FLRish Retail Management & Security Services LLC v. Hallmark Specialty…

Background

Hallmark issued FLRish an employment practices liability policy covering March 1, 2018, through March 1, 2019, and later renewed the policy for a period ending March 31, 2020. Both policies contained an exclusion for claims previously reported under another policy that the Hallmark policy later succeeded in time.

The dispute concerned a discrimination and retaliation lawsuit brought by a former FLRish bookkeeper. FLRish first reported that claim to another insurer. That insurer initially agreed to provide coverage but later withdrew coverage, according to FLRish. FLRish then reported the claim to Hallmark, which declined coverage. FLRish sued Hallmark for breach of contract, breach of the implied duty of good faith and fair dealing, and declaratory relief.

Court’s Analysis

The court granted Hallmark’s motion under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court held that the policy exclusion plainly applied because FLRish had previously reported the claim under the earlier policy, and the Hallmark policy succeeded that policy in time.

FLRish did not dispute those two facts. Instead, it argued that the exclusion should not apply because the earlier insurer withdrew coverage. The court rejected that argument, concluding that the exclusion applied whether or not the earlier policy actually covered the claim. The court also rejected FLRish’s argument based on hypothetical situations involving a clearly inapplicable earlier policy, noting that FLRish did not claim the earlier policy was clearly inapplicable.

Disposition

The court held that the exclusion defeated all three causes of action. Because Hallmark had no obligation to provide coverage, FLRish could not maintain its contract claim or its claim for breach of the implied duty of good faith and fair dealing. The request for declaratory relief also failed because it depended on those claims. The court did not consider Hallmark’s other dismissal arguments.

The court concluded that FLRish had not explained how amendment could avoid the exclusion and that amendment would be futile. It therefore dismissed FLRish’s complaint with prejudice and granted Hallmark’s motion to dismiss.