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GREY DIRECT, INC. v. ERIE INSURANCE EXCHANGE

November 7, 2005.

GREY DIRECT, INC. Plaintiff,
v.
ERIE INSURANCE EXCHANGE, Defendant.



The opinion of the court was delivered by: AMY ST. EVE, District Judge

MEMORANDUM OPINION AND ORDER

In its Second Amended Complaint, Plaintiff Grey Direct, Inc. ("Grey Direct") alleges that Defendant Erie Insurance Exchange ("Erie") breached its duty to defend and duty to indemnify under the terms of an insurance policy. Before the Court are the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56(c).*fn1 For the following reasons, the Court grants Erie's motion for summary judgment and denies Grey Direct's motion for summary judgment.

FACTUAL BACKGROUND

  I. Introduction

  Grey Direct is a Delaware corporation with its principal place of business in New York. (R. 61-1, Def.'s Local Rule 56.1 Stmt. Facts, ¶ 1.) Erie is a Pennsylvania corporation with its principal place of business in Pennsylvania. (Id. ¶ 2.) CommDirect, Inc. ("CommDirect") is a direct mail advertising production company. (Id. ¶ 6.) The sole shareholder of CommDirect, Mary Manade ("Manade") and her husband started a separate corporation, Unicomm Direct, Inc. ("Unicomm Direct") in May 2001. (R. 69-1, Grey Direct's Local Rule 56.1 Stmt. Addl. Facts, ¶ 1.) Unicomm Direct had personalization, bindery, and inserting equipment to do the physical work of direct mailing. (Id. ¶ 2, Def.'s Stmt. ¶ 9.)

  II. Grey Direct's Advertising Campaign

  Grey Direct managed the "Fly Three, Fly Free" advertising campaign for United Air Lines. (Def.'s Stmt. ¶ 10.) If a customer purchased three round trip tickets on United Air Lines, the customer qualified for one free round trip ticket. (Id.) On July 16, 2003, Grey Direct contracted with CommDirect to print, address, and mail travel certificates for free round trip tickets to qualified customers. (Id. ¶ 11; R. 63-1, Pl.'s Resp. to Def.'s Stmt. ¶ 11.) CommDirect brokered the work to Unicomm Direct. (Def.'s Stmt. ¶ 12.) On September 11, 2003, Unicomm Direct mailed two travel certificates — instead of one — to 5,997 qualified customers, and thus Grey Direct had to honor more travel certificates than it expected. (Id. ¶ 24.)

  In a letter dated September 18, 2003, Manade, on behalf of Unicomm Direct, notified Grey Direct of the September 11, 2003 duplication error. (Id. ¶ 25; R. 49-1, Second Ad. Compl. ¶ 15(c), Ex. D.) On September 24, 2003, Manade signed an agreement with Grey Direct in which she agreed, among other things, to obtain "Errors and Omissions Insurance Policies." (Def.'s Stmt. ¶ 27; Pl.'s Resp. to Def.'s Stmt. ¶ 27.)

  III. Insurance Policy & Endorsement

  In early August 2003, Manade contacted Chris Bechtold of the Bechtold Insurance Agency to obtain business owners' insurance for Unicomm Direct. (Def.'s Stmt. ¶¶ 14, 15.) Thereafter, Bechtold arranged for Erie to provide insurance coverage for Unicomm Direct. (Id. ¶¶ 12, 18; Pl.'s Stmt. ¶ 5.) On September 4, 2003, Erie issued Unicomm Direct an insurance policy that was in effect from August 25, 2003 to August 25, 2004. (Second Ad. Compl., Ex. A; Def.'s Stmt. ¶ 21.) This original insurance policy did not contain a Printers Errors and Omissions endorsement. (Def.'s Stmt. ¶ 19.)

  Around October 15, 2003, Manade contacted Bechtold and requested information concerning Printers Errors and Omissions coverage for Unicomm Direct. (Id. ¶ 29.) On October 23 or 24, 2003, Manade told Bechtold to add the Printers Errors and Omissions endorsement to Unicomm Direct's underlying insurance policy. (Id. ¶ 31.) On October 24, 2003, Erie issued an amended declaration stating that the Printers Errors and Omissions coverage was effective as of October 15, 2003. (Id. ¶¶ 35, 36; R. 51-1, Def.'s Resp. Memo. to Judgment on Pleadings, Ex. C.) On January 8, 2004, Erie issued another amended declaration stating that the Printers Errors and Omissions coverage was effective as of August 25, 2003. (Second Ad. Compl., Ex A.)

  PROCEDURAL BACKGROUND

  On December 3, 2003, Grey Direct filed a complaint against CommDirect, but not Unicomm Direct, in federal district court concerning the "Fly Three, Fly Free" advertising campaign. (Def.'s Stmt. ¶¶ 43, 44.) On May 20, 2004, Grey Direct voluntarily dismissed the action against CommDirect. (03 C 8774, R.15-1.) Meanwhile, on May 11, 2004, Grey Direct filed a claim for breach of contract against Unicomm Direct. (Case No. 04 C 3328, R. 1-1). On June 22, 2004, Judge Der-Yeghiayan of the United States District Court for the Northern District of Illinois entered a default judgment against Unicomm Direct in the amount of $967,720, plus court costs and attorney's fees. (Case No. 04 C 3328, R. 5-1.) On August 26, 2004, Judge Der-Yeghiayan entered an "Agreed Order for the Turnover Rights to Insurance Policy," that assigned Unicomm Direct's insurance policy rights ...


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