Standard General L.P. v. The Travelers Indemnity Company of Connecticut

Filing 38

OPINION & ORDER re: 24 CROSS MOTION for Summary Judgment filed by The Travelers Indemnity Company of Connecticut, 31 MOTION for Summary Judgment filed by Standard General L.P.: Standard General L.P. ("Standard General") b rings this breach of contract and declaratory judgment action against The Travelers Indemnity Company of Connecticut ("Travelers"). Standard General seeks damages for Travelers' alleged breach of its obligations under a primary commerc ial insurance policy and an excess commercial liability insurance policy. Standard General also seeks a declaratory judgment that Travelers is obligated to defend Standard General in a lawsuit brought by Dov Charney, the erstwhile CEO and Chairman of the Board of Directors of American Apparel, Inc. (the "Charney Action"). Both parties move for summary judgment. Standard General's motion for summary judgment is granted, and Travelers' motion for summary judgment is denied. Th e Clerk of Court is directed to terminate the motions pending at ECF No. 24 and ECF No. 31. The parties are directed to submit a proposed final judgment consistent with this Opinion and Order by August 25, 2017. (Signed by Judge William H. Pauley, III on 8/18/2017) (jwh) Modified on 8/18/2017 (jwh).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
STANDARD GENERAL L.P.,
Plaintiff,
-againstTHE TRAVELERS INDEMNITY
COMPANY OF CONNECTICUT,
Defendant.

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17cv0548
OPINION & ORDER

WILLIAM H. PAULEY III, District Judge:
Standard General L.P. (“Standard General”) brings this breach of contract and
declaratory judgment action against The Travelers Indemnity Company of Connecticut
(“Travelers”). Standard General seeks damages for Travelers’ alleged breach of its obligations
under a primary commercial insurance policy and an excess commercial liability insurance
policy. Standard General also seeks a declaratory judgment that Travelers is obligated to defend
Standard General in a lawsuit brought by Dov Charney, the erstwhile CEO and Chairman of the
Board of Directors of American Apparel, Inc. (the “Charney Action”). Both parties move for
summary judgment. For the following reasons, Standard General’s motion for summary
judgment is granted, and Travelers’ motion for summary judgment is denied.
BACKGROUND
This dispute arises out of two insurance policies issued by Travelers in July 2014
to Standard General as the named insured. Standard General is a New York-based investment
firm “specializing in event-driven management funds and distressed company investments.”
(Travelers’ Response to Plaintiff’s Statement of Undisputed Facts Pursuant to Local Civil Rule
56.1, ECF No. 27 (“Travelers’ Rule 56.1 Response”) ¶ 1.) The first policy is a commercial
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insurance policy that provides coverage for commercial general liability and includes a limit of
$1 million for losses from personal and advertising injury (the “Primary Policy”). The other is
an excess commercial liability insurance policy that provides up to $5 million in coverage for
losses from personal and advertising injury that exceed the applicable coverage limits of the
underlying insurance, which expressly includes the Primary Policy (the “Excess Policy,” and
together with the Primary Policy, the “Policies”).
I.

Operation of the Policies
The Primary Policy provides liability coverage to Standard General during the

policy period of September 1, 2014 to September 1, 2015. (Travelers’ Rule 56.1 Response ¶ 11.)
Specifically, it provides that Travelers “will pay those sums that the insured becomes legally
obligated to pay as damages because of ‘personal injury’ or ‘advertising injury’ to which this
insurance applies.” (See Affidavit of Gail Steiner, ECF No. 33 (“Steiner Aff.”), Ex. 2, at 92.)
Under the Primary Policy, Travelers also has “the right and duty to defend the insured against
any ‘suit’ seeking those damages even if the allegations of the ‘suit’ are groundless, false or
fraudulent.” (Steiner Aff., Ex. 2, at 92.) This duty to defend does not apply to any “‘suit’
seeking damages for ‘personal injury’ or ‘advertising injury’ to which this insurance does not
apply.” (Steiner Aff., Ex. 2, at 92.)
Like the Primary Policy, the Excess Policy insures Standard General during the
same policy period. (Declaration of Thomas A. Martin, ECF No. 26 (“Martin Decl.”), Ex. C, at
4.) Travelers also has “the right and duty to defend any ‘suit’ for damages” payable under the
Excess Policy’s personal injury and advertising injury liability coverage that exceed the limits of
the underlying insurance, “even if any of the allegations of the ‘suit’ are groundless, false or
fraudulent.” (Martin Decl., Ex. C, at 38.) Under both Policies, a “suit” is defined as “a civil

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proceeding in which damages because of . . . [‘personal injury’ or ‘advertising injury’] to which
this insurance applies [is] alleged.” (Travelers’ Rule 56.1 Response ¶ 13; Martin Decl., Ex. C, at
18.)
II.

The Charney Action
On May 7, 2015, Charney brought an action against Standard General and several

of its affiliates in the Superior Court of the State of California. In that lawsuit, Charney asserts
claims for, inter alia, defamation, false light, and “unfair business acts” and “false advertising” in
violation of California’s Business & Professions Code. (See Martin Decl., Ex. E.) The
gravamen of the complaint is that Standard General made certain comments in a December 2014
statement (the “December 2014 Statement”) to the press falsely claiming that American
Apparel’s Board of Directors terminated Charney’s employment as CEO and Chairman of the
Board for cause based on an independent, third-party investigation into his alleged misconduct.
(Martin Decl., Ex. E, ¶¶ 1, 43–44.) The complaint further alleges that Standard General had
“effectively [taken] over American Apparel by and through its control of company stock and the
Board of Directors,” and that it essentially used the investigation as a means both to “reinforc[e]
Charney’s exit from the company and entrench[] Standard General’s control over the same.”
(Martin Decl., Ex. E, ¶¶ 19, 22.)
The December 2014 Statement, by a Standard General spokesperson, purported to
respond to Charney’s interview with Bloomberg Television. In relevant part, it states:
Our objective is to help American Apparel grow and succeed. We
supported the independent, third-party and very thorough
investigation into the allegations against Mr. Charney, and respect
the Board of Director[s’] decision to terminate him based on the
results of that investigation. We believe that American Apparel will
benefit from the leadership of its new CEO, Paula Schneider, and
we are focused on supporting her and American Apparel going
forward.
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(Martin Decl., Ex. E, at Ex. D.) These comments, allegedly part of an “anti-Charney publicity
campaign designed to destroy Charney’s personal and professional reputation,” were
subsequently referenced and republished by worldwide news outlets. (Martin Decl., Ex. E,
¶¶ 43–44.)
On October 30, 2015, the California Superior Court issued a Statement of
Decision granting Standard General’s anti-SLAPP motion to strike the complaint and dismissing
the Charney Action with prejudice. (See Martin Decl., Ex. D.) In finding that Charney failed to
establish that Standard General’s statement was defamatory, the Superior Court reasoned that
“[t]he natural and popular construction that the average reader would give to the statement in its
full context is that it was a commentary on American Apparel’s decision to terminate [Charney],
not a statement about [Charney’s] own conduct or character.” (Martin Decl., Ex. D, at 2.) The
California Court of Appeal affirmed on March 28, 2017. (See Steiner Aff., Ex. 5.) Charney
sought further review by the Supreme Court of California. That appeal is currently pending.
LEGAL STANDARD
Summary judgment is appropriate “if the pleadings, depositions, answers to
interrogatories on file, together with the affidavits, if any, show there is no genuine dispute as to
any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp. v.
Catrett, 477 U.S. 317, 322–23 (1986). The moving party has the burden of demonstrating the
absence of any genuine disputes of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144,
157 (1970). In determining whether summary judgment is appropriate, the court must resolve all
ambiguities and draw all reasonable inferences against the movant. Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). On dueling motions for summary judgment,

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the court must evaluate each party’s motion on its merits and determine whether either is entitled
to judgment as a matter of law. Coutard v. Mun. Credit Union, 848 F.3d 102, 114 (2d Cir.
2017). Where the interpretation of a clear and unambiguous insurance policy is the “sole
question” presented on a motion for summary judgment, “the issue is one of law that may be
decided by the Court upon a motion for summary judgment.” Vill. of Piermont v. Am. Alt. Ins.
Corp., 151 F. Supp. 3d 438, 447 (S.D.N.Y. 2015).
DISCUSSION
As a threshold matter, the Policies do not contain a choice of law provision.
Travelers contends that New York law governs this dispute. Standard General agrees that New
York law could apply, but suggests that California law could also apply. This Court has subjectmatter jurisdiction based on the diversity of citizenship between the parties. A federal district
court sitting in diversity must apply the choice of law rules of the state in which the court sits.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Int’l Bus. Mach. Corp. v.
Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004). In determining what law applies to a
contract dispute, New York uses the “center of gravity” or “grouping of contacts” approach to
determine which forum has the most significant contacts with the matter in dispute. Md. Cas.
Co. v. Cont’l Cas. Co., 332 F.3d 145, 151 (2d Cir. 2003). For insurance contracts, the applicable
law is typically that of the principal location of the insured risk. Liberty Mut. Ins. Co. v.
Fairbanks Co., 170 F. Supp. 3d 634, 642 (S.D.N.Y. 2016). If the policy covers risks in multiple
states, however, then the state of the insured’s domicile (i.e., the insured’s principal place of
business) is “a proxy for the principal location of the insured risk” and is the “controlling factor”
in determining the applicable law. Certain Underwriters at Lloyd’s, London v. Foster Wheeler
Corp., 822 N.Y.S.2d 30, 35–37 (N.Y. App. Div. 2006), aff’d 876 N.E.2d 500 (N.Y. 2007). Here,

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Standard General maintains its principal place of business in New York and operates as a New
York based investment firm. (Travelers’ Rule 56.1 Response ¶ 1.) In addition, the Policies were
both procured by Crystal & Company, a New York broker for Travelers. Accordingly, New
York law applies.
The parties’ summary judgment motions raise one question: Does Travelers have
a duty to defend Standard General in the Charney Action? Standard General advances two
arguments as to why it is entitled to summary judgment: (1) the Charney Action alleges an
“advertising injury” covered under the Policies; (2) even if the Charney Action does not allege
an “advertising injury,” it avers a “personal injury” to Charney, and the Employment-Related
Practices (“ERP”) exclusion in the Policies does not apply. Travelers contends that (1) the
December 2014 Statement does not constitute an “advertisement” that would support a claim for
“advertising injury”; and (2) even if the Charney Action alleges a “personal injury” under the
Policies, those allegations fall within the Policies’ ERP exclusion. Interpretation of the policy
language is central to the parties’ summary judgment motions. Accordingly, this Court turns
first to the applicable legal principles.
I.

New York Insurance Policy Interpretation Principles
Under well-settled law, New York courts resolving disputes over insurance

coverage “first look to the language of the policy.” Selective Ins. Co. of Am. v. Cty. of
Rensselaer, 47 N.E.3d 458, 461 (N.Y. 2016). The threshold question is whether the insurance
policy is ambiguous, which is a matter of law for the court to decide. Law Debenture Trust Co.
of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 465–66 (2d Cir. 2010). A “contract is
unambiguous if the language it uses has ‘a definite meaning, unattended by danger of
misconception in the purport of the [contract] itself, and concerning which there is no reasonable

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basis for a difference of opinion.’” Selective Ins. Co. of Am., 47 N.E.3d at 461 (quotation marks
omitted). Courts must give clear and unambiguous provisions “their plain and ordinary
meaning.” Selective Ins. Co. of Am., 47 N.E.3d at 461. If the meaning of policy language is
“otherwise plain,” it “does not become ambiguous merely because the parties urge different
interpretations in the litigation.” Law Debenture Trust Co. of N.Y., 595 F.3d at 467. But if there
is a reasonable basis for a difference of opinion on the meaning of policy language, then the
language is ambiguous and must be construed in favor of the insured. Selective Ins. Co. of Am.,
47 N.E.3d at 461; see also Liberty Mutual Ins. Co., 170 F. Supp. 3d at 642 (explaining that an
interpretation is “not reasonable if it strains the policy language ‘beyond its reasonable and
ordinary meaning’”).
II.

Whether the Charney Action Alleges an “Advertising Injury”
Standard General asserts that Travelers has a duty to defend because the

allegations in the Charney Action give rise to a covered “advertising injury.” New York courts
have recognized the duty to defend as “exceedingly broad,” and an insurer “must defend
whenever the four corners of the complaint suggest—or the insurer has actual knowledge of facts
establishing—a reasonable possibility of coverage.” Cont’l Cas. Co. v. Rapid-American Corp.,
609 N.E.2d 506, 509 (N.Y. 1993). In other words, the “duty to defend arises whenever the
allegations in a complaint against the insured fall within the scope of the risks undertaken by the
insurer, regardless of how false or groundless those allegations might be.” Seaboard Sur. Co. v.
Gillette Co., 476 N.E.2d 272, 275 (N.Y. 1984). The insurer must defend the entire action “even
if only one claim is potentially covered by the insurance policy.” Vill. of Piermont, 151 F. Supp.
3d at 447. However, if as a factual or legal matter the allegations do not “assert a claim that
conceivably falls within the terms of the policy, no duty to defend arises.” Marvisi v. Greenwich

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Ins. Co., No. 04-cv-6733, 2006 WL 1422693, at *4 (S.D.N.Y. May 23, 2006). Accordingly, in
determining whether Travelers has a duty to defend, this Court compares the allegations in the
Charney Action with the terms of the Policies. See Int’l Bus. Mach. Corp., 363 F.3d at 144.
An “advertising injury” under the Policies includes injury caused by “[o]ral or
written publication, including publication by electronic means, of material in your
‘advertisement’ that slanders or libels a person or organization or disparages a person’s or
organization’s goods, products or services” or that “[u]nreasonably places a person in a false
light.” (See Travelers’ Rule 56.1 Response ¶ 14; Martin Decl., Ex. C, at 24.) An
“advertisement” is defined in turn as a “notice that is broadcast or published to the general public
or specific market segments about your goods, products or services for the purpose of attracting
customers or supporters.” (See Travelers’ Rule 56.1 Response ¶ 15; Martin Decl., Ex. C, at 25.)
Here, there can be no dispute that the Charney Action claims that the December
2014 Statement defamed Charney and placed him in a false light. (See Martin Decl., Ex. E,
¶¶ 47–60.) Instead, the crux of the parties’ disagreement is whether the December 2014
Statement constitutes an “advertisement” by Standard General.1 The definition of
“advertisement” under the Policies is unambiguous and can be interpreted based on its “plain and
ordinary meaning.” Selective Ins. Co. of Am., 47 N.E.3d at 461. To constitute an
“advertisement” under the Policies then, the December 2014 Statement must be (1) about
Standard General’s goods, products, or services; and (2) made for the purpose of attracting
customers or supporters.
Standard General posits that as an investment fund, its services consist of

1

Travelers cites a throng of cases from various jurisdictions interpreting the meaning of “advertising” or
“advertising activities” in the absence of an explicit definition in the applicable policies. But here, the Policies
expressly define “advertisement.” Thus, Travelers’ cases are inapt.

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identifying and investing in distressed companies and making them profitable. Standard
General’s theory is that the December 2014 Statement therefore constitutes an “advertisement”
because it was meant to allay its investors’ concerns regarding American Apparel and to promote
further investment in its fund. This Court declines to adopt Standard General’s interpretation of
the December 2014 Statement. State of N.Y. v. AMRO Realty Corp., 936 F.2d 1420, 1428 (2d
Cir. 1991) (declining to obligate an insurer to extend coverage “based on a reading of the
complaint that is linguistically conceivable but tortured and unreasonable”). While Standard
General’s services may certainly be as it suggests, the December 2014 Statement is not “about”
the “goods, products, or services” that Standard General provides. It does not, for example, tout
the expertise of Standard General’s employees, call attention to its investment services, or
express hope that customers continue to invest in Standard General. See, e.g., Berman v. Gen.
Accident Ins. Co. of Am., 671 N.Y.S.2d 619, 624 (N.Y. Sup. Ct. 1998). Rather, the December
2014 Statement is an informative statement by Standard General sent to press outlets clarifying
the company’s stance on Charney’s employment and the circumstances and propriety of his
termination by American Apparel’s Board of Directors.
Moreover, the parties’ submissions from the Charney Action undercut Standard
General’s position that the purpose of the December 2014 Statement was to attract customers or
supporters. Indeed, the exhibits attached to the Charney Action complaint describe the
December 2014 Statement as an e-mailed statement made in response to Charney’s accusations
of betrayal and foul play by Standard General in orchestrating his ouster. See Northville Indus.
Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 679 N.E.2d 1044, 1049 (N.Y. 1997)
(explaining that a court may “look to formal submissions in the current or underlying litigation to
confirm or clarify the nature of the underlying claims”). Moreover, this Court is not persuaded

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by Standard General’s contention that the purpose of the December 2014 Statement was to
attract customers who were “pulling their money” because they were “expressly concerned about
Standard General’s investment in American Apparel” and its association with Charney. (See
7/14/17 Oral Arg. Hr’g Tr., ECF No. 36, at 7:18–8:16.) While the Charney Action alleges that
Standard General informed Charney that some of its investors had withdrawn their investment
and expressed concern about its association with Charney, these statements were allegedly made
to induce Charney into “settling” with American Apparel in or around June 2014—months
before the December 2014 Statement was released. (See Martin Decl., Ex. E, ¶¶ 18–19.)
Additionally, Standard General points out that the Charney Action includes a
claim for false advertising to support its contention that the December 2014 Statement meets the
Policies definition of “advertisement.” Section 17500 of California’s Business and Professions
Code makes it unlawful for “any person, firm, corporation or association, or any employee
thereof” to publicly make or disseminate an untrue or misleading statement regarding the
disposition of property or performance of services. Cal. Bus. & Prof. Code § 17500. While a
statement that is actionable under § 17500 may conceivably relate to “goods, products or
services,” it does not follow that a complaint that pleads a claim under § 17500 will necessarily
allege a statement “made for the purpose of attracting customers or supporters.” (See Travelers’
Rule 56.1 Response ¶ 15; Martin Decl., Ex. C, at 25.)
The factual averments in the Charney Action do not support a finding that the
December 2014 Statement concerned Standard General’s “goods, products, and services,” or that
it was “made for the purpose of attracting customers.” The mere fact that the underlying action
contains a claim for false advertising does not allow Standard General to circumvent the
Policies’ unambiguous definition of “advertisement.” Parks Real Estate Purchasing Grp., 472

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F.3d 33, 42 (2d Cir. 2006) (“When the provisions are unambiguous and understandable, courts
are to enforce them as written.”). In conclusion, the December 2014 Statement is not an
“advertisement,” and consequently, the Charney Action does not allege an “advertising injury.”
III.

Whether the Employment-Related Practices Exclusion Bars “Personal Injury”
Coverage
Standard General asserts in the alternative that the Charney Action allegations

give rise to a covered “personal injury.” The parties dispute whether the Policies’ ERP exclusion
applies. Under New York law, the insurer bears the burden of demonstrating that a policy
exclusion negates coverage. Seaboard Sur. Co., 476 N.E.2d at 275. To do so, it must show that
the language of the exclusion is “clear and unmistakable,” and that the exclusion is “subject to no
other reasonable interpretation” and applies in the particular case. Seaboard Sur. Co., 476
N.E.2d at 275–76; see also Cont’l Cas. Co., 609 N.E.2d at 512. Exclusions must also be
“accorded a strict and narrow construction,” and may not be “extended by interpretation or
implication.” Seaboard Sur. Co., 476 N.E.2d at 275; Auto. Ins. Co. of Hartford v. Cook, 850
N.E.2d 1152, 1156 (N.Y. 2006). Ambiguities in an insurance policy must be construed against
the insurer, particularly when they are found in an exclusion. Farm Family Cas. Ins. Co. v.
Habitat Revival, LLC, 938 N.Y.S.2d 126, 128 (N.Y. App. Div. 2012).
The Policies define “personal injury” to include injury caused by “[o]ral or
written publication, including publication by electronic means, of material that slanders or libels
a person or organization or disparages a person’s or organization’s goods, products or services,”
or that “[u]nreasonably places a person in a false light.” (See Travelers’ Rule 56.1 Response
¶ 16; Martin Decl., Ex. C, at 24–25.) Both Policies contain an ERP exclusion, which provides in
relevant part that the insurance does not apply to “personal injury” to “[a] person arising out of
any: (a) Refusal to employ that person; (b) Termination of that person’s employment; or (c)
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Employment-related practices, policies, acts or omissions, such as coercion, demotion,
evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination
directed at that person . . . .” (Steiner Aff. Ex. 2, at 84; Martin Decl., Ex. C, at 9.) The Policies
clarify that the ERP exclusion applies “(1) Whether the insured may be liable as an employer or
in any other capacity . . . .” (Steiner Aff. Ex. 2, at 84; Martin Decl., Ex. C, at 9.)
Neither party seriously disputes that the Charney Action alleges a “personal
injury” caused by the December 2014 Statement’s assertion that Standard General “supported the
independent, third-party and very thorough investigation into the allegations against Mr.
Charney, and respect[s] the Board of Director’s decision to terminate him based on the results of
that investigation.” (See Martin Decl., Ex. E, ¶¶ 1, 43–44.) But this does not end the analysis.
Travelers argues that even if the Charney Action alleges a “personal injury,” the Policies’ ERP
exclusion bars coverage because it carves out certain “employment-related” personal injuries
from “personal injury” coverage, whether Standard General is an employer or in any other
capacity. Standard General counters that the ERP exclusion does not apply because (1) there are
no allegations of any former, current, or prospective employment relationship between Standard
General and Charney; and (2) because the allegations that give rise to coverage do not relate to
any employment practices undertaken by Standard General.
Travelers has not satisfied its burden to demonstrate that the ERP exclusion
applies. As an initial matter, the ERP exclusion does not explicitly require any employment
relationship between the injured party and the insured. Rather, the Policies exclude coverage for
“personal injury” to “[a] person arising out of any: (a) Refusal to employ that person; (b)
Termination of that person’s employment; or (c) Employment-related practices, policies, acts or
omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation,

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harassment, humiliation or discrimination directed at that person . . . .” (Steiner Aff. Ex. 2, at 84;
Martin Decl., Ex. C, at 9.) As a matter of law, the ERP exclusion does not “clear[ly] and
unmistakabl[y]” apply to situations where the injured party lacks any employment relationship
with the insured. The Policies do not define the term “person.” Although that term may
certainly be interpreted literally and broadly to mean any individual in the universe who suffers
an employment-related “personal injury,” the term could also reasonably be construed to refer to
only those who have some former, current, or prospective employment relationship with the
insured. The fact that other courts have also construed identical ERP exclusions to apply only to
claims by former, current, or prospective employees of the insured is persuasive in finding that
Standard General’s interpretation is reasonable. E.g., Kelleher v. Admiral Indem. Co., 958
N.Y.S. 2d 308 (Table), 2010 WL 3293715 (N.Y. Sup. Ct. 2010).
Travelers contends that the language stating that the ERP exclusion applies
“[w]hether the insured may be liable as an employer or in any other capacity” is essentially
tantamount to stating that the ERP exclusion applies even when there is no employment
relationship between the insured and the injured party.2 This cannot be the case. The phrase “in
any other capacity” does not clearly and unambiguously indicate that the ERP exclusion applies
when the injured party is not in an employment relationship with the insured. Moreover, reading
this phrase in the manner Travelers suggests is untenable when applied to analogous provisions
in the policy. The Primary Policy contains an “Employer’s Liability” exclusion, which provides
that the policy’s coverage for bodily injury and property damage liability does not apply to

2

Travelers relies on Nat’l Football League v. Vigilant Ins. Co. for the proposition that an insurer could
effectuate its intent for an employment-related exclusion to apply outside a “direct employment context” by
“including language clearly indicating that the exclusion was not limited to the [insured’s] liability as an employer.”
824 N.Y.S.2d 72, 77 (N.Y. App. Div. 2006). But that discussion is non-binding dicta, and in any case, the ERP
exclusion language in this case is neither clear nor unambiguous.

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“[b]odily injury” to “an ‘employee’ of the insured” arising out of certain enumerated
circumstances. (Steiner Aff., Ex. 2, at 58.) Like the ERP exclusion, that exclusion also contains
language stating that it applies “[w]hether the insured may be liable as an employer or in any
other capacity.” (Steiner Aff., Ex. 2, at 58.) If “or in any other capacity” were to mean “or not
as an employer,” the bodily injury exclusion would be internally inconsistent. See RSUI Indem.
Co. v. RCG Grp. (USA), 890 F. Supp. 2d 315, 326 (S.D.N.Y. 2012) (explaining that in
interpreting contracts, including insurance contracts, absurd results should be avoided). Finally,
as other courts have observed, the phrase may “simply mean that the exclusion applies even if an
employee seeks to hold an employer liable in a capacity other than its employer capacity.”
Kelleher, 958 N.Y.S.2d 308 (Table), 2010 WL 3293715, at *4 (citing Forgues ex rel. Martine v.
Heart of Tex. Dodge, 668 N.W.2d 562 (Table), 2003 WL 21801424 (Wis. Ct. App. 2003)).
The language of this ERP exclusion is ambiguous, and both sides have colorable
arguments to support their positions. But exclusions must be interpreted narrowly, and
ambiguities as to the scope of the exclusion construed against the insurer. Thus, Travelers has
not shown that the ERP exclusion is “subject to no other reasonable interpretation.” Seaboard
Sur. Co., 476 N.E.2d at 275. On the other hand, Standard General has articulated a reasonable
interpretation that there must be a former, current, or prospective employment relationship
between Standard General and Charney for the ERP exclusion to apply.
Travelers suggests—for the first time at oral argument—that even if the ERP
exclusion requires a former, current, or prospective employment relationship between the injured
party and the insured, Standard General was the equivalent of an employer by orchestrating
Charney’s termination through American Apparel’s Board of Directors. Standard General
maintains that there are no allegations in the Charney Action that Charney was a former, current,

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or prospective employee of Standard General.
This Court need not consider an argument raised for the first time at oral
argument. See, e.g., Process Res. Corp. v. Delta Air Lines, Inc., No. 98-cv-5648, 2000 WL
145114, at *7 (S.D.N.Y. Feb. 3, 2000) (“The fact that the argument of estoppel was raised for the
first time at oral argument would be reason enough to dismiss it.”); Yesil v. Reno, 958 F. Supp.
828, 844 n.11 (S.D.N.Y. 1997) (declining to consider argument made for the first time at oral
argument). Nonetheless, even if Standard General had the power to indirectly terminate
Charney, it does not follow that Charney was an employee of Standard General as a matter of
law. Cf. Algie v. RCA Global Commc’ns, Inc., 891 F. Supp. 839, 864 (S.D.N.Y. 1994)
(observing that, in the context of the corporate purchase of another corporation’s outstanding
stock, “an employment relationship does not automatically arise between the corporate purchaser
of the shares of another corporation and the employees of the purchased corporation”).
Accordingly, the ERP exclusion is inapplicable.
CONCLUSION
Standard General’s motion for summary judgment is granted, and Travelers’
motion for summary judgment is denied. The Clerk of Court is directed to terminate the motions
pending at ECF No. 24 and ECF No. 31. The parties are directed to submit a proposed final
judgment consistent with this Opinion and Order by August 25, 2017.
Dated: August 18, 2017
New York, New York
SO ORDERED:

_______________________________
WILLIAM H. PAULEY III
U.S.D.J.

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