JANET BOND ARTERTON, District Judge.
In this action, Plaintiff Known Litigation Holdings, LLC, the successor assignee of Domestic Bank, seeks to recover insurance proceeds from Defendants Navigators Insurance Company, Navigators Management Ltd., and certain interested underwriters of Lloyd's of London (collectively "Defendants" or "Navigators"), in its capacity as loss payee under several insurance policies Defendants issued to New England Cash Dispensing ("NECD") and its affiliate, Integrated Merchant Systems ("IMS"). Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7), Defendants now move [Doc. # 25] to dismiss Plaintiff's Amended Complaint [Doc. # 24] in its entirety. Defendants argue (1) that Plaintiff lacks standing because it is not a named insured under the Courier Risks Policy, (2) that Plaintiff's claims are time-barred by the suit limitation clause in the Courier Risks Policy, (3) that Plaintiff has failed to join NECD and IMS, who are necessary parties to the suit, (4) that Plaintiff's estoppel claims should be dismissed because Connecticut does not recognize an affirmative cause of action for equitable or promissory estoppel, and (5) that Plaintiff fails to state a claim for which relief can be granted. For the following reason, Defendants' motion is denied.
Plaintiff is the successor assignee of certain claims of Domestic Bank arising out of Domestic Bank's status as a loss payee on several insurance policies underwritten by Defendants. (See Am. Compl. [Doc. # 24] ¶ 1.) Beginning in March 2000, Domestic Bank entered into an agreement with NECD (the "NECD Agreement"), pursuant to which NECD was responsible for servicing Domestic Bank's ATMs. (See id. ¶¶ 17-18; NECD Agreement, Ex. A to Am. Compl.). On May 12, 2006, Domestic Bank entered into a second agreement with NECD and IMS (the "Courier Agreement"), pursuant to which NECD and IMS were responsible for transferring cash owned by Domestic Bank (the "Bank Cash") to and from Domestic Bank's ATMs. (See Am. Compl. ¶¶ 19-20; Courier Agreement, Ex. B to id.) Under the terms of the Courier Agreement, NECD and IMS were responsible for loss to Domestic Bank resulting from any malfeasance on the part of NECD's or IMS's employees:
(Courier Agreement ¶ 3.) Thus, as a part of the Courier Agreement, NECD and IMS were required to maintain insurance for the services they provided to Domestic Bank:
(Id. ¶ 2; see also Am. Compl. ¶¶ 21-24.)
In February 2006, NECD purchased an insurance policy underwritten by Defendants, insuring NECD for certain courier risks (the "Courier Risks Policy"). (See Am. Compl. ¶¶ 26-29; Courier Risks Policy, Ex. C to Am. Compl.) This policy included coverage for the embezzlement of funds by NECD employees:
(Courier Risks Policy; see also Am. Compl. ¶ 29.) In April 2006, a Loss Payment Rider was added to the Courier Risks Policy, which identified Domestic Bank as a potential designated loss payee:
(Loss Payment Rider, Ex. D to Am. Compl.; see also Am. Compl. ¶ 30.) A Cancellation Clause was also added, stating: "It is understood and agreed that this policy may be cancelled by either side subject to 30 days['] notice in writing to Domestic Bank." (Cancellation Clause, Ex. E to Am. Compl.; see also Am. Compl. ¶ 31.) In July 2006, an Armored Car Cargo Liability Policy endorsement was also included as a part of the Courier Risks Policy. (See Armored Car Cargo Liability Policy, Ex. F to Am. Compl.; see also Am. Compl. ¶¶ 32-34.)
On September 26, 2006, Domestic Bank contacted the overseas broker for Defendants requesting additional clarification regarding NECD's coverage under the Courier Liability Policy. (See Am. Compl. ¶ 35-37; Ex. G to id.) Specifically, Domestic Bank inquired as to the nature of the coverage for losses arising from employee malfeasance:
(Ex. G. to Am. Compl.; see also Am. Compl. ¶ 35.) On October 9, 2006, Defendants' agent replied that Domestic Bank's understanding was "basically ... correct"
On February 9, 2010, Domestic Bank became aware that the government was investigating the alleged theft and conversion of Bank Cash from the ATMs serviced by NECD and IMS. (See Am. Compl. ¶ 42.) Domestic Bank demanded an accounting of Bank Cash from NECD in light of this investigation, but on February 23, 2010, the CEO of NECD and IMS, Joseph Sarlo, confessed to Domestic Bank that a proper accounting could not be supplied, and that he was aware of a shortage of Bank Cash totaling at least $1 million. (See id. ¶ 43.) Prior to this confession, neither NECD nor IMS had disclosed any potential shortage of Bank Cash, and Domestic Bank had no reason to suspect that any of its funds were unaccounted for. (See id. ¶ 44.) Upon this revelation, Domestic Bank conducted its own investigation and audit of the ATMs serviced by NECD and determined that there was a shortage of Bank Cash in excess of $5 million. (See id. ¶ 46.) This shortage resulted from a scheme to defraud Domestic Bank perpetrated by the employees of NECD and IMS between 2006 and 2010. (See id. ¶ 47.)
On March 31, 2010, Domestic Bank made written demand on NECD and IMS for immediate reimbursement of the missing Bank Cash, but Domestic Bank has yet to receive any compensation for its loss resulting from this scheme. (See id. ¶¶ 47-48.) A copy of this demand was forwarded to Defendants, and was the first notice Defendants received of the loss. (See id. ¶ 49.) On August 31, 2010, Defendants issued a Reservation of Rights letter regarding Domestic Bank's claim against the Courier Risks Policy (see id. ¶ 40; Ex. O to id.), and on November 29, 2010, Defendants rescinded the Courier Risks Policy ab initio as a result of misstatements made by NECD in procuring the policy (see id. ¶ 51; Ex. P to id.). To date, neither Domestic Bank nor Plaintiff has received any payment pursuant to the policies, nor has the refund of any premiums been made to Domestic Bank or Plaintiff. (See Am. Compl. ¶ 52.)
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R.Civ.P. 12(b)(6). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Although detailed allegations are not required, a claim will be found facially plausible only if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Conclusory allegations are not sufficient. Id. at 678-79, 129 S.Ct. 1937.
Pursuant to Federal Rule of Civil Procedure 12(b)(7) a court may also dismiss
Fed.R.Civ.P. 19(a). In reviewing a motion to dismiss pursuant to Rule 19, the Court determines whether an absent party is "necessary" under Rule 19(a) as a threshold requirement before undertaking a Rule 19(b) analysis as to whether the party is also "indispensable" such that dismissal would be required in its absence. "A party cannot be indispensable unless it is a `necessary party' under Rule 19(a)." Jonesfilm v. Lion Gate Int'l, 299 F.3d 134, 139 (2d Cir.2002).
Defendants claim the following grounds in support of their motion to dismiss: (1) Plaintiff lacks standing because it is not a named insured under the Courier Risks Policy, (2) Plaintiff's claims are time-barred by the suit limitation clause in the Courier Risks Policy, (3) Plaintiff has failed to join NECD and IMS, who are necessary parties to the suit, (4) Plaintiff's estoppel claims should be dismissed because Connecticut does not recognize an affirmative cause of action for equitable or promissory estoppel, and (5) Plaintiff fails to state a claim for which relief can be granted.
The parties agree that pursuant to the choice-of-law provision in the Courier Risks Policy (see Ex. B to Am. Compl.), this dispute is governed by Connecticut law. Therefore, the Court will apply Connecticut law to the instant dispute. Under Connecticut law, "[a]n insurance policy is to be interpreted by the same general rules that govern the construction of any written contract." Connecticut Medical Ins. Co. v. Kulikowski, 286 Conn. 1, 5, 942 A.2d 334 (2008) (internal quotations and citations omitted). "In accordance with those principles, the determinative question is the intent of the parties, that is, what coverage the insured expected to receive and what the insurer was to provide as disclosed by the provisions of the policy." Id. (internal quotations and citations omitted). "When interpreting an insurance policy, [courts] must look at the contract as a whole, consider all relevant portions together, and if possible, give operative effect to every provision in order to reach a reasonable overall result." Id. at 6, 942 A.2d 334 (internal quotations and citations omitted). "If the terms of the policy are
Defendants argue that because Plaintiff is only a loss payee, and not an insured,
Defendant relies on two District of New Jersey cases, Carteret Ventures, LLC v. Liberty Mutual Ins. Co., No. 09-2831 (JLL), 2009 WL 3230844 (D.N.J. Oct. 2, 2009), and In re Tri-State Armored Serv.'s, Inc., 366 B.R. 326 (D.N.J.2007), for the proposition that a loss payee on a fidelity bond lacks standing to pursue a claim directly against an insurer. In Tri-State, customers of Tri-State, an armored car company, filed breach of contract claims against Tri-State's insurer pursuant to a fidelity insurance policy issued by the insurer on which the customers had been listed as loss payees. The district court, citing New Jersey law, found that the loss payees did not have a direct right of action against the insurer under the policy, because the policy clearly stated that it "provide[d] no rights or benefits to any other person or organization," other than the named insured, Tri-State. Tri-State, 366 B.R. at 335, 345.
Similarly, in Carteret, the plaintiff sued an insurer directly under a fidelity insurance policy in its capacity as loss payee. The loss payee rider at issue in that case stated: "This insurance is for [the insured's] benefit only. It provides no right or benefits to any other person or organization including the Loss Payee, other than payment of loss as set forth in this endorsement." Carteret, 2009 WL 3230844, at *2. The policy also provided that "[a]ny claim of loss that is covered under this insurance must be presented by [the insured]." Id. The district court concluded, under New Jersey law, that according to the clear and unambiguous terms of the policy, Carteret did not have any rights under the policy as loss payee, and was not entitled to payment until the insured submitted a claim under the policy. See id. at *4. Thus, Carteret had no standing to sue until the insured triggered a loss under the policy by submitting its claim. Because the Courier Risks Policy contains similar language in its Loss Payment Rider (see Ex. C to Am. Compl.), Defendants urge this Court to follow the reasoning of the Tri-State and Carteret courts and conclude that Plaintiff lacks standing to bring this action. However, these cases are based on the application of New Jersey law, and thus are not controlling authority.
Plaintiff counters with several Connecticut cases that have concluded that loss payees do have standing to sue insurers directly for breach of an insurance
Defendants attempt to distinguish these cases as involving liability insurance policies rather than fidelity insurance policies, where some of the parties were secured creditors under mortgage loss payable clauses, and thus actually constituted named insureds under the terms of those clauses.
Under Connecticut law, "the ultimate test to be applied in determining whether a person has a right of action as a third party beneficiary is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party beneficiary." Grigerik v. Sharpe, 247 Conn. 293, 311-12, 721 A.2d 526 (1998) (internal quotations and emphasis omitted). "[The parties'] intent is to be determined from the terms of the contract read in the light of the circumstances attending its making, including the motives and purposes of the parties." Id. at 312, 721 A.2d 526 (internal quotations and emphasis omitted). Under the terms of the Loss Payment Rider, a loss payee has "the right to receive direct payment in accordance with this rider," and NECD identified Domestic Bank as a potential designated loss payee under the rider. (Ex. D to Am. Compl.) Thus, by the unambiguous terms of the rider, Defendants and NECD intended to create a direct obligation from Defendants to Plaintiff. Defendants argue that because the loss payee rider states that "that insured's designee has no rights under the contract of insurance," (id.) the parties to the policy cannot have intended for Plaintiff to be a beneficiary under the policy. However, this language is not relevant to the third-party beneficiary inquiry under Connecticut law, because as the Connecticut Supreme Court has recognized, "the intent to confer a benefit is irrelevant to the determination of whether the plaintiff was a third party beneficiary, rather the appropriate inquiry is whether the parties intended to create a direct obligation from one party to a third party." Grigerik, 247 Conn. at 313, 721 A.2d 526. Because the terms of the Loss Payment Rider clearly state that a designated loss payee has a right to direct payment from Defendants, the Court concludes that Plaintiff has pled sufficient facts to allege that it was a third-party beneficiary of the Courier Risks Policy, and has standing to pursue this suit directly against Defendants.
Defendants also argue that Plaintiff failed to comply with the suit-limitation provision in the Courier Risks Policy, and that this action is therefore time-barred. Regarding the time limit for bringing suit for recovery of loss, the policy provides as follows:
(See Courier Risks Policy, Ex. C to Am. Compl. ¶ 26.) Defendant argues that because it is undisputed that the CEO of NECD and IMS knew of the loss as early as 2006, and this action did not commence until 2012, the suit is untimely as outside the policy's two-year suit-limitation clause. While, Plaintiff does not contest that such a clause may be valid under Connecticut law, see Craig v. Colonial Penn Ins. Co., 335 F.Supp.2d 296, 302 (D.Conn.2004)
Defendants argue that the "known loss" or "loss-in-progress" doctrine applies to this case. While Connecticut appellate courts have not addressed this doctrine, the District Court and a Connecticut trial court narrowed its construction to circumstances "where the insured was aware of actual losses, not potential losses prior to purchasing the policy."
Defendants argue that Count Three should be dismissed because Connecticut does not recognize promissory estoppel as an affirmative cause of action. While the Connecticut Appellate Court has recognized that "estoppel is generally not considered a cause of action," Covey v. Comen, 46 Conn.App. 46, 48, 698 A.2d 343 (1997); see also Allstate Ins. Co. v. Jean-Pierre, No. 3:10-cv-506(VLB), 2011 WL 3837085, at *5-6 (D.Conn. Aug. 30, 2011) ("Under Connecticut law, waiver and estoppel are properly plead [sic] as special defenses, not affirmative claims."), where promissory estoppel, as distinguished from equitable estoppel, was claimed, the Connecticut Supreme Court recognized it as an affirmative cause of action, see D'Ulisse-Cupo v. Bd. of Directors of Notre Dame High School, 202 Conn. 206, 520 A.2d 217 (1987). In contrast, where the promissory estoppel-equitable estoppel distinction is not made, affirmative claims have failed. See, e.g., Summerhill, LLC v. City of Meriden, No. CV106002388S, 2012 WL 1004298, at *4-5 (Conn.Super.Ct. Mar. 5, 2012) ("Since, in this complaint, the
Alternatively, Defendants, misconstruing Plaintiff's promissory estoppel claim, assert that even if Connecticut does recognize a cause of action for promissory estoppel, a plaintiff may not use it to expand insurance coverage beyond the express terms of the policy. See Heyman Assocs. No. 1 v. Ins. Co. of State of Pa., No. 397087, 1993 WL 57740, at *9 (Conn.Super.Ct. Feb. 24, 1993) aff'd, 231 Conn. 756, 767 n. 12, 653 A.2d 122 ("The courts of most jurisdictions agree that waiver and estoppel are not available to broaden the coverage of a policy so as to protect the insured against risks not included therein or expressly excluded therefrom.... Since the plaintiff's claim is barred by the defendants' pollution exclusion clauses, the plaintiff, as a matter of law, should not be allowed to use the remedies of waiver and estoppel to create coverage where no exists." (internal citations omitted)). However, Plaintiff does not purport to use its promissory estoppel claim to expand the policy beyond its terms or to avoid an express exclusion, only to assert that Defendants are estopped from raising any defense of fraud on the part of NECD because their agent represented to Plaintiff that Defendants had properly audited NECD before issuing the policy. Defendants' motion to dismiss is therefore denied with respect to Count Three.
Defendants argue that NECD and IMS, as parties to the Courier Risks Policy, are necessary parties to this suit within the meaning of Rule 19(a), and thus Plaintiff's Amended Complaint should be dismissed for failure to join them in the action, pursuant to Rule 19(b). See McKeon v. Guardian Ins. & Annuity Co., No. 3:07-cv-425 (WWE), 2007 WL 4169115, at *3 (D.Conn. Nov. 20, 2007) ("It is well established that a party to a contract which is the subject of the litigation is considered a `necessary' party."). In the alternative, Defendants argue that the Court should order that NECD and IMS be joined in this action. Under Rule 19, a party is considered necessary to a litigation if:
Fed.R.Civ.P. 19(a)(1). In response, Plaintiff relies on Phoenix Ins. Co., 169 S.E.2d at 649, in which the Georgia Court of Appeals found that the insured was not a necessary party under Georgia law (which mirrors Rule 19) because the insured had designated the plaintiff as the sole loss payee under the insurance policy under an endorsement that stated: "It is agreed that any loss payable hereunder shall be paid to the Phoenix Insurance Company," id. at 646-47, and under the policy "[the defendant's] liability [would be] discharged when payment [was] made to the loss payee," id. at 649.
In contrast, the Loss Payment Rider to the Courier Risks Policy here states: "In
Defendants' motion claiming that Plaintiff fails to state a claim upon which relief can be granted merely reiterates its argument that Plaintiff lacks standing or is not a third-party beneficiary under the Courier Risks Policy. However, as discussed above (see supra Part II.B), under Connecticut law, Plaintiff has pled sufficient facts to allege that it is a third-party beneficiary to the policy and Defendants' motion to dismiss on this basis is denied.
For the foregoing reasons, Defendants' Motion [Doc. # 25] to Dismiss is DENIED. Plaintiff is directed to join NECD and IMS in this action.
IT IS SO ORDERED.
Plaintiff's additional argument, that if the clause is found to be unambiguous and Plaintiff's suit is untimely, the policy time limitation should be tolled, lacks merit because tolling doctrines are inapplicable to contractual suit-limitation provisions unless the contract provides for tolling of the limitation period, which the Courier Risks Policy does not. See Air Brake Systems, Inc. v. TUV Rheinland of N. Am., Inc., 699 F.Supp.2d 462, 474 (D.Conn.2010) ("[P]eriods of limitation that the parties create by contract are not susceptible to statutes and doctrines that toll the relevant period of limitation that arises by statute." (emphasis in original)).
