Travelers Casualty Insurance Company of America v. Blizzard Busters Snowplowing…

Background

Travelers brought this action under the Declaratory Judgment Act concerning a businessowner’s insurance policy issued to Blizzard Busters Snowplowing Corp. The underlying state-court action arose from Norma Reid-Lynch’s allegation that she slipped and fell on ice in a Costco parking lot. She asserted negligence claims against Costco Wholesale Corporation and the Blizzard Buster Entities. Costco asserted claims against the Blizzard Buster Entities for contractual indemnification, failure to procure insurance, contribution, and common-law indemnification.

Travelers sought declarations that the policy did not cover the Blizzard Buster Entities in the state-court action and that Travelers had no duty to defend or indemnify them. The Blizzard Buster Entities and Reid-Lynch did not appear, and the court entered a default declaratory judgment against them. Costco appeared and filed counterclaims seeking a declaration that Travelers had duties to defend and indemnify Costco as an additional insured, along with a breach-of-contract claim.

Motions and Standards

Costco moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that the complaint did not assert any allegations or claims against Costco. Travelers moved to dismiss Costco’s counterclaims under Rule 12(b)(6), arguing that Costco had not alleged a policy provision making it an insured or additional insured. The court applied the same general standard to both motions: the pleadings had to contain enough factual allegations to state a plausible claim for relief.

Costco’s Motion for Judgment on the Pleadings

The court held that Travelers could not keep Costco in the action merely because Costco had an interest in the outcome of Travelers’ coverage dispute with the Blizzard Buster Entities. The Declaratory Judgment Act is procedural and does not itself create an independent cause of action. To join Costco as a defendant, Travelers therefore had to plead a separate legal claim against it. Because Travelers had not done so, the court granted Costco’s motion for judgment on the pleadings and dismissed Costco from the action.

Travelers’ Motion to Dismiss the Counterclaims

The court applied New York law because the parties’ briefing treated New York law as governing. Costco conceded that it was not named as an insured in the policy and did not fall within the policy’s listed categories of insureds or additional insureds. Costco relied instead on two policy provisions.

First, Costco argued that the policy’s “insured contract” provisions required Travelers to cover Costco. The court rejected that argument. Even assuming that Costco’s agreement with the Blizzard Buster Entities qualified as an insured contract, the relevant coverage would benefit the insured—the Blizzard Buster Entities—not the other party to the contract. The provision therefore did not make Costco an insured or additional insured.

Second, Costco relied on the policy’s Supplementary Payments provision, which could require Travelers to defend an indemnitee of the Blizzard Buster Entities if six separate conditions were met. The court found that Costco had alleged compliance with three conditions but had not alleged facts showing compliance with the remaining conditions. Those conditions concerned the absence of a conflict of interest, a request by the indemnitee and the insured that Travelers conduct and control the defense, and specified written cooperation and authorization requirements. The court therefore concluded that Costco had not adequately alleged entitlement to coverage.

Because Costco had not established that it was an insured under the policy, the court denied Costco’s request for declaratory relief and dismissed its counterclaims. The court did not address the merits of Costco’s declaratory-relief and breach-of-contract claims beyond that coverage issue.

Disposition

The court granted Costco’s Motion for Judgment on the Pleadings and granted Travelers’ Motion to Dismiss. It dismissed the complaint and counterclaims without prejudice, allowing either party to file an amended pleading within 30 days. An amended pleading would replace, rather than supplement, the original pleading. The court stated that failure to file an amended pleading could result in dismissal of the case with prejudice.