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15‐2248

National Fire Insurance Company v. E. Mishan & Sons, Inc.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

   

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.  CITATION TO A SUMMARY ORDER FILED ON OR AFTER

JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S

LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER

THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”).    A PARTY CITING A

SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second

Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley

Square, in the City of New York, on the 1st day of June, two thousand and

sixteen.

      

PRESENT: ROBERT D. SACK,

RICHARD C. WESLEY,  

GERARD E. LYNCH,

     Circuit Judges.

___________________________________________

NATIONAL FIRE INSURANCE COMPANY OF

HARTFORD, VALLEY FORGE INSURANCE

COMPANY, TRANSPORTATION INSURANCE

COMPANY,

     Plaintiffs‐Appellees,

     v.               15‐2248

E. MISHAN & SONS, INC.,

     Defendant‐Appellant.
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___________________________________________

FOR APPELLANT:   PATTI M. DEUEL (Howard B. Randell, on the brief),  

     Leahy, Eisenberg & Fraenkel, Ltd., Chicago, IL.

FOR APPELLEES: BARRETT ARNOLD BREITUNG, Colliau Carluccio

Keener Morrow Peterson & Parsons, Chicago, IL (Lisa

Schreiber, Colliau Carluccio Keener Morrow Peterson &

Parsons, New York, NY, on the brief).

Appeal from the United States District Court for the Southern District of

New York (Griesa, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED AND DECREED that the order of the District Court is

REVERSED.  

Defendant‐Appellant E. Mishan & Sons, Inc., which does business as

Emson, Inc. (“Emson”), appeals from a decision of the United States District

Court for the Southern District of New York (Griesa, J.).  The District Court

granted summary judgment to the Plaintiffs‐Appellees National Fire Insurance

Company of Hartford, Valley Forge Insurance Company, and Transportation

Insurance Company (collectively, “Insurers”) in their action for a declaratory

judgment establishing that, under the terms of applicable insurance policies, they

are not required to defend Emson in two underlying lawsuits.  We assume the

parties’ familiarity with the underlying facts, the procedural history, and the
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issues presented for review, which we reference only as necessary to explain our

decision to reverse.  

BACKGROUND

The Insurers provided coverage to Emson under several commercial

general liability policies (collectively, the “Policies”).  As relevant here, the

Policies provided coverage for “those sums that the insured becomes legally

obligated to pay as damages because of ‘personal and advertising injury’ to

which this insurance applies.”  App’x 64–65.  The Policies defined “personal and

advertising injury” to include the “[o]ral or written publication, in any manner,

of material that violates a person’s right of privacy.”  App’x 72.  In addition, the

Policies included an exclusion to coverage for personal and advertising injuries

for knowing violations of another’s rights, defined as “‘[p]ersonal and

advertising injury’ caused by or at the direction of the insured with the

knowledge that the act would violate the rights of another and would inflict

‘personal and advertising injury.’”  App’x 65.  

In 2013, Emson was sued in two class action lawsuits: (1) Bonnie Daniell v.

Sempris, LLC et al., No. 2012 CH 44123 (the “Daniell suit”) and (2) Eric Herman v.

Sempris, LLC et al., No. 1:13‐cv‐0020 (the “Herman suit”) (collectively, the
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“underlying lawsuits”).  The underlying lawsuits allege that Emson worked with

two other companies—Quality Resources, Inc., and Sempris LLC—to deceptively

trap customers into recurring credit card charges.  At bottom, the underlying

lawsuits asserted that Emson acted as a purveyor of data, facilitating “data

passes” and transferring private customer information for profit.  The Daniell

plaintiffs asserted four counts against Emson in the Circuit Court of Cook

County, Illinois:  (1) violations of the Illinois Consumer Fraud and Deceptive

Business Practices Act (815 ILCS § 505/1 et seq.) (“ICFA”), (2) fraud by omission,

(3) breach of contract, and (4) unjust enrichment.  The Herman plaintiffs asserted

five counts against Emson in the United States District Court for the Western

District of Michigan:  (1) violations of the Michigan Consumer Protection Act

(M.C.L. §445.903 et seq.) (“MCPA”), (2) fraud by omission, (3) breach of contract,

(4) unjust enrichment, and (5) violations of the Telephone Consumer Protection

Act (47 U.S.C. § 227 et seq.) (“TCPA”) [A217].

After the underlying lawsuits were initiated, the Insurers filed this action

in the District Court below, seeking a declaratory judgment that they are not

required to defend Emson in the underlying lawsuits, under the terms of the

Policies.  The parties cross‐moved for summary judgment and the District Court
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granted judgment to the Insurers on September 16, 2014.  The District Court

concluded that “all of the allegations” against Emson in the underlying lawsuits

fall into the coverage exclusion for “personal and advertising injury” caused by

knowing violations of another’s rights.  App’x 227.  In so concluding, the District

Court noted that “it is readily apparent that Emson’s alleged conduct was

intentional and knowing,” as the underlying complaints “allege that Emson

intentionally passed along the consumers’ private information as part of a

scheme to defraud those consumers.”  App’x 227.  On June 10, 2015, the District

Court denied Emson’s motion to alter or amend the judgment, reiterating that

“the factual allegations in the underlying complaints, upon which all the claims

against Emson rest, necessarily concern knowing violations.”  App’x 229–30.  

Emson appeals, principally arguing that the District Court misapplied the

knowing violation exclusion in finding that it relieved Insurers of their duty to

defend Emson in the underlying lawsuits.   

DISCUSSION

“We review de novo a district court’s ruling on cross‐motions for

summary judgment, in each case construing the evidence in the light most

favorable to the non‐moving party.”  Ackerson v. City of White Plains, 702 F.3d 15,
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19 n.1 (2d Cir. 2012) (per curiam) (internal quotation marks omitted).  Summary

judgment is appropriate where “there is no genuine dispute as to any material

fact and the movant is entitled to judgment as a matter of law.”  Fed. R. Civ. P.

56(a).  “Because interpretation of an insurance agreement is a question of law, we

review the district court’s construction of the Polic[ies] de novo.”  VAM Check

Cashing Corp. v. Fed. Ins. Co., 699 F.3d 727, 729 (2d Cir. 2012).

New York law governs this action.  Lazard Freres & Co. v. Protective Life Ins.

Co., 108 F.3d 1531, 1538–39 (2d Cir. 1997) (noting that a federal court sitting in

diversity must apply New York choice‐of‐law principles, including the principle

that New York law applies in contract cases where it is the “center of gravity” of

the dispute). Under New York law, the Insurers have a “duty to defend,” under

which they are “obligated to defend the insured until the applicability of the

exclusions is determined.”  CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 720 F.3d

71, 77 (2d Cir. 2013) (alterations and internal quotation marks omitted).  “To

avoid the duty to defend, an insurer must demonstrate that the allegations of an

underlying complaint place that pleading solely and entirely within the

exclusions of the policy and that the allegations are subject to no other

interpretation.”   Id. (internal quotation marks omitted).  
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The District Court improperly held that the Insurers did not have a duty to

defend Emson in the underlying lawsuits pursuant to the knowing violation

exclusion.  In CGS Industries, we considered a claim similar to the one at issue

here.  Specifically, CGS Industries involved an insurance contract covering

“advertising injury,” which was defined to include “infringement of copyright,

title or slogan.”  Id. at 75 (alterations omitted).  The policy also included a

“knowing violation exclusion” that excluded coverage for advertising injury

“caused by or at the direction of the insured with the knowledge that the act

would violate the rights of another and would inflict . . . ‘advertising injury.’”  Id.

The action against the insured was for trademark infringement under the

Lanham Act; the insurer disclaimed coverage on the theory that the action fell

within the knowing violation exclusion to the policy.  Id. at 75‐76, 83.  CGS

Industries rejected the insurer’s argument, reasoning:

An insurer may refuse to defend “only if it could be concluded as a

matter of law that there is no possible factual or legal basis on which

the insurer might eventually be held to be obligated to indemnify

the insured under any provision of the insurance policy.”  Servidone

Constr. Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419, 424 (1985)

(internal quotation marks omitted).    “If the allegations of the

complaint are even potentially within the language of the insurance

policy, there is a duty to defend.”    Town of Massena v. Healthcare

Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443 (2002).    Therefore,

where several claims arise from the same set of facts, if any of the
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claims are covered by the policy, the insurer “consequently has a

duty to defend the entire action brought under any of the policies,”

including the uncovered claims.  Id. at 445[.]

Id. at 82–83 (alterations and parallel citations omitted).  Applying that standard,

we concluded that the Lanham Act claim against the insured did not, as a matter

of law, fall within the knowing violation exception.  The Lanham Act does not

require willful misconduct, and the complaint’s factual allegations did not

foreclose the possibility that the insured had inadvertently infringed.  At the

pleading stage, therefore, it remained possible that the insured would be held

liable for a negligent advertising injury covered by the policy.  On that basis, we

required the insurer to defend the underlying action.  See id. at 82–83 & n.12.

In keeping with our approach in CGS Industries, we consider both the

causes of action and the accompanying factual allegations against Emson and

conclude that the knowing violation exclusion alone did not absolve the Insurers

of their duty to defend.  It is true that “[i]n determining whether an insurer is

obliged to defend a lawsuit against the insured, we examine the allegations in the

complaint filed in that lawsuit.”  CGS Industries, 720 F.3d at 81.  Yet the duty to

defend exists only “until it is determined with certainty that the policy does not

provide coverage.”  Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 620 (2d
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Cir. 2001).  We cannot conclude with certainty that the policy does not provide

coverage, because the conduct triggering the knowing violation policy exclusion

is not an element of each cause of action.  Therefore, Emson could be liable to

plaintiffs even absent evidence that it knowingly violated its customers’ right to

privacy.1  Furthermore, while the underlying plaintiffs allege generally that

Emson acted knowingly and intentionally, the actual conduct described does not

rule out the possibility that Emson acted without intent to harm.2     

The underlying lawsuits both assert claims against Emson for breach of

contract and unjust enrichment, neither of which require a showing of

 

1 A hypothetical serves to illustrate this point.  Suppose a plaintiff asserts battery and

negligence claims against a defendant who is covered by policies similar to those

applicable in this case.  Suppose that the plaintiff’s complaint contains allegations of the

defendant’s intentional misconduct and, in the alternative, negligent conduct.  In such a

case, the insurer would not be relieved of its duty to defend simply because the

complaint included allegations of intent, as it cannot be “determined with certainty that

the policy does not provide coverage.” Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d

608, 620 (2d Cir. 2001).   Rather, the defendant could be held liable for negligence if the

factfinder finds the defendant acted only negligently.   

2 In CGS Industries, we acknowledged two cases decided by the First Department, which

propound a theory that even if a cause of action in a complaint against an insured could

be proved by negligence, and thus would not necessarily trigger a knowing violation

exclusion, if the actual conduct alleged rules out any workable negligence theory, the

policy exclusion applies.  Atlantic Mutual Insurance Co. v. Terk Technologies Corp., 763

N.Y.S.2d 56, 64 (1st Depʹt 2003); A.J. Sheepskin & Leather Co. v. Colonia Insurance Co., 709

N.Y.S.2d 82, 83 (1st Depʹt 2000).  While the plaintiffs in the underlying lawsuit assert

that Emson acted with knowledge, here, as in CGS Industries, the actual conduct alleged

does not foreclose the possibility of recovery against Emson on a negligence theory.  

Therefore, we have no occasion to decide whether the New York Court of Appeals

would likely embrace the First Department’s approach in those cases.  
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knowledge or intent. See Miller‐Davis Co. v. Ahrens Const., Inc., 495 Mich. 161, 178

(2014) (reciting the elements to establish breach of contract in Michigan); Smith v.

Jones, 113 Ill. 2d 126, 132 (1986) (reciting the elements for breach of contract in

Illinois); Tkachik v. Mandeville, 487 Mich. 38, 48 (2010) (reciting the elements of

unjust enrichment in Michigan); People ex rel. Hartigan v. E & E Hauling, Inc., 153

Ill. 2d 473, 497 (1992) (reciting the elements of unjust enrichment in Illinois).  

Accordingly, Emson could be held liable in the underlying lawsuits without a

finding that Emson “cause[d]” or “direct[ed]” the injury “with the knowledge

that the act would violate the rights of another and would inflict ‘personal

advertising injury’” as required by the knowing violation exclusion.  App’x 65.  

The District Court erred in ruling otherwise.  

Before the District Court below, the Insurers argued that, in addition to the

knowing violation exclusion, four additional policy exclusions apply to bar

coverage for the underlying lawsuits.  One such exclusion provided that the

Policies did not provide coverage for personal and advertising injuries for breach

of contract, defined as “‘[p]ersonal and advertising injury’ arising out of a breach

of contract, except an implied contract to use another’s advertising idea in your

‘advertisement.’”  App’x 65.  We find that this exclusion applies to deny coverage
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for the breach of contract claims in the underlying actions.  We also find,

however, that none of these exclusions applies to bar coverage for the unjust

enrichment claims against Emson.  Because this is a case where “several claims

arise from the same set of facts,” and where at least one “of the claims [is]

covered” by the Policies, the Insurers have a duty to defend the entire action

brought under any of the Policies, including the uncovered claims.  CGS

Industries, 720 F.3d at 83 (internal quotation marks omitted).

Accordingly, the judgment of the District Court is REVERSED, and the

case is REMANDED with instructions to enter judgment for the defendant.  

       FOR THE COURT:

       Catherine O’Hagan Wolfe, Clerk