignment could alter drastically the insurer's
exposure depending on the nature of the new
[policyholder] . "No assignment" clauses protect against
any such unforeseen risk. When the loss occurs before the
transfer, however, the characteristics of the [assignee]
are of little importance: regardless of any transfer the
insurer still covers only the risk it evaluated when it
wrote the policy.

Globecon Grp., LLC v. Hartford Fire Ins.
Cir. 2006)
Co.,

(quoting Northern Ins.

955 F.2d 1353, 1358

Co.,

Co. of N. Y.

434 F.3d 165, 171
v. Allied Mut.

(2d

Ins.

(9th Cir. 1992)).

Here, the Facebook Class Action was brought against NASDAQ
prior to NASDAQ's assignment of its rights against ACE and INIC to
Beazley. The Court fails to see how the assignment in any way
affected the value of the claims in the CAC or how defendants are
prejudiced by it. Indeed, NASDAQ assigned its rights to Beazley in
connection with the settlement reached in the Facebook Class Action
on April 22, 2015.

See Compl.

~

5. Thus, ACE and INIC "still cover[]

only the risk [they] evaluated when [they] wrote the policy."

Globecon Grp.,

434 F.3d at 171. 14 Under such circumstances, there is

Perplexingly, INIC appears to argue that NASDAQ's assignment of
rights to Beazley somehow requires INIC to insure against claims
arising under the E&O policies and thereby "imposes new and
increased risks upon the D&O insurers." INIC Opening Br. at 13. To
the contrary, Beazley pleads that NASDAQ assigned its claims against
defendants under the D&O policies to Beazley. It would make no sense
for NASDAQ to have assigned its claims under the E&O policies to
Beazley.

14

25

no basis for treating the assignment at issue as a "pre-loss"
assignment.
l\JexL,

A\..,t.;

dL(,jUe::>

LllclL

Liie

yL

j[l_L_l..L..LUil

LeLellL..LUll

..Lll

Lllt::

ft\,_,L

U()(V

Policy constitutes a condition precedent to coverage that has not
been satisfied, such that Beazley's breach of contract claim must
fail. The relevant provision provides that, "the liability of [ACE]
shall apply only to that part of Loss which is excess of the
applicable Retention amount .

. Such Retention shall be borne

uninsured by the Insureds and at their own risk." Compl., Ex. D,
§

VIII. But this provision is not a condition precedent to coverage.

That ACE is only liable for loss in excess of the retention does not
mean that its liability only attaches upon payment of the retention.
It would be perverse if an insurer could escape coverage because its
insured had sensibly not paid a retention following the insurer's
wrongful denial of coverage.
Finally, defendants contend that Beazley has failed to plead
the elements of a breach of contract claim. "Under New York law, an
action for breach of contract requires proof of
performance of the contract by one party;
party; and (4)
F.3d 522,

525

(3)

damages." See Rexnord Holdings,
(2d Cir. 1994)

(1)

a contract;

(2)

breach by the other

Inc.

v. Bidermann, 21

(footnote omitted).

ACE contends that Beazley fails to allege the precise date,
scope, or content of the purported assignment such that the Court
can determine whether the assignment is valid and whether Beazley
has standing to bring the claim. ACE cites no apposite case in
26

support of the proposition that Beazley need plead the assignment
with such specificity to survive a motion to dismiss.
LDe

assignment:..

l::i

IlUL

Liie

LeleVdllL

CUJ!LLdCL

dL

_i_::;::;ue

In any case,
LUL

],JULJ,Ju::;e::;

UL

the "contract" element of the claim. To the extent discovery reveals
that the assignment of rights was somehow ineffective, defendants
may pursue this argument on summary judgment.
INIC,

for its part, argues that Beazley fails to identify a

provision of the D&O policies that was breached, but this contention
overlooks that Beazley's entire theory of the case is that
defendants wrongfully denied coverage for covered claims under the
D&O policies.
As to performance, ACE repackages its argument that NASDAQ
failed to satisfy the retention under the ACE D&O Policy, which,
according to ACE,

is a condition precedent for coverage. This

argument fails for the reasons stated above.
As to breach, ACE claims that Beazley has failed to plead breach
because ACE has not breached. This circular argument is entirely
dependent on the applicability of the ambiguous Professional
Services exclusion, which the Court has already found to be an
insufficient basis on which to dismiss the complaint at the
pleadings stage. Moreover,

it would appear ACE did breach its policy

in light of its failure to advance defense costs to NASDAQ that the
Court has now held it was obligated to advance.
As to damages, ACE contends that NASDAQ is being provided
coverage by its E&O insurers and thus has no suffered no damages.
27

Beazley, as NASDAQ's assignee,
than its assignor,

cannot stand in a better position

so if NASDAQ has no damages on a breach of

contract Claim agalnS-C Cielenc:tanL::>,
assignee.

t5ectLley

llct::>

!JU

Uctlltctye;:,

a;:,

J_Lo

See Int'l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc.,

36

N.Y.2d 121, 126 (1975). While Beazley's pleading in this regard is
somewhat bare,

it is certainly plausible that NASDAQ will not be

made whole by its E&O insurers and,
result of the defendants'

thus,

has suffered damages as a

allegedly wrongful disclaimers of

coverage. If discovery reveals that this is not the case, defendants
may have a summary judgment argument; but the Court declines to
dismiss the claim on this basis at this early stage.
In summary,
dated October 20,

for the foregoing reasons,

the Court, by Order

2015, granted summary judgment against ACE on

Count One, dismissed Count Three with prejudice, dismissed Counts
Four and Five as against INIC

(but not ACE) without prejudice, and

otherwise denied defendants' motions to dismiss.
Dated:

J<Jf. 4/]di:

New York, NY
December~'

2015

28

S. D. J.