Ameriprise Captive Insurance Company v. Audatex North America

Background

Ameriprise, acting as subrogee of IDS Property Casualty Insurance Company, sued Audatex for breach of contract. The parties had entered an Application Service Provider Agreement under which Audatex provided vehicle-valuation software and services. The agreement included provisions allocating responsibility for Ameriprise’s instructions, its compliance with laws affecting its business, and its use of Audatex’s services. It also included an indemnification provision and required Audatex to carry specified insurance.

An earlier customer class action alleged that Ameriprise used Audatex valuation reports, including a typical negotiation adjustment, to determine payments for totaled vehicles and thereby violated insurance contracts and Washington law. Ameriprise settled that litigation and alleged that it paid approximately $2.5 million to defend and resolve it. Ameriprise said Audatex refused its requests to defend and indemnify it and did not provide proof of the insurance coverage required by the agreement.

Motion to Dismiss

Audatex moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately alleges a legally plausible claim. The complaint asserted one breach-of-contract count based on two theories: failure to defend and indemnify Ameriprise for the earlier litigation, and failure to obtain required insurance.

Indemnification Theory

Applying New York law, the court explained that an indemnification obligation must reflect the parties’ unmistakable intent. The court considered the agreement as a whole rather than reading the indemnification provision in isolation.

The court concluded that the agreement placed responsibility on Ameriprise for the consequences of its instructions to Audatex, its compliance with laws affecting its business, and its use of Audatex’s services to assist with that compliance. The court found that these provisions reasonably encompassed the conduct alleged in the earlier litigation. The agreement also stated that Audatex had no responsibility relating to those matters and cautioned Ameriprise not to rely solely on the services for legal compliance.

The court further concluded that the indemnification provision did not unmistakably expand Audatex’s responsibilities to cover the earlier litigation. Even if the provision or the agreement were ambiguous, the court stated that ambiguity was insufficient under New York’s strict standard for enforcing an indemnification obligation. The court therefore dismissed Ameriprise’s claim for breach of the indemnification provision.

Insurance Theory

The court also dismissed Ameriprise’s claim that Audatex failed to obtain required insurance. A breach-of-contract claim must identify the contract provision allegedly breached and plead facts showing damages caused by that breach. The court found that referring generally to Section 24 and Schedule 8.0 was insufficient because those provisions covered multiple insurance requirements. The court also found that Ameriprise alleged no facts showing that Audatex’s failure to obtain insurance caused the claimed approximately $2.5 million in expenses or any other damages.

Disposition

The court granted Audatex’s motion to dismiss. The court denied Ameriprise’s request for leave to amend because Ameriprise did not explain what amendment it would make or how amendment would cure the deficiencies. The complaint was dismissed with prejudice, and the clerk was directed to close the case.