812 F. Supp. 2d 309
S.D.N.Y.2011Background
- RPI seeks declaration of coverage and damages for Hartford breach under Hartford's CrimeShield policy for the period July 31, 2006 to July 31, 2008 (adjusted to 2007 and 2008 by endorsement).
- In September 2004, three RPI employees resigned and stole confidential customer lists; RPI filed a state court action on September 30, 2004 seeking injunctive relief and damages.
- In 2005, due to the theft, RPI terminated its medical staffing operations, signaling a severe and ongoing impact before the policy period.
- The 2006 Policy includes a Discovery Clause requiring loss to be discovered during the Policy Period and an Endorsement adding a separate Insuring Agreement for theft of trade secrets with a unique loss definition and valuation method.
- RPI sent Hartford a May 2007 notice of loss; Hartford denied coverage in October 2007 on multiple grounds, including discovery outside the Policy Period; a Non-Waiver Agreement was executed in November 2008 for further investigation.
- The case was filed July 8, 2010; the court converted Hartford's Rule 12(b)(6) motion to a summary judgment motion and granted judgment for Hartford, applying New York law and interpreting the Policy and Endorsement as unambiguous.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does discovery before the Policy Period bar coverage? | RPI argues discovery and valuation are separate; Endorsement defines loss, but discovery can occur pre-period for valuation later. | Discovery occurred before the Policy Period; thus no coverage under the Policy. | Yes; discovery before the Policy Period bars coverage. |
| Do the Endorsement terms supersede the Policy’s Discovery Clause? | Endorsement alters loss definition and valuation, potentially overriding discovery rules. | Endorsement supplements but does not replace the Discovery Clause; terms read together preserve discovery framework. | No; Endorsement does not supersede the Discovery Clause. |
| Is the Court required to adopt the May 2007 discovery date for loss given the pleadings and proof of loss? | RPI relies on its pleadings and Proof of Loss asserting May 2007 discovery. | Evidence shows discovery occurred in 2004; Policy period starts 2006, so loss is outside coverage. | Yes; discovery occurred before the Policy Period, supporting denial of coverage. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard and burden shifting)
- Sira v. Morton, 380 F.3d 57 (2d Cir. 2004) (notice that conversion to summary judgment may be appropriate when outside pleadings are considered)
- Hernandez v. Coffey, 582 F.3d 303 (2d Cir. 2009) (notice of potential conversion of motion to dismiss into summary judgment)
- Aetna Cas. & Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566 (2d Cir. 2005) (summary judgment evidentiary standards and burden on movant)
- Broad St., LLC v. Gulf Ins. Co., 37 A.D.3d 126 (N.Y. App. Div. 2006) (interpretation of ambiguous vs. unambiguous contract terms in insurance)
- Rickner Commc’ns, Inc. v. Tower Ins. Co., 72 A.D.3d 670 (N.Y. App. Div. 2010) (endorsement and policy terms read together; effect on coverage)