Great American E&S Insurance Company v. Toy Quest Ltd.

Background

Great American issued three general commercial liability policies to Toy Quest Ltd. and Banzai International Limited covering specified periods between February 2, 2016, and August 5, 2019. The policies covered certain types of “personal and advertising injury,” including malicious prosecution, but did not specifically cover abuse of process.

ASI, Inc. sued the defendants in an underlying action alleging, among other things, violations of the Racketeer Influenced and Corrupt Organizations Act, fraud, and abuse of process. After being sued, the defendants asked Great American to provide a defense and indemnification under the policies. Great American defended them under a reservation of rights and then brought this case seeking a declaration that the policies did not provide coverage.

Great American moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The defendants argued that California law should apply, while Great American argued for Minnesota law.

Choice of Law

The court held that Minnesota law applied. It found no outcome-determinative conflict between California and Minnesota law because it predicted that both states would conclude that “malicious prosecution” unambiguously excludes abuse of process in this type of insurance policy. The court also concluded that Minnesota’s significant-contacts analysis supported applying Minnesota law. Although some defendants had California connections and the policies referenced California law, the underlying action and related conduct had stronger connections to Minnesota.

Insurance Coverage

Under Minnesota law, an insurer’s duty to defend depends on the allegations in the underlying complaint and the policy language. The duty arises when any part of the underlying claims is arguably covered.

The court concluded that abuse of process and malicious prosecution are distinct torts. Because the parties specifically included malicious prosecution in the policies but omitted abuse of process, the court held that a reasonable insured would not understand the policies to cover the additional, unstated claim. The term “malicious prosecution” therefore meant only malicious prosecution and did not encompass abuse of process.

The court held that the abuse-of-process claim was not even arguably covered, so the policies did not trigger Great American’s duty to defend. Because the policies were not triggered, the court did not address Great American’s argument concerning policy exclusions. It also did not decide whether Great American had a duty to indemnify, explaining that the duty to defend is broader than the duty to indemnify.

Disposition

The court granted Great American’s motion for judgment on the pleadings and ordered that judgment be entered accordingly. The ruling declared that Great American had no duty to defend the defendants in the underlying action against the abuse-of-process claim.