Valley Forge Insurance Company v. Aquawood, LLC

Background

Valley Forge issued a general commercial liability policy to Aquawood, LLC and Brian Dubinsky for a policy period from April 30, 2015, to April 30, 2016. ASI, Inc. later sued Aquawood, Dubinsky, and others, alleging violations of the Racketeer Influenced and Corrupt Organizations Act, fraud, and abuse of process. After being sued for abuse of process, the defendants tendered the underlying lawsuit to Valley Forge for defense and indemnification.

Valley Forge had been defending the defendants under a reservation of rights. It then sought a declaration that the policy was not triggered by the claims in the underlying lawsuit and that it had no duty to defend or indemnify the defendants. Valley Forge moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court applied the same standard used for a motion to dismiss for failure to state a claim and explained that judgment on the pleadings is proper when there is no dispute about any material fact and the moving party is entitled to judgment as a matter of law.

Choice of Law

The parties disputed whether Minnesota or California law applied. The court concluded that Minnesota law governed. It found no outcome-determinative conflict because it predicted that both the California Supreme Court and the Minnesota Supreme Court would treat “malicious prosecution” in this type of insurance policy as unambiguously excluding abuse of process.

The court also concluded that Minnesota law would apply even if a conflict existed. Minnesota had the strongest contacts with the dispute: the underlying lawsuit was venued in Minnesota, the allegations concerned conduct in Minnesota, Tennessee, and New Jersey, and the judgment that ASI sought to enforce had been issued in Minnesota. The court found some factors neutral, one factor favored California, and another favored Minnesota; it also concluded that applying Minnesota law represented the more up-to-date understanding of the policy language.

Policy Coverage

Under Minnesota law, the duty to defend comes from the insurance contract. Courts compare the allegations in the underlying complaint with the policy language. The policy covered certain “personal and advertising injury” offenses, including “malicious prosecution,” but did not list abuse of process.

The court held that malicious prosecution and abuse of process are distinct torts. Because the policy specifically listed malicious prosecution but omitted abuse of process, the court determined that a reasonable insured would not understand the policy to cover the additional, unstated claim. The court therefore held that “malicious prosecution” was unambiguous and meant only malicious prosecution.

Because abuse of process was not even arguably covered, the policy did not trigger Valley Forge’s duty to defend the defendants in the underlying lawsuit. The court did not address whether a policy exclusion applied. It also did not determine whether Valley Forge had a duty to indemnify, explaining that the duty to defend is broader than the duty to indemnify.

Disposition

The court granted Valley Forge’s motion for judgment on the pleadings and ordered judgment entered. The ruling declared that Valley Forge had no duty to defend Aquawood and Brian Dubinsky in the underlying ASI lawsuit.