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Audit Bureau of Circulations v. AXIS Specialty Insurance Co.

August 27, 2009


The opinion of the court was delivered by: Robert W. Gettleman United States District Judge

Judge Robert W. Gettleman


Plaintiff Audit Bureau of Circulations has filed a complaint against Axis Specialty Insurance Company seeking to recover the cost of defending several related lawsuits filed in the Eastern District of New York pursuant to a "Specialty Errors and Omissions Liability Insurance Policy" issued by defendant (the "Policy"). Defendant has filed a motion for summary judgment based solely upon the unambiguous language of the Policy and the allegations brought against plaintiff in the New York litigation. For the reasons discussed below, defendant's motion is granted.


Defendant is an Illinois corporation that audits and provides independent verification and dissemination of the circulation, readership and audience information of its members, which the complaint describes as "representatives of the publishing community, advertising agencies and advertisers: The Axis Policy provides in pertinent part that defendant insured plaintiff for any sum that plaintiff became "legally obligated to pay as Damages or Claim Expenses because of Claims as the result of a Wrongful Act in performing Insured Services for others." Insured services was defined as, "Audit, verification, attestation, standard setting and consulting regarding media and trade shows, including the preparation, publication and dissemination of data; the content and services provided over the internet websites of the Named Insured."

"Wrongful Act" is defined as "conduct or alleged conduct by You [plaintiff] or any person or organization for whom You are legally liable: (1) a negligent act, error or omission . . ."*fn1 Under the Policy, defendant was required to provide a defense to any action that alleged that the plaintiff committed a "wrongful act."

In 2006, Teletype Co., Inc., filed related class actions in the Eastern District of New York against several publishers and distributors of periodicals, along with plaintiff in the instant case (the "Teletype Litigation"). Teletype alleged generally that the publishers and distributors engaged in a fraudulent scheme involving what it termed "check swaps" and "dumping," in which the publishers and distributors falsely reported circulation in far greater amounts than they had actually achieved, resulting in falsely inflated charges to the advertisers who placed their ads in the publications. In addition, Teletype alleged that plaintiff in the instant case directed the publishers how to "paper over the check-swaps with falsified paperwork" and otherwise intentionally aided and abetted the other defendants' fraud. The original complaints in the Teletype Litigation also named several of plaintiff's officers and directors. As the result of a motion to dismiss filed by plaintiff in the Teletype Litigation, the individuals were dropped from the case and Teletype filed amended complaints. Typical of the allegations against plaintiff in the Teletype Litigation is the following:

53. Defendant ABC knowingly aided and abetted the Bedford Defendants' false representations to Plaintiff and the other members of the Class, and the Bedford Defendants' fraud could not have been committed without the substantial and knowing participation by the ABC [plaintiff] who knowing agreed to accept false documentation regarding paid circulation for Laptop and falsely certify the paid circulation data for Laptop.

54. ABC acted intentionally in permitting the Bedford Defendants to make the false and misleading inflated descriptions and representations of fact concerning circulation data of Laptop.*fn2

Upon being sued by Teletype, plaintiff demanded that defendant indemnify and defend it in the Teletype Litigation. Defendant refused, and continued to refuse to provide a defense because, it contended, the allegations against plaintiff in the Teletype Litigation constituted solely alleged intentional aiding and abetting of fraud, which was not covered as a "negligent act, error or omission" under the Policy. During subsequent motion practice in the Teletype Litigation, plaintiff was voluntarily dismissed from those actions. Plaintiff now seeks the costs of defense from defendant under the terms of the Policy. Defendant claims that the material undisputed facts (namely, the terms of the Policy and the allegations in the Teletype Litigation) entitle it to judgment as a matter of law. The court agrees.

Summary Judgment Standards

A movant is entitled to summary judgment under Rule 56 when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Unterreiner v. Volkswagen of America, Inc., 8 F.3d 1206, 1209 (7th Cir. 1993). Once a moving party has met its burden, the non-moving party must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. FED. R. CIV. P. 56(e); Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir. 1990). The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the party opposing the motion. Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir. 1992).

A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Stewart v. McGinnis, 5 F.3d 1031, 1033 (7th Cir. 1993). This standard is applied with added rigor in cases where issues of intent and credibility often dominate. Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035, 1038 (7th Cir. 1993) (citations omitted). However, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "The mere existence of a scintilla of evidence in ...

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