EUCHNER-USA, INC., MICHAEL LADD, EUCHNER-USA, INC. 401-K PLAN v. HARTFORD CASUALTY INSURANCE COMPANY
13-2021-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
June 10, 2014
August Term, 2013 (Argued: April 9, 2014 Decided: June 10, 2014)
Before: KEARSE, JACOBS, and LYNCH, Circuit Judges.
Euchner-USA, its Chief Executive Officer Michael Ladd, and the Euchner-USA 401-k Plan appeal from a judgment of the Northern District of New York (McAvoy, J.), granting summary judgment in favor of Hartford Casualty Insurance Company. Hartford denied coverage and refused to defend Euchner in a lawsuit alleging, inter alia, ERISA violations stemming from an alleged misclassification of a former employee as an independent contractor. For the following reasons, we conclude there was a reasonable possibility of coverage and, therefore, Hartford had a duty to defend. As a result, we vacate and remand in part. We affirm the dismissal of Euchner‘s claim brought under
KENNETH R. LANGE (Brendan T. Fitzpatrick, on the brief), Goldberg Segalla LLP, Garden City, NY, for Defendant-Appellee.
DENNIS JACOBS, Circuit Judge:
This declaratory judgment action under New York law involves Hartford Casualty Insurance Company‘s issuance to Euchner-USA of comprehensive general liability insurance with an endorsement covering the company‘s employee benefits program. Hartford has denied coverage and refused a defense as to a suit in which the plaintiff alleged (a) that she was sexually harassed and (b) that she was coerced into accepting a changed status that Euchner improperly classified as an independent sales position, with resulting loss of employee benefits under Euchner‘s 401(k) plan.
Euchner, its Chief Executive Officer (“CEO“) Michael Ladd, and the Euchner 401-k Plan (collectively, “Euchner“) appeal from a judgment of the Northern District of New York (McAvoy, J.), granting Hartford‘s motion for summary judgment on
BACKGROUND
In April 2011, Euchner was sued by former employee Jada Scali. Scali Compl., J.A. at 56-74. Her initial complaint alleged that she was hired as a regional sales manager in 2008, that she was sexually harassed by a senior executive, that she confronted him about his conduct, that she was wrongfully terminated as an employee, that she was coerced into accepting an independent sales position, and that the new position disqualified her from receiving a number of benefits reserved for the company‘s employees. Passim, the initial complaint characterized Euchner‘s conduct as “unlawful,” “fraudulent,” “discriminatory,” and “wrongful coercion.” Id.
Euchner forwarded the complaint to Hartford, which had issued a primary Commercial General Liability policy and an excess policy to Euchner. The policy forms excluded coverage for employment-related practices; but employee benefits liability was covered by an endorsement providing that Hartford would pay “those sums that the insured becomes legally obligated to pay as ‘damages’ because of ‘employee benefits injury’ to which this insurance applies.” Emp. Benefits Liab. Coverage Form, J.A. at 46. “Employee benefits injury” was defined as an “injury that arises out of any negligent act, error or omission in the ‘administration’ of your ‘employee benefits programs.‘” Id. at 51. Coverage was excluded for civil or criminal liability arising out of “[a]ny dishonest, fraudulent, criminal or malicious act.” Id. at 47.
In May 2011, Hartford disclaimed coverage for the Scali action, citing the exclusion for employment-related practices. Euchner does not contest this initial disclaimer and refusal to defend.
In October 2011, Scali filed an amended complaint. The factual allegations were substantially the same as those in the original complaint, but Scali added the Euchner 401-k Plan as a defendant and included causes of action under the Employee Retirement Income Security Act of 1974 (“ERISA“), Pub. L. No. 93-406, 88 Stat. 829. Scali Am. Compl., J.A. at 83, 101-04. The ERISA сlaims alleged that Euchner “improperly classified” Scali as an independent contractor rather than as an employee. Id. at 101-04. As a result of this misclassification, she was allegedly deprived of benefits under Euchner‘s 401(k) plan.
Euchner sent the amended complaint to the insurer, along with additional documents describing Scali‘s relationship with the firm. The amended complaint was reviewed by a litigation consultant at Hartford, who determined the newly-added ERISA claims triggered Hartford‘s coverage under the employee benefits liability endorsement. His supervisor disagreed, however, and Hartford disclaimеd coverage and refused to mount a defense on two grounds: (1) the policy only covered employee claims, whereas Scali‘s Independent Sales Management Agreement established that she had become an independent contractor; and (2) in any event, there was an exclusion for any liability arising out of a
After this second disclaimer of coverage and refusal to undertake a defense, Euchner retained counsel to defend the Scali action and to continue coverage discussions with the Hartford. When Euchner later informed Hartford of an impending settlement of the Scali action, Hartford sent another disclaimer, this time relying on the exclusion for wrongful conduct. In April 2012, Euchner settled the Scali action for a confidential sum.
Euchner commenced this action to determine the rights and obligations of the parties under the insurance policy, and whether Hartford is required to reimburse Euchner for attorney‘s fees and a portion of the Scali settlement amount. Euchner also alleged Hartford‘s actions violated
After discovery, the parties cross-moved for summary judgment. The district court ruled that Hartford had no duty to defend because the policy excluded the intentional conduct alleged in Scali‘s amended complaint, and granted summary judgment in favor of Hartford. The court denied reconsideration in a Decision and Order dated July 8, 2013. See Euchner-USA, Inc. v. Hartford Cas. Ins. Co., No. 5:12-CV-604, 2013 WL 3455733 (N.D.N.Y. July 8, 2013). This appeal followed.
DISCUSSION
We review a grant of summary judgment de novo. Guertin v. United States, 743 F.3d 382, 385 (2d Cir. 2014). “Summary judgment is proper ‘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.‘” Id. (quoting
I
The parties agree that New York law controls whether Hartford had a duty to defend the Scali action. In New York, an insurer‘s duty to defend is “exceedingly broad” and distinct from the duty to indemnify. Auto. Ins. Co. of Hartford v. Cook, 7 N.Y.3d 131, 137 (2006) (quotation marks omitted). “The duty to defend is mеasured against the allegations of pleadings but the duty to pay is determined by the actual basis for the insured‘s liability to a third person.” Servidone Constr. Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419, 424 (1985). “The duty [to defend] remains ‘even though facts outside the four corners of [the] pleadings indicate that the claim may be meritless or not covered.‘” Auto. Ins. Co. of Hartford, 7 N.Y.3d at 137 (quoting Fitzpatrick v. Am. Honda Motor Co., 78 N.Y.2d 61, 63 (1991)) (second alteration in original). “Thus, an insurer may be required to defend under the contract even though it may not be required to pay once the litigation has run its course.” Id.;
“[A]n insurer will be called upon to provide a defense whenever the allegations of the complaint ‘suggest . . . a reasonable possibility of coverage.‘” Auto. Ins. Co. of Hartford, 7 N.Y.3d at 137 (quoting Cont‘l Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 648 (1993)) (ellipsis in original); see also Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443 (2002) (stating the duty to defend arises whenever allegations in a complaint give rise to the “reasonable possibility of recovery under the policy” (quotation marks omitted)); Servidone, 64 N.Y.2d at 424 (stating duty to defend is distinguishable from the duty to indemnify because it is based on thе mere possibility of coverage from the face of the complaint). “If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be.” Auto. Ins. Co. of Hartford, 7 N.Y.3d at 137 (quotation marks omitted). Whether a complaint asserts аdditional claims falling outside the policy is immaterial. See Town of Massena, 98 N.Y.2d 435 at 443-44. “Any doubt as to whether the allegations state a claim within the coverage of the policy must be resolved in favor of the insured and against the carrier.” Brook Shopping Ctr. v. Liberty Mut. Ins. Co., 80 A.D.2d 292, 294 (N.Y. 1st Dep‘t 1981) (citation omitted).
Hartford‘s policy covered “employee benefits injury,” defined as an “injury that arises out of any negligent act, error or omission in the ‘administration’ of [Euchner‘s] ‘employee benefits programs.‘” Emp. Benefits Liab. Coverage Form, J.A. at 46, 51. The operative allegations of Scali‘s amended complaint are that Euchner misclassified her as an independent contractor rather than an employee, thus depriving her of pension benefits under the 401(k) plan. The parties do not dispute that the 401(k) plan is an “employee benefits program” under the policy. The decisive issue is whether there was a reasonable possibility that Scali‘s ERISA claims arose (A) from negligence in (B) administering the 401(k) plan.
A
Scali‘s ERISA claims raised a reasonable possibility of negligence on Euchner‘s part. It was alleged only that Euchner misclassified her position; it was not alleged whether this misclassification was done intentionally or negligently. The complaint contained allegations that bespeak maliсe; but none of Scali‘s ERISA claims alleged that Euchner improperly classified her with the purpose of interfering with her retirement benefits. Nowhere in the amended complaint, for example, did Scali allege that Euchner violated ERISA Section 510,
The amended complaint alleged that Euchner “unlawfully and with discriminatory intent terminated Plaintiff as an employee and fraudulently, unwillingly and wrongfully coerced Plaintiff into entering into an Independent Sales Manager Representative Agreement.” Scali Am. Compl., J.A. at 87-88. But as to the ERISA classification, it was alleged only that it was done “impropеrly and unlawfully,” id., which is a legal conclusion, not an allegation of fact. And as Hartford observes, the focus should be on the complaint‘s factual allegations rather than its legal assertions. See Bridge Metal Indus., L.L.C. v. Travelers Indem. Co., 812 F. Supp. 2d 527, 537 n.8 (S.D.N.Y. 2011) (citing cases). “[T]he analysis depends on the facts which are pleaded, not the conclusory assertions.” Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153, 162 (1992). Hartford therefore cannot show that the ERISA allegations fall entirely within this policy exclusion.
B
We further conclude that there is a reasonable possibility that the ERISA claims arose from the “administration” of Euchner‘s benefit plan. The Hartford policy defines “administration” as: 1) “[g]iving counsel to your employees or their dependents and beneficiaries, with respect to interpreting the scope of your ‘employee benefits program’ or their eligibility to participate in such programs“; and 2) “[h]andling records in connection with ‘employee benefits program[s].‘” Emp. Benefits Liab. Coverage Form, J.A. at 50.
We need not decide whether Euchner‘s classification of Scali as an independent contractor might be deemed advice or counsel to her regarding her eligibility, because it is clear enough that determining her eligibility may reasonably be considered part of the program‘s rеcordkeeping function.
Hartford‘s argument that “administration” encompasses only ministerial acts is unavailing. Hartford relies on Nat‘l Union Fire Ins. Co. of Pittsburgh, Pa. v. Travelers Prop. Cas. Co., No. 05 Civ. 4648(NRB), 2006 WL 1489243, at *7 (S.D.N.Y. May 26, 2006), which held that “administration” in a similar context entailed “ministerial actions” rather than “deliberate, discretionary activity.” Notwithstanding the National Union opinion and the cases it cites, no construction can modify the definition of the term in the contract wording. In any event, classification of someone either as an independent contractor or as an employee for purposes of program eligibility is not a mattеr of discretion.
In sum, there was a reasonable possibility of coverage under Hartford‘s policy as
II
Euchner also challenges the dismissal of its claim under
Typically, private contract disputes cannot form the basis of a § 349 claim. A plaintiff “must demonstrate that the acts or practices have a broader impact on consumers at large. Private contract disputes, unique to the parties, for example, would not fall within the ambit of the statute.” Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25 (1995) (citation omitted); see also Zawahir v. Berkshire Life Ins. Co., 22 A.D.3d 841, 842 (N.Y. 2d Dep‘t 2005) (“This action simply involves a private contract dispute involving сoverage under the subject policies, in contrast to the consumer-oriented, deceptive conduct aimed at the public at large that
CONCLUSION
For the foregoing reasons, we affirm in part, and vacate and remand in part.