Keller Foundations, LLC et al v. Zurich American Insurance Company

Filing 38

OPINION & ORDER re: 31 MOTION to Dismiss the Amended Complaint filed by Zurich American Insurance Company. For the foregoing reasons, the Court dismisses the Amended Complaint in its entirety for failure to state a claim. This dis missal is with prejudice to Keller's and HBI's right to re-plead claims against Zurich based on facts and circumstances existing as of the date of the Amended Complaint. It is, however, without prejudice to (1) Keller Group's right t o refile, as it has been dismissed for lack of standing, and (2) all plaintiffs' right to bring claims against Zurich based on later arising events (e.g., a refusal by Zurich to pay claims under the Policy or to defend plaintiffs against claims covered by the Policy). The Clerk of the Court is thus respectfully directed to terminate the motion pending at Dkt. 31 and to close this case. SO ORDERED. (Signed by Judge Paul A. Engelmayer on 3/28/2018) (anc)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
KELLER FOUNDATIONS, LLC, HAYWARD BAKER, :
INC., and KELLER GROUP, PLC.,
:
:
Plaintiffs,
:
:
:
-v:
ZURICH AMERICAN INSURANCE COMPANY,
:
:
Defendant.
:
:
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3/29/2018

16 Civ. 6751 (PAE)
OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:
Plaintiffs Keller Foundations, LLC (“Keller”), Hayward Baker, Inc. (“HBI”), and Keller
Group, PLC (“Keller Group”) bring claims against defendant Zurich American Insurance
Company (“Zurich”) for breach of contract and breach of the contractual and statutory implied
covenants of good faith and fair dealing. The Court previously dismissed plaintiffs’ complaint
for failure to state a claim. The dismissal was without prejudice, and plaintiffs have since
repleaded their claims. Zurich now moves again to dismiss plaintiffs’ Amended Complaint for
failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
This suit arises out of Zurich’s 2013 settlement with a third party under an insurance
policy between plaintiffs and Zurich. Plaintiffs claim, as before, that Zurich did not have the
authority under the insurance policy to enter into the settlement agreement with the third party,
and that Zurich unlawfully damaged plaintiffs by doing so. Zurich counters that it was permitted
to settle with the third party under the Policy, and that, in any event, its decision to do so did not
violate plaintiffs’ rights under the policy or harm them.

1

For the reasons that follow, Zurich’s motion is granted, but without prejudice to
plaintiffs’ ability to bring an amended complaint or a new lawsuit against Zurich to the extent
that factual developments postdating the Amended Complaint so justify.
I.

Background
A.

Factual Background 1
1.

The Parties

Keller is a Delaware limited liability construction company that maintains its principal
place of business in Hanover, Maryland. Dkt. 28 (“Amended Complaint” or “AC”) ¶ 3.
HBI is a Delaware construction services corporation that maintains its principal place of
business in Hanover, Maryland. Id. ¶ 4.
Keller Group is a public limited ground engineering company organized under the laws
of the United Kingdom that maintains its principal place of business in London, England. Id.
¶ 5. Keller Group is the parent company of both Keller and HBI. Id. ¶ 6. It is also the parent of
Capital Insurance Company (“Capital”), a “captive reinsurer” 2 that is fully funded by Keller
Group, id. ¶ 28, but which is not a party to this action.
Zurich is an insurance company organized under the laws of New York that maintains its
principal place of business in Schaumburg, Illinois. Id. ¶ 7.

1

The facts related herein are drawn from plaintiffs’ Amended Complaint and the attached
exhibits. See DiFolco v. MSNBC Cable LLC, 662 F.3d 104, 111 (2d Cir. 2010) (“In considering
a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may
consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint.”). The Court accepts all factual
allegations in the Amended Complaint as true, drawing all reasonable inferences in plaintiffs’
favor. See Koch v. Christie’s Int’l PLC, 699 F.3d 141, 145 (2d Cir. 2012).
2

A “captive reinsurer” is owned by an entity which, directly or indirectly, is a source of some or
all of the risks reinsured.
2

2.

The Policy

Zurich issued a commercial general liability policy, No. GLO 3373933–06, effective June
1, 2009 to June 1, 2010. Id. ¶ 22, Ex. A (the “Policy”). Construction companies Keller and HBI
were named insureds under the policy, but their parent, Keller Group, was not. Id. ¶¶ 22–23.
Under the terms of the Policy, Zurich was to provide insurance coverage to Keller, HBI, and
other named insureds—as well as to certain additional insureds not specifically named in the
Policy—for claims of property damage or bodily injury. Id. ¶¶ 22–24. Specifically, the Policy
required Zurich to:
[P]ay those sums that the insured becomes legally obligated to pay as damages
because of “bodily injury” or property damage” to which this insurance applies.
We will have the right and duty to defend the insured against any “suit” seeking
those damages.
Policy at 51.
The Policy also stated that Zurich “may, at [Zurich’s] discretion, investigate any
‘occurrence’ and settle any claim or ‘suit’ that may result.” Id. The Policy provided limits of
liability in the amount of $5 million per occurrence, and $5 million in the aggregate. Id. at 18.
3.

The Reinsurance Agreement

A portion of Zurich’s risk under the Policy was covered by a “captive reinsurance
agreement” issued by Capital. AC ¶ 25; id., Ex. B (the “Reinsurance Agreement”).
The Reinsurance Agreement provided that Capital would reimburse Zurich £450,000 per
loss on the Policy in excess of a £50,000 deductible. AC ¶ 27; Reinsurance Agreement at 1.
4.

The Diaz/HBI Suit

In May 2009, HBI entered into a contract (the “Contract”) with Diaz Fritz Isabel
(“Diaz”), to serve as a subcontractor at the University Community Hospital Carrollwood
Surgery/ICU expansion project in Tampa, Florida (the “Project”), where Diaz was a general

3

contractor. AC ¶ 15. In August 2009, groundwater seeped into the existing portions of the
hospital, causing damage to the Project. Id. ¶ 16. On August 5, 2011, Diaz sued HBI for breach
of contract relating to the flood damage. Id. ¶ 17. HBI asserted counterclaims for money that it
claimed it was owed for its work as subcontractor. See The Diaz/Fritz Group, Inc. (d/b/a/ Diaz
Fritz Isabel) v. Hayward Baker, Inc., Case No. 11 09772, Circuit Court of the Thirteenth Judicial
Circuit in and for Hillsborough County, Florida (the “Diaz/HBI Suit”); AC ¶¶ 17–21.
5.

The Diaz/Zurich Suit and the Settlement Agreement

On December 20, 2011, Diaz, through its counsel, made a demand by letter to Zurich for
indemnity and defense, claiming to be an additional insured under the Policy. AC ¶ 35. On
February 10, 2012, Zurich, through its counsel, replied by letter, denying Diaz additional insured
coverage under the Policy. Id. ¶ 36.
On February 15, 2012, Diaz filed a lawsuit against Zurich. See The Diaz/Fritz Group,
Inc. v. Zurich American Insurance Company, No. 12 Civ. 716 (RAL) (EAJ), (M.D. Fla., filed
Apr. 4, 2012) (the “Diaz/Zurich Suit”); AC ¶ 37. The Diaz/Zurich Suit was later removed to the
United States District Court for the Middle District of Florida, Tampa Division. Id. ¶ 38.
In the Diaz/Zurich Suit, Diaz alleged, inter alia, that it was entitled to additional insured
coverage under the Policy with respect to the damages allegedly caused by HBI’s breach of
contract. Zurich filed a counterclaim seeking, inter alia, a declaration in Zurich’s favor to the
effect that Zurich had no duty under the Policy to defend or indemnify Diaz. Id. ¶ 43. Diaz
moved for summary judgment on Zurich’s counterclaim. The district court denied that motion.
See Opinion at 4.
The Diaz/Zurich suit was then referred for mediation. A settlement (the “Settlement
Agreement”) resulted, under which Zurich paid Diaz $450,000 in exchange for “full satisfaction
of all claims which were or which could have been brought by [Diaz] against [Zurich] in [the
4

Diaz/Zurich Suit] and any ensuing bad faith action.” AC ¶ 45. In the Settlement Agreement,
Diaz acknowledged “that [HBI] intends to seek a dollar-for-dollar setoff of the money paid
hereunder against claims made by [Diaz] against [HBI] in the litigation between them. [Diaz]
retains the right to contest that and nothing in this agreement shall affect the claims and defenses
of either party in the [Diaz/HBI Suit].” Id.
After Zurich paid the settlement amount to Diaz, Zurich submitted a reinsurance claim
for indemnification and legal expenses to Capital under the Reinsurance Agreement. Capital
elected to pay Zurich on that reinsurance claim. Id. ¶¶ 52–54. As a result of that payment,
plaintiffs here allege, Capital became obligated to, and did, reimburse Zurich for the settlement
payment, and “had no discretion to decline reimbursement to Zurich.” Id. ¶ 55–56. Because
Capital is fully funded by Keller Group, plaintiffs further allege Keller Group then was obligated
to reimburse Capital for the amount paid to Zurich, again with a lack of discretion to decline. Id.
¶ 57. Keller and HBI subsequently reimbursed Keller Group for a portion of the amounts
reimbursed to Capital, and Keller further paid a £50,000 deductible towards the payment to Diaz.
Id. ¶¶ 59–60.
B.

Procedural History of this Case

On August 26, 2016, plaintiffs filed the complaint, which challenged Zurich’s decision to
settle with Diaz. Dkt. 1 (“Complaint”). It brought claims for breach of contract, breach of
contractual duty of good faith and fair dealing, and statutory bad faith. Complaint ¶¶ 46–59. It
sought declaratory relief, money damages, and attorneys’ fees and costs. Id. at 11–12.
On October 28, 2016, Zurich filed a motion to dismiss, Dkt. 14, and a memorandum of
law, Dkt. 15, and declaration, Dkt. 16, in support. Zurich argued that it was at liberty under the
Policy to settle with, and pay funds to, Diaz; that, as a matter of law, it did not breach the terms
of the Policy by doing so; and that, in any event, it cannot be liable to plaintiffs for doing so. On
5

December 2, 2016, plaintiffs filed a brief in opposition. Dkt. 16. On December 23, 2016, Zurich
filed a reply brief, Dkt. 22, and a declaration, Dkt. 23, in further support of its motion to dismiss.
On May 4, 2017, this Court granted Zurich’s motion to dismiss the Complaint in its
entirety for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Dkt. 26
(“Opinion”). The Court held, on the facts pled, that Zurich had not breached any specific
contractual obligation to the named insureds; that Keller Group lacked standing to sue Zurich
under the Policy; that the Complaint failed to allege the necessary elements of a claim for breach
of the implied duty of good faith and fair dealing; and that there was no cause of action for
statutory bad faith under the Delaware Unfair Trade Practices Act. Id. The Complaint was
dismissed without prejudice to plaintiffs’ right to re-plead claims against Zurich. Id. at 14.
On August 15, 2017, plaintiffs filed the Amended Complaint. See AC at 1. As before,
the Amended Complaint challenges Zurich’s decision to settle with Diaz. It again brings claims
for breach of contract; breach of contractual duty of good faith and fair dealing; and statutory bad
faith. Id. ¶¶ 61–88. The principal changes between the earlier and new complaints are that the
Amended Complaint alleges more facts regarding the Captive Reinsurance Agreement’s funding
structure and plaintiffs’ repayment obligations under it, id. ¶¶ 26–30, regarding the obligations
imposed by the Diaz/Zurich settlement, id. ¶¶ 55–60, regarding HBI’s demand for coverage
under the Policy, id. ¶¶ 31–34, and regarding the harm plaintiffs suffered from the alleged
breach, id. ¶¶ 71, 78; The Amended Complaint also brings separate breach of contract claims
against Zurich for breach of contract with Keller and HBI, id. ¶¶ 61–70; identifies Keller Group
as an intended third-party beneficiary of the Policy, id. ¶¶ 72–78; and alleges that plaintiffs could
not reasonably have anticipated Zurich’s settlement with Diaz, id. ¶ 82. Plaintiffs again seek
declaratory relief, money damages, and attorneys’ fees and costs. Id. at 15–16.

6

On September 29, 2017, Zurich filed a motion to dismiss the Amended Complaint, Dkt.
31, and a memorandum of law, Dkt. 32 (“Def. Br.”), and declaration, Dkt. 33, in support. On
October 27, 2017, plaintiffs filed a brief in opposition, Dkt. 34 (“Pl. Br.”). On November 11,
2017, Zurich filed a reply brief, Dkt. 35 (“Def. Reply Br.”), and a declaration, Dkt. 36, in further
support of its motion to dismiss.
II.

Applicable Legal Standards
To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough

facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Where a complaint pleads facts that are
‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and
plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557).
In considering a motion to dismiss, a district court must “accept[ ] all factual claims in
the complaint as true, and draw[ ] all reasonable inferences in the plaintiff’s favor.” Lotes Co. v.
Hon Hai Precision Indus. Co., 753 F.3d 395, 403 (2d Cir. 2014) (quoting Famous Horse Inc. v.
5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010) (internal quotation marks omitted)).
However, this tenet is “inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. “[R]ather, the complaint’s [f]actual allegations must be enough to raise a right to
relief above the speculative level, i.e., enough to make the claim plausible.” Arista Records,
LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (quoting Twombly, 550 U.S. at 555, 570)
(internal quotation marks omitted) (emphasis in Arista Records). A complaint is properly

7

dismissed where, as a matter of law, “the allegations in [the] complaint, however true, could not
raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558.
III.

Discussion
A.

Breach of Contract

As the Court noted in the Opinion, under Delaware law, to establish a claim for breach of
contract, a plaintiff must adequately allege: (1) the existence of an express or implied contract;
(2) the breach of some obligation imposed by that contract, and (3) resulting damages. VLIW
Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). The Amended Complaint
alleges two separate breach of contract claims against Zurich, one brought on behalf of Keller
and HBI and the second brought on behalf of Keller Group.
1.

Keller and HBI’s Claim

Zurich owed two contractual obligations to Keller and HBI: (1) to defend against any suit
seeking damages incurred due to bodily injury or property damage covered by the Policy, and (2)
to repay “sums” for such “damages.” In its earlier Opinion, the Court held that the Complaint
did not allege a breach of either obligation. That is true, too, of the Amended Complaint. While
the Opinion invited plaintiffs in a re-pleading to attempt “to allege more concretely a breach by
Zurich of a specific contractual duty owed them under the Policy,” Opinion at 11, the Amended
Complaint does not do so.
As noted, there are two litigations in which Zurich could have breached its duty to Keller
and HBI: the Diaz/HBI suit and the Diaz/Zurich suit.
The Court first considers the Diaz/HBI suit. The Amended Complaint does not
adequately plead that Zurich breached either of its duties in that suit. It is undisputed that Zurich
has paid, and continues to pay, for HBI’s defense in the Diaz/HBI litigation. Id. ¶ 33. Nor is it
pled that Zurich has breached its contractual duty to defend HBI. Further, the Diaz/HBI suit has
8

not concluded, id., and under Delaware law, a party seeking indemnification may do so only
after the underlying breach of contract claim has been “resolved with certainty.” LaPoint v.
AmerisourceBergen Corp., 970 A.2d 185, 198 (Del. 2009). Any duty to pay indemnity is not
ripe. On the facts pled, Zurich simply has not yet had an opportunity to comply with, or breach,
its duty to repay plaintiffs. Zurich’s conduct in the Diaz/HBI litigation, as alleged, has been
consonant with its obligations under the Policy. This conduct does not support a claim of breach
of contract.
As for the Diaz/Zurich suit, no plaintiff in this action claims to have been a party to that
suit, so Zurich cannot have violated a duty to defend them in the action. See Opinion at 10 n.4
(noting that plaintiffs’ brief in opposition to motion to dismiss had stated that neither HBI nor
Keller was a party to the Diaz/Zurich suit). Plaintiffs also do not allege that Zurich has failed to
repay “sums” for “damages” incurred due to bodily injury or property damage covered by the
Policy in connection with that suit or settlement.
To the contrary, plaintiffs’ objection is to the fact that Zurich paid a claim—Diaz’s.
Plaintiffs argue that this settlement breached the Policy because it paid “costs out of the policy”
which, plaintiffs claim, covered exclusively Diaz’s claims against Zurich for bad faith. As an
initial matter, this characterization of the settlement is demonstrably wrong. On its face, the
settlement covered more than Diaz’s bad faith claim—it covered “all claims which were or
which could have been brought by [Diaz] against [Zurich] in [the Diaz/Zurich Suit] and any
ensuing bad faith action.” AC ¶ 45. In fact, there were no live bad faith claims against Zurich
when the Diaz/Zurich suit was settled; the Florida court had denied Diaz’s requests to amend his
complaint to add claims of bad faith. See Dkt. 33-3 (“Baswell Decl. Ex. C”), Dkt. 33-4
(“Baswell Decl. Ex. D”).

9

Drawing all reasonable inferences in Diaz’s favor, the Court assumes that at least some of
the settlement value was attributable to a potential bad faith claim by Diaz against Zurich. But
even so, plaintiffs do not plausibly claim that the settlement with Diaz breached Zurich’s duties
to them. As the Court previously noted, while the Policy obliges Zurich to pay claims for bodily
injury or property damage, it does not bar Zurich from settling other claims. On the contrary, the
Policy gave Zurich broad discretion to settle any claim, Opinion at 3 (citing Policy at 51), and
did not require Zurich “to notify Keller or HBI of, or obtain their consent to, the settlement of
claims by an alleged third-party insured (such as Diaz),” id. at 9. Therefore, to the extent
plaintiffs fault Zurich for not “ma[king them] aware of the Settlement Agreement until after it
was fully executed,” AC ¶ 50, or obtaining their “consent[]” or “ratifi[cation],” id. at ¶ 51, that
conduct did not violate the Policy.
To be sure, had plaintiffs alleged that Zurich—on account of its settlement with Diaz—
had denied them coverage under the Policy or limited a payout to them on a claim made under
the Policy, Zurich’s use of its settlement with Diaz in this fashion to abridge plaintiffs’ rights
under the Policy might have supported a claim of breach. But, as before, the Amended
Complaint does not allege that Zurich took any such action to plaintiffs’ detriment. Plaintiffs’
conjecture that Zurich may one day treat the Diaz settlement as reducing the pool of “policy
funds” available to settle other claims under Policy does not make out a present claim of a breach
of a contractual duty owed to plaintiffs.
Plaintiffs separately note that Zurich submitted the Diaz settlement (including the portion
attributable to payment on Diaz’s bad faith claim) to Capital for reimbursement under a different
agreement, the Captive Reinsurance Agreement. See AC ¶¶ 53, 55. And, plaintiffs allege,
Capital paid that claim, net of a deductible, purportedly because the Captive Reinsurance

10

Agreement so required. Id. ¶ 55. But plaintiffs HBI and Keller were parties to the Policy, not to
the Captive Reinsurance Agreement. Whether or not the Captive Reinsurance Agreement
required Capital to pay Zurich the sums covered by Diaz settlement, Capital’s payment was
neither a breach of the Policy nor of HBI’s and Keller’s rights under the Policy. See Opinion at
10.
Plaintiffs allege that, as a result of Capital’s obligation under the Captive Reinsurance
Agreement to reimburse Zurich, Keller and HBI indirectly became required to pay money to
Keller Group, causing each of them financial injury. Specifically, the Amended Complaint
alleges, “[b]ecause Capital is fully funded by Keller Group, Keller Group was obligated to
reimburse Capital for the amounts Capital reimbursed to Zurich,” id. ¶ 57, and “[p]ursuant to
their obligations, Keller and HBI each reimbursed Keller Group for a portion of the amounts
Keller Group reimbursed to Capital,” id. ¶ 59, and “[p]ursuant to its obligations, Keller also paid
a GPB [sic] 50,000 deductible toward the settlement payment to Diaz,” id. ¶ 60. But the
obligations of Keller and HBI to reimburse Keller Group for its payments to Capital do not
derive from the Policy. They derive from the Captive Reinsurance Agreement, id. ¶ 27, which
requires Capital to reimburse Zurich, and from unstated sources (presumably agreements among
the affiliated entities Capital, Keller Group, Keller, and HBI) that required Keller Group to
reimburse Capital, id. ¶¶ 28–29, and Keller and HBI to reimburse Keller Group, id. ¶ 30.
To the extent Keller and HBI are aggrieved by this chain of events, their grievances do
not arise under the Policy, but under the Captive Reinsurance Agreement, to which plaintiffs are
not parties. And plaintiffs’ grievances are ultimately not with Zurich, but with Capital, as the
Court has recognized. See Opinion at 10. As the Court earlier explained: “Capital was at liberty
to dispute whether Diaz’s claims were within the coverage of the Policy, and on that ground to

11

resist reimbursing Zurich the $450,000. On the pleadings, Capital appears not to have done so.”
Id. As the Court further noted: “Plaintiffs are at liberty now, of course, to resist paying Capital
the deductible on the grounds that Capital had not been obligated to reimburse Zurich.” Id. The
Reinsurance Agreement, which is cognizable on this motion, gave Capital the ability to resist
Zurich’s request for reimbursement on the grounds that Zurich’s payment to Diaz (in whole or
part) fell outside the Policy. Under it, Capital was obliged to repay Zurich for “payments made
by the Company, provided they are within the terms, conditions and limits of this Agreement,”
Reinsurance Agreement 4, Clause 6 (emphasis added), and the Agreement in turn applies only to
“liability assumed by the Company under the terms and conditions of the Original Policies,” id.
at 3, Clause 2. If Capital believed Zurich had wantonly paid money under the Settlement
Agreement, i.e., that its payment to Diaz was outside of the Policy’s coverage, Capital thus was
at liberty under the Reinsurance Agreement to dispute its duty to reimburse Zurich on the ground
that Zurich’s payment to Diaz was not “within the terms, conditions and limits” of the Policy. 3
On the facts pled, Capital’s election to pay Zurich was the ultimate source of Keller Group’s
(and derivatively, Keller’s and HBI’s) repayment obligations. AC ¶¶ 26–30. Had Capital
contested Zurich’s request for reimbursement, Keller and HBI might not have undertaken their
obligation to repay Keller Group. It was thus not an error on Zurich’s part that resulted in
Keller’s and HBI’s damages. It was Capital’s decision to treat this payment as falling within the

3

Not only did the text of the Reinsurance Agreement give Capital the right to resist Zurich’s
request for reimbursement—under principles of English law (which governs the Reinsurance
Agreement, see Reinsurance Agreement 5, clause 15), reinsurers are bound to repay under a
clause such as Clause 2 of the Reinsurance Agreement only when a settlement is covered by the
underlying insurance policy. See Def. Rep. Br. at 5 (citing Hill v. Mercantile & Gen. Reins. Co.
[1996] 1 W.L.R. 1239 (HL) 1251 (Eng.)).
12

scope of the Reinsurance Agreement which resulted—under agreements to which Zurich was not
a party—in financial consequences to Keller and HBI.
The Court, therefore grants the motion to dismiss Keller and HBI’s breach of contract
claims.
2.

Keller Group

This Court previously held that Keller Group lacked standing to sue under the Policy.
The Court noted that there are four circumstances under Delaware law in which a party may
recover from an insurer under the Policy, but that the Complaint alleged none: (1) the party is a
named insured party; (2) the party is a “third-party beneficiary;” (3) there has been an
assignment of rights from an insured party to the party seeking to sue; or (4) the party is a
judgment creditor of an insured party. Opinion at 8.
In the Amended Complaint, plaintiffs do not allege that Keller Group was a named
insured party, that there was an assignment of rights, or that Keller Group is a judgment creditor
of a named insured party. The Amended Complaint does, however, allege that “Keller Group is
an intended third-party beneficiary of the Policy.” AC ¶ 77. As the Court has noted, under
Delaware law, for a party to be a third-party beneficiary of an insurance policy, the policy must
have “conferred an intended benefit” on the beneficiary, with such conferral being a “material
part” of the Policy’s purpose. Global Energy Fin. LLC v. Peabody Energy Corp., No. 10 Civ.
129 (RRC), 2010 WL 4056164, at *25 (Del. Super. Oct. 14, 2010) (cited in Opinion at 8–9).
Delaware law requires the contracting parties to have “intended the third-party beneficiary to
benefit from the contract.” E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S., 269 F.3d 187, 196 (3d Cir. 2001). Therefore, for Keller to be a third-party
beneficiary under the Policy, as the Court noted, the Policy must have specifically been intended

13

to benefit Keller Group, not simply some third-party beneficiary, and that benefit must have been
a material part of the contract’s purpose. Opinion at 9.
The Amended Complaint attempts to clear this hurdle, but it does so by summarily
pleading the requirements for third-party beneficiary status, without any supporting factual
averments. Thus, the Amended Complaint states, conclusorily, that “Zurich knew, or should
have known” that a material part of Keller’s motivation in purchasing the policy was to benefit
“Keller’s parent company Keller Group.” AC ¶¶ 74–76. It does not state, however, how or why
Zurich knew or should have known of this purpose on Keller’s or HDI’s part. The one fact that
is pled—that Keller Group is Keller’s parent company (AC ¶ 6) and therefore implicitly would
benefit if Keller performed better financially—is insufficient to establish Keller Group as a thirdparty beneficiary. See, e.g., E.I. DuPont, 269 F.3d at 196–97 (“Although DuPont as the parent of
DPC would certainly benefit from the success of DPC, DuPont was not an intended third-party
beneficiary of the Agreement any more than any parent who expects to benefit from the success
of the business ventures of its subsidiary.”); Eastman Chem. Co. v. AlphaPet Inc., No. 09-971LPS-CJB, 2011 WL 6004079, at *8 (D. Del. Nov. 4, 2011) (holding that the mere possibility of a
benefit by virtue of parenthood does not address the necessary question of whether the parties
intended to confer some benefit to the parent company).
Plaintiffs do not make any other factual claims supporting a claim that the parties to the
Policy intended to benefit Keller Group. And on the facts pled, the Court cannot draw the
inference that Zurich knew that benefitting Keller Group, which notably was not one of the
Policy’s 39 named insureds, Policy at 29, was a material purpose for the Policy. The bare
allegations that Zurich knew or should have known Keller Group was an intended beneficiary is
insufficient to establish a plausible claim for relief. See Iqbal, 556 U.S. at 678 (“Threadbare

14

recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.”).
In their brief, plaintiffs make a new argument why Keller Group purportedly has standing
as a third-party beneficiary to sue Zurich under the Policy. The Policy, plaintiffs note, states that
a limited liability company’s members are also insureds. Policy at 41. But this theory fails as a
basis for finding Keller Group an intended third-party beneficiary. The Amended Complaint
nowhere pleads that Keller Group was a “member” of Keller Foundation LLC. It pleads only, as
background, that “Keller and HBI are owned by parent company Keller Group.” AC ¶ 6. And
even if an entity’s ownership of and membership in an LLC were treated as equivalent, the
Amended Complaint, in claiming that Keller Group was an intended third-party beneficiary, see
id. ¶¶ 73–77, does not allege that Keller Group had rights under the Policy provision making
members of LLCs insureds. The Amended Complaint nowhere cites that provision. Instead, the
Amended Complaint’s theory of third-party beneficiary status is exclusively the ipse dixit that
Zurich knew or should have known that Keller’s subjective motive in purchasing the Policy was
to benefit the Keller Group (an entity the Policy nowhere mentions).
Finally, even if the facts pled were adequate to support that Keller Group was an intended
beneficiary of the Policy, the Amended Complaint nowhere pleads, as required by law, that the
benefit conferred to Keller Group was intended by the parties to the Policy “as a gift or in
satisfaction of a pre-existing obligation.” Comrie v. Enterasys Networks, Inc., No. CIV. A.
19254, 2004 WL 293337, at *3 (Del. Ch. Feb. 17, 2004).
For all these reasons, plaintiffs’ new theory fails to support the claim that Keller Group
was an intended third-party beneficiary of the Policy.

15

For avoidance of doubt, to the extent that plaintiffs now imply that Keller Group was, as
a result of its ownership status of Keller, itself an insured, that theory would also fail to secure it
relief under the Policy on the facts pled. The Policy covers general liability. But the Amended
Complaint does not claim that Keller Group—treating it arguendo as an insured—experienced
either for “bodily injury” or “property damage.” AC ¶ 24 (quoting Policy). Instead, plaintiffs’
theory why Zurich’s settlement with Diaz harmed Keller Group is that Keller Group was
contractually obliged to cover certain losses pursuant to an agreement (the Captive Reinsurance
Agreement) with a non-party reinsurer, Capital. Id. ¶¶ 27–29. But plaintiffs have not pointed to
any part of the Policy that required Zurich to compensate an insured for such a contractual
liability.
Therefore, the Court holds, Keller Group lacks standing to sue Zurich under the Policy,
and the claims must be dismissed.
B.

Breach of the Contractual Duty of Good Faith and Fair Dealing

Plaintiffs also bring claims based the contractual duty of good faith and fair dealing. As
the Court earlier noted, under Delaware law, a duty of good faith and fair dealing should only be
implied where “the party asserting the implied covenant proves that the other party has acted
arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party
reasonably expected.” Opinion at 12 (quoting Nemec v. Shrader, 991 A.2d 1120, 1126 (Del.
2010)). The Court earlier observed that the Complaint could satisfy this standard with
allegations of any “developments” or “contractual gaps” in the Policy that “neither party
anticipated” and by showing that Zurich, in the face of those gaps, “acted arbitrarily or
unreasonably” so as to “frustrat[e] the fruits” of the Policy. Id. at 12 (internal citations omitted).

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The Amended Complaint, however, makes no claims of any “contractual gaps” in the
Policy. Instead, it simply alleges that Zurich acted unreasonably and in a manner that plaintiffs
could not have reasonably expected in settling the Diaz/Zurich Suit. AC ¶¶ 81–82. The
Amended Complaint admits that the Policy gives Zurich discretion to settle claims for any
“occurrence,” but it disputes that Diaz’s claims of bad faith against Zurich, to the extent that
these formed a basis for the settlement agreement, were an “occurrence.” Id. ¶¶ 67–68. But
Zurich’s settlement of this claim against it was neither facially unreasonable nor outside
plaintiffs’ realistic anticipation. Whether or not it might reasonably have been expected that
Zurich would pursue reimbursement under the Reinsurance Agreement for such a claim—a
separate question which implicated the interests of Capital, which reimbursed Zurich, and not
plaintiffs, who were not a party to that agreement—it was reasonable for plaintiffs to expect that
a rational economic actor, such as Zurich, might settle, on reasonable terms, a claim of bad faith.
See Nemec, 991 A.2d at 1126 (court must evaluate claimed breach of implied covenant of good
faith based on parties’ reasonable expectations at time of contracting).
In any event, to be actionable as a breach of the implied covenant of good faith and fair
dealing, Zurich’s “unreasonable” behavior would still have had to have frustrated the “fruits of
the bargain” with plaintiffs. See Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del.
2005). An insured party has a cause of action for breach of the implied covenant of good faith
“when the insurer refuses to honor its obligations under the policy and clearly lacks justification
for doing so.” Enrique v. State Farm Mut. Auto. Ins. Co., 142 A.3d 506, 511 (Del. 2016). As
noted earlier, Zurich’s obligations to the insured plaintiffs were not dishonored here. Although
the Amended Complaint broadly complains that Keller and HBI were damaged by Zurich’s
settlement with Diaz, AC ¶ 83, it fails to plead any concrete damage to either (whether by a

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refusal to pay on a claim or to defend them against a suit seeking damages). For this reason, too,
the Amended Complaint fails to state a claim for breach of the implied contractual duty of good
faith and fair dealing.
C.

Breach of Statutory Duty of Good Faith and Fair Dealing

The Amended Complaint reprises in identical terms its predecessor’s claim for statutory
bad faith under the Delaware Unfair Trade Practices Act, 18 Del. C. § 2303 (“UTPA”). Correa
v. Pennsylvania Mfrs. Ins. Co., 618 F. Supp. 915 (D. Del. 1985), which the Court firmly held
inapposite, remains plaintiffs’ sole authority to support their claim. Plaintiffs supply no reason
for the Court to reconsider its holding that the UTPA does not authorize a private right of action.
The Court therefore again dismisses the UTPA claim for failure to state a claim.
D.

Declaratory Judgment

Finally, the Court declines to entertain plaintiffs’ claim for declaratory relief. The Court
did not expressly address this claim in its previous opinion.
District courts may adjudicate a declaratory judgment action only where an “actual
controversy” exists. See 28 U.S.C. § 2201(a). “[The] party seeking a declaratory judgment bears
the burden of proving that the district court has jurisdiction.” E.R. Squibb & Sons, Inc. v. Lloyd’s
& Cos., 241 F.3d 154, 177 (2d Cir. 2001). “That the liability may be contingent does not
necessarily defeat jurisdiction.” Assoc. Indemnity Corp. v. Fairchild Inds., Inc., 961 F.2d 32, 35
(2d Cir. 1992); see also E.R. Squibb, 241 F.3d at 177 (quoting Associated Indemnity). However,
“[w]here liability is contingent, courts in this circuit traditionally examine the ‘practical
likelihood’ that there will be some type of settlement or judgment against the insurer.” Fed. Ins.
Co. v. SafeNet, Inc., 758 F. Supp. 2d 251, 262 (S.D.N.Y. 2010).

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A classic example arises in the insurance context: A claim for declaratory relief is ripe
when a judicial declaration would clarify a dispute over whether an insurance settlement can
count towards an annual insurance cap that is about to be reached. Cf. Fed. Ins. Co., 758 F.
Supp. 2d at 262. Here, however, plaintiffs have not made any allegations that would make such
a claim ripe. Among other things, plaintiffs have not alleged that: (1) Zurich and plaintiffs
actually dispute whether the Diaz settlement, to the extent it covers bad-faith claims that Diaz
could have brought against Zurich, are covered by the Policy; (2) any harm will come to
plaintiffs under the Policy if Zurich treats the Diaz settlement (in whole or in part) as falling
within the Policy—e.g., that there is a cap on payouts under the Policy that would be approached
or crossed were the Diaz settlement treated as covered by the Policy; (3) such cap for the Policy
year in question is likely to be reached; or (4) there are any claims on the Policy that plaintiffs
have made or have any expectation of making. Plaintiffs’ claims do not present any crystallized
case or controversy meriting declaratory relief. The Court, therefore, will not entertain plaintiffs’
claim for such relief. 4
CONCLUSION
For the foregoing reasons, the Court dismisses the Amended Complaint in its entirety for
failure to state a claim. This dismissal is with prejudice to Keller’s and HBI’s right to re-plead
claims against Zurich based on facts and circumstances existing as of the date of the Amended

4

For avoidance of doubt, to the extent that plaintiffs’ claim for declaratory relief is retrospective
in nature—i.e., that it attempts to declare Zurich’s past conduct a breach of contract—there is
also no basis for relief. “Declaratory relief is intended to operate prospectively,” Nat’l Union
Fire Ins. Co. of Pittsburgh, PA. v. Int’l Wire Grp., Inc., No. 02 CIV. 10338 (SAS), 2003 WL
21277114, at *5 (S.D.N.Y. June 2, 2003); it is designed to clarify the parties’ prospective rights
and responsibilities under, for example, a contract. “There is no basis for declaratory relief
where only past acts are involved.” Id.; accord John Wiley & Sons, Inc. v. Visuals Unlimited,
Inc., No. 11-CV-5453-CM, 2011 WL 5245192, at *4 (S.D.N.Y. Nov. 2, 2011).
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