Keller Foundations, LLC v. Zurich American Insurance Company
1:16-cv-06751
S.D.N.Y.May 4, 2017Background
- Zurich issued a CGL policy (June 1, 2009–June 1, 2010) naming Hayward Baker, Inc. (HBI) and Keller Foundations, LLC (Keller) as insureds; Keller Group PLC (parent) was not a named insured. The policy allowed Zurich broad discretion to investigate and settle claims and had $5 million limits.
- A portion of Zurich’s risk was reinsured by Capital Insurance Company, a captive reinsurer owned by Keller Group; Capital agreed to reimburse £450,000 per loss in excess of a £50,000 deductible.
- Diaz (general contractor) sued HBI in Florida (Diaz/HBI suit). Diaz then sued Zurich (Diaz/Zurich suit) claiming additional-insured coverage and bad faith; Zurich denied coverage and defended its position in litigation.
- Zurich and Diaz mediated and Zurich paid Diaz $450,000 to settle Diaz’s claims against Zurich. Capital reimbursed Zurich under the reinsurance agreement; plaintiffs allege this triggered a £50,000 deductible obligation and altered premium allocations.
- Plaintiffs (Keller, HBI, Keller Group) sued Zurich for breach of contract, breach of the implied covenant of good faith and fair dealing, and statutory bad faith under Delaware law. Zurich moved to dismiss under Fed. R. Civ. P. 12(b)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of Keller Group to sue under the Policy | Keller Group says it was harmed by Zurich’s settlement and resulting reinsurance/allocations | Zurich says Keller Group is not a named insured or intended third-party beneficiary | Keller Group lacks standing; dismissal as to Keller Group affirmed |
| Breach of contract by settling with Diaz | Settlement was outside policy scope (Diaz not an additional insured / claims not covered), so Zurich breached contract and caused damages (deductible, premiums) | Policy gave Zurich discretion to investigate/settle; plaintiffs fail to allege any actual breach of Zurich’s obligations to named insureds or concrete damages | Dismissed for failure to state a claim as to Keller and HBI; plaintiffs may replead with specific contractual breach and concrete damages |
| Breach of implied covenant of good faith and fair dealing | Zurich acted unreasonably/arbitrarily in settling claims outside coverage, frustrating insureds’ expectations | No contractual gap alleged; settlement decision fell within broad contractual discretion and plaintiffs do not allege actual frustration of the bargain | Dismissed; claim not plausibly pled under Delaware’s narrow standard for implying terms |
| Statutory bad faith under Delaware UTPA/UPIB | Plaintiffs assert a private right of action under the statute for insurer bad faith | Delaware law does not recognize a freestanding private right of action under the UTPA/UPIB | Dismissed: UTPA does not provide a private cause of action |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim to survive Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to deference; factual allegations must permit reasonable inference of liability)
- VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606 (Del. 2003) (elements of breach of contract under Delaware law)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (Delaware’s narrow standard for implying an implied covenant of good faith and fair dealing)