DORA L. IRIZARRY, District Judge:
Plaintiffs Mark and Yanis Gelfman ("Plaintiffs" or the "Gelfmans") filed this action against Defendants ("Defendants" or "Capitol"), alleging that Capitol breached its contractual obligations under two insurance policies when it disclaimed coverage of the Plaintiffs in a lawsuit commenced by Yuri and Dmitri Kuklachev (the "Kuklachevs"), arising out of Plaintiffs' alleged trademark infringement of the "Moscow Cat Theater" mark. The parties cross-moved for summary judgment (see Motion for Summary Judgment in Favor of Plaintiffs, Doc. Entry No. 74;
When a party objects to an R & R, a district judge must make a de novo determination with respect to those portions of the R & R to which the party objects. See FED. R. CIV. P. 72(b); United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997). If, however, a party makes conclusory or general objections, or attempts to relitigate the party's original arguments, the court will review the R & R for clear error. Robinson v. Superintendent, Green Haven Correctional Facility, 2012 WL 123263, at *1 (E.D.N.Y. Jan. 17, 2012) (quoting Walker v. Vaughan, 216 F.Supp.2d 290, 292 (S.D.N.Y.2002)). The district court may then "accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Fed.R.Civ.P. 72(b); see also 28 U.S.C. § 636(b)(1).
Plaintiffs object to the R & R "in its entirety." Plaintiffs' objections, almost uniformly, are conclusory, immaterial, or mere reiterations of arguments litigated before the Magistrate Judge. Nonetheless, in light of Plaintiffs' pro se status, the Court has carefully considered each of Plaintiffs' objections and addresses herein those objections that arguably warrant discussion.
First, Plaintiffs complain that the factual background section in their motion for summary judgment should have been construed as a proper Statement of Material Facts under Local Civil Rule 56.1. (Pls.' Obj. at 1.) Plaintiffs do not dispute that they failed to annex to their motion "a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried." Local Civ. R. 56.1(a). Nonetheless, although "[f]ailure to submit such a statement may constitute grounds for denial of the motion" id., in light of Plaintiffs' pro se status, the magistrate judge considered those factual assertions that actually were supported by evidentiary submissions. See Erickson, 551 U.S. at 94, 127 S.Ct. 2197 (finding that pro se submissions should be "held to less stringent standards
Next, Plaintiffs object to the R & R's characterization of the Gelfmans as "promoters" rather than "producers" of the Moscow Cats Theater. (Pls.' Obj. at 1.) However, the R & R accurately indicates that the Kuklachevs alleged that Plaintiffs were their promoters in connection with the related case of Kuklachev v. Gelfman, 08-cv-2214 (DLI)(VVP) (the "Kuklachev action").
Plaintiffs also take issue with the magistrate judge's finding that the Gelfmans failed to provide Capitol with timely notice of a potential claim under the insurance policies at issue. (Pl.'s Obj. at 2-3.) Plaintiffs do not dispute that they never notified Capitol after receiving a May 31, 2007 cease-and-desist letter from the Kuklachevs threatening legal action. Nor do they dispute that Capitol first learned of the claim thirteen months later through one of the Gelfmans' codefendants in the Kuklachev action. However, Plaintiffs argue that their failure to notify Capitol of the potential claim should be excused since they had "a reasonable and credible belief of nonliability." (Pl.'s Obj. at 2 (citing Sparacino v. Pawtucket Mut. Ins. Co., 50 F.3d 141, 143 (2d Cir.1995))).
Plaintiffs' bare assertion is unsupported by the record. The cease-and-desist letter, written under the letterhead of Baker & McKenzie LLP, clearly specified the basis of the Kuklachevs's trademark claims and indicated that they were "prepared to take legal action." (Poe Decl., Ex. 13, Doc. Entry No. 81.) This letter would have suggested to a reasonable person the possibility of a claim. Although Plaintiffs contend that they genuinely believed that the cease-and-desist letter was merely "an attempt to blackmail" them, they have not presented any evidence showing that such a belief was objectively reasonable. See United Nat. Ins. Co. v. 515 Ocean Ave., LLC, 477 Fed.Appx. 840, 844 (2d Cir.2012) (summary order) ("At issue is not whether the insured believes he will ultimately be found liable for the injury, but whether he has a reasonable basis for a belief that no claim will be asserted against him."); see also Sparacino, 50 F.3d at 143-44 (finding that a union had a reasonable belief of nonliability where its insurance broker had unequivocally stated that the union's insurance policy did not cover the claim at issue). Moreover, Plaintiffs have not offered a valid excuse as to why they failed to notify Capitol of the Kuklachevs's claim even after the Kuklachev action was filed. Accordingly, the Court finds that no genuine issue of material fact exists as to whether Plaintiffs failed to provide Capitol with timely notice of a potential claim.
Plaintiffs' objections to the R & R's finding that the claims asserted in the Kuklachev action were not covered by the Plaintiffs' insurance policies are also without merit. (Pls.' Obj. at 3.) With respect to this objection, Plaintiffs offer only the conclusory assertion that they have met their burden of proof. The Court finds no error, let alone clear error, with respect to this section of the R & R and adopts Magistrate Judge Mann's analysis in its entirety.
Finally, Plaintiffs object to the magistrate judge's finding that Capitol was not estopped from disclaiming its defense of the Gelfmans. (Pl.'s Obj. at 3-4.) The Gelfmans maintain that Capitol unreasonably delayed disclaiming coverage. (Id.) However, Plaintiffs still fail to identify any cognizable prejudice caused by Capitol's conduct. See Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 95 (2d Cir.2002) (holding that "estoppel requires a showing of prejudice to the insured").
In sum, having undertaken a de novo review of those sections of the R & R to which Plaintiffs provide specific objections, the Court hereby adopts Magistrate Judge Mann's characteristically thorough and well-reasoned R & R in its entirety. Accordingly, summary judgment is granted in favor of the Defendants, and the complaint is dismissed.
Upon due consideration, the R & R is adopted in its entirety. The complaint is dismissed as to all Defendants.
SO ORDERED.
ROANNE L. MANN, United States Magistrate Judge.
Currently pending before this Court, on a referral from the Honorable Dora L. Irizarry, are cross-motions for summary judgment brought by pro se plaintiffs Mark Gelfman and Yanis Gelfman (collectively, the "Gelfmans") and by defendants Capitol Indemnity Corporation, Capitol Specialty Insurance Corporation, and Capitol Transamerica Corporation (collectively, "Capitol"). See Plaintiffs' Motion for Summary Judgment (docketed June 4, 2013) ("Pl. Motion"), Electronic Case Filing ("ECF") Document Entry ("DE") # 74; Defendants' Motion for Summary Judgment (docketed June 4, 2013) ("Def. Motion"), DE # 78. The Gelfmans commenced this action on January 14, 2011, alleging that Capitol had breached its contractual obligations under two consecutive insurance policies when it disclaimed coverage and further representation of them after having initially defended the Gelfmans in a lawsuit arising out of their alleged acts of trademark infringement. See Complaint (Jan. 14, 2011) ("Compl."), DE # 1.
For the reasons given below, this Court respectfully recommends that the District Court deny the Gelfmans' motion for summary judgment and grant Capitol's motion for summary judgment.
Unless otherwise indicated, the facts contained herein are drawn from Capitol's uncontested Rule 56.1 Statement of Material Facts ("Rule 56.1 Statement"), DE # 79, # 90.
From 2006 to 2008, Capitol issued the Gelfmans and Gelfman International Enterprises, Inc. ("GIE") two general liability insurance policies,
On June 2, 2008, Yuri and Dmitri Kuklachev (collectively, the "Kuklachevs") commenced a lawsuit here in the United States District Court for the Eastern District of New York, under docket number 08-CV-2214, against the Gelfmans, GIE and various other defendants (the "Kuklachev Suit"). See Rule 56.1 Statement ¶ 15. According to the allegations in that action, when the Kuklachevs toured the United States in 2005 and 2006 with their Russian circus show featuring trained cats, the Gelfmans served as their American promoters; but in 2007, the Gelfmans allegedly created an imitation show that infringed upon the Kuklachevs' trademarks by copying their acts, cat tricks, and costumes, and by stealing the original production's name, "Moscow Cats Theatre." See id.; Kuklachev v. Gelfinam, 629 F.Supp.2d 236 (E.D.N.Y.2008), aff'd, 361 Fed.Appx. 161 (2d Cir.2009).
It is undisputed that the Gelfmans first learned that the Kuklachevs might sue them when the Kuklachevs' attorney sent the Gelfmans, through their then counsel,
On or about September 2, 2008, Capitol notified the Gelfmans that it had retained George R. McGuire, an intellectual property attorney with the firm of Bond Schoeneck & King PLLC (the "Bond firm"), to defend the Gelfinans (as well as GIE) in connection with the Kuklachev Suit. See Rule 56.1 Statement ¶¶ 19-21. Michael Wedwick, a claims adjuster for Capitol, spoke to the Gelfmans via phone on September 19, 2008, and later confirmed by email that Capitol had retained counsel to defend them. See id. ¶ 22. In a letter dated October 2, 2008, Capitol expressly stated that counsel's retention was subject to a reservation of rights while Capitol continued its investigation of the claims in the Kuklachev Suit. See id. James Woods and the Woods firm remained co-counsel of record for the Gelfmans.
Soon thereafter, the parties scheduled mediation for June 11, 2009. See id. ¶ 41. One week prior to that date, on June 4, 2009, Capitol issued a letter to the Gelfmans disclaiming all defense and indemnity obligations, see id. ¶ 42, but agreeing to reimburse the Gelfmans for their legal fees for an additional 60 days in order to afford them an opportunity to retain new counsel, see id. ¶ 43.
No settlement was reached at the June 11, 2009 mediation, which was attended by Capitol's coverage counsel, Anthony R. Gambardella. See id. ¶¶ 44-46. While the parties to the instant lawsuit do not dispute that Capitol offered to contribute $50,000 towards a resolution of the Kuklachev Suit, they do draw starkly different inferences from what transpired. Capitol claims that, though disclaiming coverage, its counsel nevertheless offered to have Capitol pay $50,000 toward a global settlement, but the Gelfmans rejected that offer. See id. ¶ 46. The Gelfmans maintain that they could have settled the Kuklachev Suit at the mediation if Capitol had offered to pay $215,000, see Pl. Motion ¶ 21, DE # 74, and they characterize Capitol's offer as one made in bad faith, see id.; April 29, 2013 Opposition to Defendants' Motion for Summary Judgment (docketed June 4, 2013) ("Pl. Opposition I") ¶ 10, DE # 83.
Several months later, on August 11, 2009, the Bond firm withdrew as counsel of record for the Gelfmans, see Rule 56.1 Statement ¶ 47, while the attorney previously retained by the Gelfmans, co-counsel James Woods, continued to defend them until November 11, 2009, see id. ¶ 48. Thereafter, the Gelfmans represented themselves in the Kuklachev Suit, which they eventually settled in 2010 by agreeing to adhere to the terms of Judge Sifton's preliminary injunction and by relinquishing any claim to the Moscow Cats Theatre trademark. See id. ¶¶ 49, 50; Pl. Motion ¶ 10, DE # 85 (sealed copy of DE # 74). The settlement agreement that the Gelfmans entered into with the Kuklachevs did not require them to make any payments. See Rule 56.1 Statement ¶ 50. Capitol had continued to pay the Gelfmans' attorneys' fees and costs until August 2009, see id. ¶ 53, and they incurred no attorneys' fees as a result of Capital's disclaimer of coverage, see id. ¶ 55.
Summary judgment may be granted only where the pleadings and evidence in the record "demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see Fed.R.Civ.P. 56(a). Where, as in the case of Capitol's motion, summary judgment is sought against the party that will bear the ultimate burden at trial, the movant's burden on the motion "will be satisfied if [it] can point to an absence of evidence to support an essential element of the non-moving party's claim." Goenaga, v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir.1995); see Celotex, 477 U.S. at 323, 106 S.Ct. 2548 ("The moving party is `entitled to a judgment as a matter of law' because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof."); Nora Beverages, Inc. v. Perrier Grp. of Am. Inc., 164 F.3d 736, 742 (2d Cir.1998).
Once the moving party has made the requisite showing, the nonmoving party "may not rest upon mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting former Fed.R.Civ.P. 56(e)); see Fed.R.Civ.P. 56(e)(3) ("If a party fails to ... properly address another party's assertion of fact, the court may grant summary judgment if the motion and supporting materials ... show that the movant is entitled to it."). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citations omitted). Nevertheless, in ruling on a motion for summary judgment, the Court must resolve all ambiguities and draw all factual inferences in favor of the party against whom summary judgment is sought. See id. at 255, 106 S.Ct. 2505. Thus, summary judgment "is properly granted only when no rational finder of fact could find in favor of the non-moving party." Carlton v. Mystic Transp. Inc., 202 F.3d 129, 134 (2d Cir.2000). Where, as here, parties to an action cross-move for summary judgment, the Court must consider each motion independently, and must apply the same standards, drawing all reasonable inferences "against the party whose motion is under consideration." Town of Southold v. Town of East Hampton, 477 F.3d 38, 46 (2d Cir.2007) (citation omitted). Each cross-movant is required to present sufficient evidence to allow the court to enter judgment in its favor. See Barbold v. Rodriguez, 863 F.2d 233, 236 (2d Cir.1988).
This district's Local Civil Rule 56.1(a) requires a party seeking summary judgment to submit "a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried." S.D.N.Y./ E.D.N.Y. Local Civ. R. 56.1(a). The nonmoving party must then provide a counterstatement with "correspondingly numbered paragraph[s]" responding to each of the paragraphs in the moving party's
Despite having been properly served with notice of the requirements of Local Civil Rule 56.1, see Notice (June 4, 2013), DE # 96, the Gelfmans filed neither a Rule 56.1 statement in support of their motion for summary judgment nor a formal counterstatement of facts responding to the defense Rule 56.1 statement in support of Capitol's motion for summary judgment. Nevertheless, the Gelfmans have not simply rested on the assertions in their complaint or their arguments in their summary judgment papers. Their brief in support of summary judgment includes as exhibits a series of emails between the Gelfmans and Capitol's representatives, internal emails from Capitol discussing the June 2009 mediation, and a page of handwritten notes by an unidentified author that appear to have been made at the mediation. See Pl. Motion, DE # 74 at 12-33. Similarly, their submission entitled Opposition to Defendants `Motion for Summary Judgment attaches three exhibits in support of their contentions. See Pl. Opposition I, DE # 83 at 5-32. These include a series of interrogatory answers from the plaintiffs in the Kuklachev Suit, internal claims notes from Capitol, and an unlabeled, undated spreadsheet that purports to show $351,000 in lost bookings for the Gelfmans' version of the Moscow Cats Theatre. See id. Notwithstanding the Gelfmans' violation of Local Civil Rule 56.1, this Court is prepared to exercise its discretion to consider those exhibits in connection with the arguments advanced by the Gelfmans.
The Court will first address Capitol's motion for summary judgment, which is properly supported by a Rule 56.1 Statement that the Gelfmans have not responded to or otherwise controverted.
Capitol contends that, as an initial matter, it was not obligated to indemnify or defend the Gelfmans in connection with the Kuklachev Suit, because the Gelfmans failed to provide timely notice of the Kuklachevs' potential claims. See Memorandum of Law in Support of Defendants' Motion for Summary Judgment (docketed June 4, 2013) ("Def. Mem.") at 4-7, DE # 80. In addition, Capitol argues that the Amended Complaint in the Kuklachev Suit
Under New York law,
The insurance policies issued by Capitol to the Gelfmans require that, in order to obtain coverage, the policy holder must notify Capitol "as soon as practicable" of any "`occurrence' or ... offense which may result in a claim," and must "immediately send [Capitol] copies of any demand, notices, summonses, or legal papers received in connection with the claim or `suit.'" Rule 56.1 Statement ¶ 9. On or about May 31, 2007, the Gelfmans (through counsel) received a cease-and-desist letter from the Kuklachevs' attorney that threatened legal action unless they ceased their alleged trademark infringement; nevertheless, the Gelfmans never provided Capitol with either a copy or notice of that letter. See id. ¶¶ 10-14. Consequently, Capitol first learned of the claim thirteen months later, after the Kuklachevs had initiated their lawsuit, when Tribeca, another defendant named in that action, apprised Capitol of the litigation. See id. ¶ 17.
New York law defines "as soon as practicable" to mean "within a reasonable time under all the circumstances." Security Mut. Ins. Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 441, 340 N.Y.S.2d 902, 293 N.E.2d 76 (1972). The "obligation to provide notice of an occurrence or offense is triggered by the insured's knowledge of events and circumstances which would suggest the possibility of a claim, not the actuality of a claim." Prof'l Prod. Research Inc. v. Gen. Star Indent. Co., 623 F.Supp.2d 438, 444-45 (S.D.N.Y.2008) (emphasis in original). In other words, "the insured is required to notify its carrier of a potential claim," id. at 444 (internal quotation marks omitted), and "[o]nce knowledge suggests the possibility of a covered claim, New York law provides that notice
The delay here — for which the Gelfmans proffer no excuse — exceeds thirteen months.
While not disputing that they failed to satisfy their contractual obligation of timely notice, the Gelfmans argue that Capitol's disclaimer of coverage "on the basis of late notice has been waived by the fact that Capitol had voluntarily undertaken" their defense. Pl. Opposition I ¶ 5, DE # 83. Waiver of a defense requires "a voluntary and intentional relinquishment of a known right ... where there is direct or circumstantial proof that the insurer
The Gelfmans offer argument — but no evidence — that Capitol intended to abandon its late-notice defense. Nor does the record otherwise support an inference of such a waiver. Contrary to the Gelfmans' contention, the fact that Capitol initially elected to undertake the Gelfmans' defense in the Kuklachev Suit did not, without more, preclude the insurer from thereafter withdrawing from the case. See Int'l Flavors, 822 F.2d at 273 (collecting New York cases). Furthermore, where the insurer has repeatedly reserved its rights, "such reservations preclude arguments both as to waiver and to equitable estoppel." Globecon, 434 F.3d at 176 (collecting cases).
It is undisputed that Capitol repeatedly reserved its rights. On October 2, 2008, within a month of having retained counsel to defend the Gelfmans in the Kuklachev Suit, and before the Bond firm had even entered an appearance in that case, see Notices of Appearance (Nov. 3, 2008), DE # 91, # 92 in Kuklachev, Capitol sent the Gelfmans a reservation-of-rights letter advising that "[n]o action taken by us acknowledging receipt of this tender of defense and investigating this matter shall constitute a waiver of any of our rights under the policy." Reservation-of-Rights Letter (Oct. 2, 2008) ("10/2/08 Reservation-of-Rights-Letter"), DE # 82-4 at 7, 17-18. Two months later, Capitol learned of the Kuklachevs' May 31, 2007 cease-and-desist letter, which was attached to reply papers filed by the Kuklachevs on December 2, 2008, in connection with their motion for a preliminary injunction. See Declaration of Joseph K. Poe in Support of Defendants' Motion for Summary Judgment (docketed June 4, 2013) ¶ 3, DE # 81; May 31, 2007 Cease-and-Desist Letter, DE # 81 at 4-5; Exh. F to Reply in Support of Amended Motion (Dec. 2, 2008), DE # 145-6 in Kuklachev. Based on that new revelation, Capitol issued its December 30, 2008 reservation-of-rights letter, which expressly reserved Capitol's "rights to deny coverage to the extent that the Insured provided late notice...." 12/30/08 Reservation-of-Rights Letter, DE # 82-4 at 87.
A waiver of an insurer's right to disclaim will not be implied under New York law unless "the insurer possesse[d] sufficient knowledge (actual or constructive) of the circumstances regarding the unasserted defense." AMRO Realty, 936 F.2d at 1431. In other words, "[t]he reasonableness of any delay in disclaiming must be judged from the time that the insurer is aware of sufficient facts to issue a disclaimer." Mount Vernon Fire Ins. Co. v. Unjar, 177 A.D.2d 480, 575 N.Y.S.2d 694, 696 (2d Dep't 1991); see In re Prudential Prop. & Cas. Ins. Co., 213 A.D.2d 408, 623 N.Y.S.2d 336, 336 (2d Dep't 1995). Accordingly, "[a] delay in giving notice of reservation of rights will be excused where it is traceable to the insurer's lack of actual or constructive knowledge of the available defense ...." Couch on Insurance § 202:60 (3d ed.2005) (quoted in Federated Dep't Stores, Inc. v. Twin City Fire Ins. Co., 28 A.D.3d 32, 807 N.Y.S.2d 62, 66 (1st Dep't 2006)).
As detailed above, here the unrefuted facts in the record reflect the following:
Accordingly, the Gelfmans' waiver argument is unavailing. Having failed to receive timely notice, Capitol was not contractually obligated to defend or indemnify the Gelfmans.
Capitol also argues that it had no duty to defend the Gelfmans, on the ground that the amended complaint in the Kuklachev Suit does not allege "personal and advertising injury" as defined by the Gelfmans' insurance policies, and, moreover, that the Kuklachevs' specific claims all fall within various policy exclusions. See Def. Mem. at 7-18, DE # 80. Although the burden of establishing that coverage exists lies with the insured, see, e.g., Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270, 276 (2d Cir.2000) ("It is well established under New York law that a policyholder bears the burden of showing that the insurance contract covers his loss."), the insurer must prove the applicability of a policy exclusion, see Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 218, 746 N.Y.S.2d 622, 774 N.E.2d 687 (2002) ("Generally, it is for the insured to establish coverage and for the insurer to provide that an exclusion in the policy applies to defeat coverage."). The Gelfmans have offered no evidence either to establish that the Kuklachevs' claims were covered by the insurance policies or to refute Capitol's arguments regarding policy exclusions.
Effectively conceding that Capitol was not contractually obligated to
Burt Rigid Box, 302 F.3d at 95 (citing Albert J. Schiff Assocs., 51 N.Y.2d at 698, 435 N.Y.S.2d 972, 417 N.E.2d 84); accord Rapid Park Indus. v. Great Northern Ins. Co., 502 Fed.Appx. 40, 42 (2d Cir.2012). Furthermore, "[e]stoppel arguments are precluded where an insurer `repeatedly and expressly reserved its rights in its communications' with the insured." Rapid Park Indus., 502 Fed.Appx. at 42 (quoting Globecon, 434 F.3d at 176); see Hutton Constr. Co. v. County of Rockland, 52 F.3d 1191, 1193 (2d Cir.1995); Steadfast Ins. Co. v. Stroock & Stroock & Lavan LLP, 277 F.Supp.2d 245, 254 (S.D.N.Y.2003) ("When an insurer reserves its right to deny coverage, estoppel and waiver may not be inferred."); cf. Burt Rigid Box, 302 F.3d at 95 (insurer may be estopped from asserting lack of coverage where it "defends the case without asserting any policy defenses" and the insured is thereby prejudiced).
The Gelfmans' estoppel argument fails as a matter of law, as they cannot establish either of the two elements of estoppel: i.e., that they reasonably relied on any actions by Capitol that were inconsistent with a lack of coverage, or that such actions caused them prejudice.
The Gelfmans' estoppel theory is predicated on their unsupported assumption that "Capitol represented to [the] Gelfmans that there was coverage in accordance [with] the policy ...." Pl. Opposition I ¶ 6, DE # 83. The Gelfmans point to two pieces of documentary evidence to support their characterization of Capitol's conduct: (1) an email dated September 19, 2008, from one of Capitol's senior claims adjusters, Michael Wedwick, to Yanis Gelfman, see Email of Michael Wedwick to Yanis Gelfman (Sept. 19, 2008) (the "9/18/08 Email"), DE # 82-4 at 4; and (2) the internal notes of another of Capitol's senior claims adjusters, Curt Hellmer, see Pl. Opposition I ¶ 6, DE # 83; Claim Notes attached to Pl. Opposition I, DE # 83 at 25-31.
Even viewed in the light most favorable to the Gelfmans, Mr. Hellmer's notes do not support their theory. First, they are Capitol's internal notes, not evidence of any communication to the Gelfmans on which they could purport to have relied. Moreover, the notes nowhere state that Capitol had agreed to provide coverage or represented to the Gelfmans that it would provide coverage. To the contrary, in an entry from July 29, 2008, the notes expressly state that "coverage issues exist" and then outline Capitol's concerns that the Kuklachevs' claims may fall within one or more of the policies' exclusions. Claim Notes attached to Pl. Opposition I, DE # 83 at 30.
Mr. Wedwick's email similarly contains no affirmative representation that Capitol had determined that the Kuklachevs' claims were covered by the Gelfmans' policies. See 9/19/08 Email, DE # 82-4 at 4. In an apparent reference to a phone
Even if Capitol had represented to the Gelfmans that it would provide coverage for the Kuklachevs' claims, the Gelfmans have not shown that they thereby suffered any prejudice. As an initial matter, where, as here, the insurer defends the insured subject to a reservation of rights, the insured will not be heard to complain that he detrimentally relied on the insurer's representation of him: "The purpose of a reservation of rights is to prevent an insured's detrimental reliance on the defense provided by the insurer." Federated Dep't Stores, 807 N.Y.S.2d at 67. Consequently, the relevant inquiry is whether the Gelfmans suffered any prejudice as a result of any conduct by Capitol up until the issuance of its reservation-of-rights letters. See id. ("The reservation is a sufficient preventative to reliance....").
The Gelfmans identify no such prejudice, see generally Pl. Motion, DE # 74; Pl. Opposition I, DE # 83; Pl. Opposition II, DE # 77, nor can any be discerned by the Court. In early August 2008, before Capitol had retained the Bond firm or communicated with the Gelfmans about that retention, the firm that the Gelfmans had hired to defend them in the Kuklachev Suit filed a motion to dismiss. See Motion to Dismiss (Aug. 4, 2008), DE # 12 in Kuklachev. That motion was not ruled upon until February 26, 2009, see Memorandum and Opinion (Feb. 26, 2009), DE # 252 in Kuklachev, 600 F.Supp.2d 437 (E.D.N.Y.2009) and the Bond firm did not appear in the Kuklachev Suit until November 3, 2008, see supra p. 268, after the issuance of the 10/2/08 Reservation-of-Rights Letter. Therefore, there can be no plausible claim of detrimental reliance during the period predating Capitol's issuance of its reservation-of-rights letters.
Even if the Gelfmans were entitled to look to events postdating those letters in order to support their claim of prejudice, their estoppel argument nevertheless fails. The Gelfmans incurred no legal fees as a result of the Kuklachev Suit. See Rule 56.1 Statement ¶ 53. Furthermore, the settlement agreement ultimately reached between the Gelfmans and the Kuklachevs
Faced with this undisputed evidence, the Gelfmans nevertheless claim to have suffered several forms of prejudice. First, citing unlabeled, undated spreadsheets purporting to show $351,000 in lost bookings, see Spreadsheet attached to Pl. Opposition I, DE # 83 at 32, they contend that they "lost close to $400,000 in confirmed bookings directly due to the Kuklachev lawsuit," Pl. Opposition I ¶ 12, DE # 83. Even assuming arguendo that these spreadsheets are sufficient to prove the existence and amount of the Gelfmans' lost bookings, the Gelfmans concede that those losses occurred shortly after the filing of the Kuklachev Suit as a result of the negative publicity generated by that case and not because of the settlement they eventually reached. See Deposition Testimony of Yanis Gelfman, DE # 92-1 at 45 (sealed). Thus, any such losses occurred before Capitol undertook the Gelfmans' defense and would have occurred regardless of Capitol's conduct in providing for that defense.
The Gelfmans additionally argue that they
Pl. Opposition II at 3, DE # 77.
As a general rule, the fact that an insurer undertakes the defense of an insured, even for an extended period of time, does not constitute a legally cognizable source of prejudice unless the representation occurred absent a reservation of rights or was such that the character and strategy of the lawsuit could no longer be altered. See Phila. Indem. Ins. Co. v. City of New York, No. 09 Civ. 10432(PGG), 2011 WL 1237586, at *8 (S.D.N.Y. Mar. 24, 2011) (prejudice not presumed despite insurer's eight-month control of defense because insureds were "not negatively affected by the representation"); Federated Dep't Stores, 807 N.Y.S.2d at 68 ("Prejudice is established only where the insurer's control of the defense is such that the character and strategy of the lawsuit can no longer be altered."); see also General Accident Ins. Co. of Am. v. Metropolitan Steel Indus., Inc., 9 A.D.3d 254, 780 N.Y.S.2d 128, 128-29 (1st Dep't 2004) (estoppel found where insurer controlled defense of insured without reservation of rights); U.S. Underwriters Ins. Co. v. Landau, 679 F.Supp.2d 330, 344 (E.D.N.Y. 2010) (prejudice will be presumed based on insurer's assumption of defense only where "an insurer, though in fact not obligated to provide coverage, without asserting policy defenses or reserving the privilege to do so, undertakes the defense of the case, in
Here, shortly after retaining counsel for the Gelfmans, Capitol expressly reserved its rights on two separate occasions. The Gelfmans have presented no evidence or argument that at the time of Capitol's disclaimer they could not have altered their legal strategy, particularly given the fact that attorney James Woods, their handpicked counsel, served as co-counsel of record along with the Bond firm, and remained in the case for several months after the Bond firm withdrew. Furthermore, at deposition, Mark Gelfman testified that there was nothing he would have done differently to defend against the Kuklachev Suit had Capitol not provided for the defense. See Rule 56.1 Statement ¶ 57; Deposition Testimony of Mark Gelfman, DE # 92-1 at 80 (sealed). Under these circumstances, no reasonable fact-finder could conclude that Capitol should be estopped from disclaiming coverage.
The Gelfmans further allege that Capitol breached its duty of good faith and fair dealing by (a) withdrawing from their defense one week prior to the June 11, 2009 mediation and (b) failing to settle the Kuklachev Suit at mediation. See Pl. Motion ¶¶ 15-21, DE # 74. Under New York law, once an insurer has assumed the defense of a claim asserted against its insured, "it has a duty ... to act in `good faith' when deciding whether to settle such a claim, and it may be held liable for breach of that duty." Pinto v. Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir.2000). At the same time, there is "a strong presumption in New York against a finding of bad faith liability by an insurer," Hugo Boss Fashions, 252 F.3d at 624, which can be "rebutted only by evidence establishing that the insurer's refusal to defend was based on `more than an arguable difference of opinion' and exhibited `a gross disregard for its policy obligations,'" id. at 625 (quoting Sukup v. New York, 19 N.Y.2d 519, 521, 281 N.Y.S.2d 28, 227 N.E.2d 842 (1967)); see also All State Vehicles v. Allstate Ins. Co., 620 F.Supp. 444, 447 (S.D.N.Y.1985) (holding that insurer's refusal to settle, and failure to file answer, without "morally culpable or dishonest conduct on the part of [the insurer,] ... are insufficient to establish bad faith").
Neither of the Gelfmans' arguments is sufficient to overcome the presumption against bad-faith liability. Even viewed in the light most favorable to the Gelfmans, the existing record does not support a finding that the timing of Capitol's decision to disclaim coverage evidences bad faith. As an initial matter, Capitol's disclaimer was proper insofar as it had no duty to
Under circumstances similar to those in the instant case (though less favorable for the insurer), the Second Circuit held in Hugo Boss that since the plaintiff had not overcome the presumption against bad-faith liability, summary judgment should have been entered in the insurer's favor. See Hugo Boss Fashions, 252 F.3d at 608. Here, as there, the timing of the insurer's disclaimer of coverage resulted from its having conducted a review of coverage questions prior to disclaiming, see id.; in contrast to that case, where the insurer's eventual disclaimer was in fact held to have been improper, it is undisputed that Capitol was not contractually obligated to defend or indemnify the Gelfmans.
Similarly, Capitol did not violate its duty to defend the Gelfmans in good faith when it failed to settle the Kuklachev Suit at mediation. First, although the Gelfmans claim that, "[a]s shown in a handwritten note produced during the mediation process, the Kuklachev case ... would have been settled with $215,000," Pl. Motion ¶ 21, DE # 74, the note in question does not appear to show that a demand to settle for $215,000 was made at the mediation, see Handwritten Note attached to Pl. Motion, DE # 74 at 33. Instead, the note, whose author is not identified, indicates in one column that $215,000 represents an amount for which the case might settle. See id.
In any event, "the plaintiff in a bad-faith action must show that the insured lost an actual opportunity to settle the claim at a time when all serious doubts about the insured's liability were removed." Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445, 454, 605 N.Y.S.2d 208, 626 N.E.2d 24 (1993) (citations, internal quotation marks and ellipses omitted). "In other words, a bad-faith plaintiff must establish that the defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that an insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted." Id. at 453-54, 605 N.Y.S.2d 208, 626 N.E.2d 24; accord New England Ins. Co. v. Healthcare Underwriters Mut. Ins, Co., 295 F.3d 232, 241 (2d Cir.2002). It goes without saying that the Gelfmans do not contend that at the time of the mediation, "all serious doubts about [their] liability" had been removed. Furthermore, the failure to settle at the mediation did not cause them to be held "personally accountable for a large judgment." To the contrary, the Kuklachev Suit resulted in no monetary judgment whatsoever against the Gelfmans and instead settled without their incurring any financial obligation.
Accordingly, the Gelfmans have failed to create a triable issue of fact in support of their theory that Capitol violated its duty of good faith and fair dealing.
Because this Court recommends that summary judgment be granted in favor of Capitol, there is no need to address the Gelfmans' cross-motion for summary judgment in detail. For the same reasons that
For the foregoing reasons, this Court recommends that the Gelfmans' motion for summary judgment be denied and that Capitol's motion for summary judgment be granted.
Any objections to the recommendations contained herein must be filed with Judge Irizarry on or before June 27, 2014. Failure to file objections in a timely manner may waive a right of appeal to the District Court order. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 72; Small v. Sec'y of Health & Human Servs., 892 F.2d 15, 16 (2d Cir.1989) (per curiam).
The Clerk is requested to enter this Report and Recommendation into the ECF System and to transmit copies by Federal Express to the Gelfmans at their last known address, 2814 East 28th Street, Brooklyn, New York 11235.
Because the Gelfmans have the burden of establishing that coverage exists but have offered no evidence, it is not necessary to analyze each of Capitol's coverage-related arguments in detail. As an illustrative example, however, Capitol argues that Counts 1, 2, 3, 4, and 7 of the Kuklachevs' amended complaint, which assert claims related to and arising out of the Gelfmans' alleged trademark infringement, are not covered because the Gelfmans' policies define "advertising injury" to apply only to alleged copyright, trade dress, or slogan infringement and each policy contains an express exclusion for trademark infringement. See Def. Mem. at 7-9, DE # 80.
