Great American E&S Insurance Company v. BrandStorm, Inc.

Background

Great American E&S Insurance Company sought a declaratory judgment—a court ruling about the parties’ legal rights—concerning two insurance policies issued to BrandStorm, Inc. Great American argued that the policies did not cover BrandStorm’s losses from three shipments of hemp seeds sent to Canada.

BrandStorm purchased the policies through a California insurance agency, and the policies were delivered to BrandStorm in California. The first two shipments were sent to a co-packer in Nevada for processing and then shipped to BrandStorm’s Canadian customer. The customer and Whole Foods rejected the shipments after receiving them. BrandStorm later reported contamination involving burnt color, an off-odor, clumping, and mold. A third shipment was reportedly delivered with the same problems.

The policies included a New York choice-of-law provision. They also required BrandStorm to give notice of circumstances that could result in an insured event within specified time periods. Great American alleged that BrandStorm’s notice was too late under the 2017 policy and that the loss occurred before the 2018 policy began.

Issue and governing standard

BrandStorm moved to dismiss under Rule 12(b)(2) because the court lacked personal jurisdiction, meaning the authority to require a defendant to litigate in that forum. To survive the motion, Great American had to make a preliminary showing that jurisdiction existed. The court first considered New York’s long-arm statute and then whether exercising jurisdiction would comply with the federal Constitution’s due-process requirement.

Great American relied primarily on Section 302(a)(1) of the New York Civil Practice Law and Rules. That provision can permit jurisdiction when a defendant transacted business in New York and the claim arose from that business. The court explained that the claim must have an identifiable connection or substantial relationship to the defendant’s New York activities.

The opinion also noted that Great American’s complaint appeared to invoke another New York provision concerning out-of-state tortious acts with consequences in New York. The court found that provision inapplicable because this was a contractual declaratory-judgment action, and Great American did not rely on it in opposing the motion.

Court’s analysis

The court held that Great American failed to make the required preliminary showing that this insurance dispute arose from BrandStorm’s conduct in New York. The policies were between a Delaware corporation with its principal place of business in Ohio and a California corporation. They were obtained through a California agent and delivered in California. The relevant events also occurred outside New York: the co-packer was in Nevada, the customer was in Canada, and the shipments went to Canada. Great American did not identify any event concerning the shipments that occurred in New York.

The court rejected Great American’s argument that the policies’ New York choice-of-law provisions showed that BrandStorm consented to New York jurisdiction. A choice-of-law provision was relevant to the jurisdiction analysis but did not, by itself, constitute voluntary submission to personal jurisdiction.

The court also rejected Great American’s reliance on BrandStorm products being stocked in New York Whole Foods stores and BrandStorm’s participation in a Manhattan trade show. Those contacts did not give rise to the particular dispute over the three shipments sent to Canada. Great American did not argue that those shipments reached New York, were bound for New York, or otherwise involved New York.

Disposition

Judge Denise Cote granted BrandStorm’s April 23 motion to dismiss for lack of personal jurisdiction. The Clerk of Court was directed to close the case. The opinion did not decide whether the insurance policies actually covered BrandStorm’s losses.