Nautilus Insurance Company v. Roadrunner Restoration Company, LLC

Background

This insurance-coverage dispute arose from Hurricane Harvey damage in Texas. Key Allegro Condominiums Council of Co-Owners, Inc. hired Roadrunner Restoration to perform emergency mitigation and reconstruction work. Roadrunner was paid more than $13 million from insurance proceeds, later stopped work, demanded $800,000 from Key Allegro, and began arbitration. Key Allegro asserted a counterclaim alleging construction defects and seeking more than $10 million.

Nautilus had issued two liability policies to Roadrunner covering September 7, 2021, through September 7, 2022. Nautilus sued Roadrunner and Key Allegro in New York for a declaration that the policies did not cover damages Roadrunner might owe Key Allegro. Roadrunner later became known as Spring Forest Company LLC and filed for bankruptcy. Nautilus discontinued the case against Roadrunner’s corporate parent, Roadrunner Restoration Holdings, LLC. Key Allegro separately filed a Texas state-court action seeking a declaration that coverage was available under the policies.

Key Allegro’s Motion

Key Allegro moved to dismiss or stay the New York action for lack of personal jurisdiction. It argued that it had no connection to New York, was not a party to the policies, and had not agreed to the policies’ New York forum-selection clause. It alternatively sought dismissal based on the inconvenience of litigating in New York.

The court rejected Nautilus’s argument that the bankruptcy automatic stay prevented Key Allegro from making the motion. The court explained that the stay generally protects the bankruptcy debtor, Roadrunner, rather than third parties such as Key Allegro. The court also stated that issues concerning the Texas action and whether that action violated the automatic stay belonged in the bankruptcy court.

Personal Jurisdiction and Forum Clause

The court held that it lacked personal jurisdiction—the legal power to hear a case against a defendant—over Key Allegro under New York’s long-arm statute. Key Allegro had no identified New York contacts, did not conduct business there, did not commit a tort there, and did not own New York real property. The court found no basis for either general or specific jurisdiction.

The court also held that Key Allegro had not consented to New York jurisdiction through the policies’ forum-selection clause. The clause stated that “the Insured and the Company” agreed to litigate policy disputes in New York. The court found that the insured was Roadrunner, the company was Nautilus or Berkley Environmental, and Key Allegro was not a party, named insured, or listed additional insured under the policies.

The court further rejected applying the exception for a nonparty closely related to a contract signatory. It found no evidence that Key Allegro had a sufficiently close relationship with Roadrunner or Nautilus, that it was involved in the insurance transaction, or that it could have foreseen being sued in New York. The court described Key Allegro as a third-party claimant and a stranger to the policies’ forum-selection clause.

Disposition

The court granted Key Allegro’s motion to dismiss for lack of personal jurisdiction and dismissed the case without prejudice as to Key Allegro. It did not reach Key Allegro’s alternative forum non conveniens argument. The court directed the Clerk to remove Roadrunner Restoration Holdings, LLC from the caption and place the case against Roadrunner Restoration Company, LLC on the suspense calendar, closing it administratively. The court stated that Nautilus could move to reopen the matter at an appropriate time.