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Frankenmuth Mutual Insurance Co. v. The Hockey Cup, LLC

United States District Court, N.D. Illinois, Eastern Division

September 20, 2019

Frankenmuth Mutual Insurance Company Plaintiff,
The Hockey Cup, LLC, et al., Defendants.


          Elaine E. Bucklo, United States District Judge.

         In this insurance coverage dispute, plaintiff Frankenmuth Mutual Insurance Company seeks a declaratory judgment regarding its duty to defend the four defendants named in this suit-three corporate entities and their officer, Roger Dewey-in a lawsuit captioned National Hockey League and NHL Enterprises LP v. The Hockey Cup, LLC; ABC Stein, LLC; A&R Collectibles, Inc.; and Roger S. Dewey, No. 1:18-cv-06597 (S.D.N.Y.) (the “NHL Suit”). All agree that only two defendants-A&R Collectibles, Inc., and Dewey as A&R’s executive officer-are insured by the “Businessowners Policy” at issue. Accordingly, plaintiff seeks a declaration that any duty to defend it may have with respect to the NHL Suit is limited to the reasonable defense costs allocable to the defense of its insureds. Alternatively, plaintiff seeks a declaration that it owes no duty to defend at all because its insureds failed to give it timely notice of the claims asserted in the NHL Suit.[1]

         The NHL Suit settled during the pendency of this action, with plaintiff paying the entirety of the settlement amount. Plaintiff has also paid one-third of defendants’ reasonable defense costs in defending the NHL Suit. Plaintiff does not seek the return or reimbursement of these payments, and the parties do not appear to dispute that plaintiff’s payment of the settlement amount satisfies any indemnity obligation plaintiff owes under the Businessowners Policy. Accordingly, the only substantive issue remaining for resolution, presently before me on cross-motions for summary judgment, is whether plaintiff owes the remaining two-thirds of defendants’ defense costs.[2]

         At the threshold, the parties dispute whether Illinois law or New York law governs the coverage question. Because my jurisdiction over this action is based on diversity, I apply Illinois choice-of-law principles to determine which state’s law governs the interpretation of the insurance contract. Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 873 (7th Cir. 2000). And because the policy at issue does not contain an express choice-of-law provision, I examine the question using Illinois’ “most significant contacts” test. Id. Under that test:

[I]nsurance policy provisions are generally governed by the location of the subject matter, the place of delivery of the contract, the domicile of the insured or of the insurer, the place of the last act to give rise to a valid contract, the place of performance, or other place bearing a rational relationship to the general contract.

Lapham–Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842, 845 (1995) (quotation marks and citation omitted). While all of these factors are relevant to the choice-of-law inquiry, “the location of the insured risk is given special emphasis.” Society of Mount Carmel v. National Ben Franklin Ins. Co. of Ill., 643 N.E.2d 1280, 1287 (1994).

         “Where the insured company conducts business nationwide...the location of the insured risk is the place where the insured’s liability actually arises.” Western American Ins. Co. v. Moonlight Design, Inc., 95 F.Supp.2d 838, 841-42 (N.D. Ill. 2000) (applying New York substantive law to coverage dispute involving insurance policy executed in Illinois and issued to an Illinois company sued in New York by a New York company claiming copyright infringement).

         In this case, as in Moonlight Design, A&R and Dewey’s liability arose in New York. While is true that the insureds are domiciled in Illinois and that the insurance contract was delivered in this state, the NHL Suit was filed in New York by entities headquartered in that state; it asserts claims under federal and New York state law; and it challenges defendants’ use of the NHL’s intellectual property in marketing and sales conducted in New York and elsewhere. See NHL Suit Compl. at ¶ 81 (alleging infringing sales and marketing on A&R’s retail website, See also id., at ¶¶ 14-15, ¶¶ 134-149.[3] In view of the “special emphasis” Illinois law gives to the location of the risk, Society of Mount Carmel, 643 N.E. at 1287, I conclude that New York law governs the interpretation of the policy at issue. See American Builders & Contractors Supply Co., Inc. v. Home Ins. Co., 1997 WL 43017, at *2 (N.D. Ill. Jan. 28, 1997) (applying Pennsylvania law to claims under general liability policy executed and delivered in Illinois for defense of suit brought in Pennsylvania courts, explaining that “the Illinois Appellate Court has elected to apply the law of the location of the insured risk rather than the place where the contracts were delivered and executed.”) (citing Society of Mount Carmel, 643 N.E.2d at 1287 and Diamond State Ins. Co. v. Chester-Jensen Co., 611 N.E.2d 1083, 1094 (Ill.App.Ct. 1993)).

         Turning to the substantive issues, I begin with the question of whether plaintiff was relieved of any duty to defend the NHL suit based on A&R’s failure to provide timely notice of its claim, since if plaintiff owed no duty at all, I need not reach the parties’ dispute over whether or how to allocate defense costs. Plaintiff argues that any duty to defend it might otherwise have had under the policy was vitiated by A&R’s failure to provide timely notice of the claims asserted in the NHL Suit. A&R and Dewey respond that A&R’s notice to plaintiff was not untimely because they had no knowledge of the NHL’s claims against them until July 27, 2018, when it was served with the complaint in the NHL Suit. They further argue that even if notice was untimely, plaintiff may not deny coverage on that basis because it has not shown prejudice from the delay and because it abandoned reliance on A&R’s putative late notice by defending the NHL Suit and failing to assert late notice as a coverage defense at any time before filing the complaint in this law suit.

         Under New York law, “compliance with the notice provision of an insurance contract is a condition precedent to all of the insurer’s duties and liability under the policy, ‘including the duty to defend.’” Gelfman v. Capitol Indem. Corp., 39 F.Supp. 3d 255');">39 F.Supp. 3d 255, 268 (E.D.N.Y. 2014) (quoting Commercial Union Ins. Co. v. Int’l Flavors & Fragrances, Inc., 822 F.2d 267, 273 (2d Cir. 1987)) (additional citations omitted). The policy at issue here requires A&R to notify plaintiff “as soon as practicable” of “an offense which may result in a claim, ” or if “a claim is made or ‘suit’ is brought against any insured.” Compl. Exh. E at 59. New York law defines “as soon as practicable” to mean “within a reasonable time under all the circumstances.” Id. at 267 (E.D.N.Y. 2014). The question is fact-dependent, but it may be determined as a matter of law when “(1) the facts bearing on the delay in providing notice are not in dispute, and (2) the insured has not offered a legally valid excuse for the delay.” Id. at 268 (citations omitted).

         Plaintiff argues that A&R knew of the trademark claims asserted in the NHL Suit at least by July of 2016 and learned of the counterfeiting claims in March of 2017, when the NHL Suit plaintiffs sent cease-and-desist letters in conjunction with A&R’s activities. Yet it is undisputed that A&R did not notify plaintiff of these claims until August 6, 2018, when it tendered defense of the NHL Suit. There is no question that receipt of a cease-and-desist letter can trigger an insured’s duty to provide notice of a potential claim. See Gelfman 39 F.Supp. 3d at 268-69 (E.D.N.Y. 2014) (granting summary judgment to insurer based on insureds’ failure to provide timely notice within thirteen months after receiving cease-and-desist letter). Less clear is whether the July 2016 letter-which was sent to Roger Dewey at the business address of Stanley Stein, LLC, [4] and which objected to Stanley Stein, LLC’s infringement of the NHL’s trademark rights-reasonably informed A&R of a potential claim against it (or against Dewey in his capacity as an executive of that entity). But even assuming that it did not, the March 30, 2017, email-which was directed to defendants’ attorney, and which identified specific, unlawful conduct by A&R- unquestionably did.

         Indeed, although the March 2017 email begins by reiterating the NHL’s objection to Stanley Stein, LLC’s “infringement of [NHL’s] trademark and trade dress rights” and seeking confirmation of steps that entity had taken (or would take) to cease the infringement, it goes on to state:

Additionally, we recently learned that Mr. Dewey is selling counterfeit NHL merchandise through the A&R Collectibles website, including but not necessarily limited to a counterfeit Chicago Blackhawks jersey.... Trafficking in counterfeit goods is a crime under federal law. The sale of the counterfeit Chicago Blackhawks jersey also violates the trademark rights of both the NHL and the Chicago Blackhawks Hockey Team, Inc.

Compl. Exh. C at 2. The email then demands that A&R “(1) cease all sales of the Chicago Blackhawks jersey; (2) advise NHL of the vendor from which it purchased those products; (3) provide an accounting of its sales of that product; and (4) deliver any remaining inventory of the ...

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