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Fernandez v. Zurich American Insurance Co.

United States District Court, D. Connecticut

March 8, 2017

DAVID FERNANDEZ, ET. AL. Plaintiffs,
v.
ZURICH AMERICAN INSURANCE COMPANY, Defendant.

          RULING ON SUMMARY JUDGMENT MOTIONS

          Michael P. Shea, U.S.D.J.

         I. Introduction

         Plaintiffs David Fernandez and O.E.M. America of Connecticut, Inc., d/b/a O.E.M. America (“OEM”), have sued Zurich American Insurance Company (“Zurich”), alleging that it breached a duty to defend Plaintiffs under an insurance policy in a lawsuit brought against them. Zurich contends that it had no duty to defend Plaintiffs because the lawsuit's allegations fall outside the policy's coverage. Plaintiffs and Zurich have filed cross-motions for summary judgment. These motions are granted in part and denied in part. For the reasons set forth below, I find that (i) Zurich has a duty to defend Plaintiffs in the underlying lawsuit because the lawsuit's allegations “possibly” fall within the coverage of the policy, (ii) Zurich breached its duty to defend Plaintiffs and the Court will determine damages in a future proceeding, and (iii) Zurich is entitled to summary judgment on Plaintiffs' breach of the covenant of good faith and fair dealing claims because Plaintiffs have not opposed Zurich's motion for summary judgment on those claims.

         II. Facts

         The following facts are taken from the parties' Local Rule 56(a) Statements and the attached exhibits. See Defendant's Local Rule 56(a)(1) Statement, ECF No. 50; Plaintiffs' Local Rule 56(a)(2) Statement, ECF No. 57-1; Plaintiffs' Local Rule 56(a)(1) Statement, ECF No. 52-2; Defendant's Local Rule 56(a)(2) Statement, ECF No. 58-1.

         A. The Underlying Action

         The underlying lawsuit was brought against Plaintiffs in this Court by Roth Staffing Companies L.P. (“Roth”), and involved allegations that a Roth employee had left to work for a company affiliated with Plaintiffs in violation of his agreement with Roth. See Roth Staffing v. Brown, Docket No. 13-cv-216 (D. Conn.)(JBA).

         Roth provides staffing, recruiting, and administrative services to companies in Connecticut and nationwide. (Plaintiff's Local Rule Statement (“Pl.'s L.R. 56(a)(1) Stmt.”), ECF No. 52-2 at ¶ 10; Defendant's Local Rule 56(a)(2) Statement (“Def.'s L.R. 56(a)(2) Stmt.”), ECF No. 58-1 at ¶ 10.) Roth employed Thomas Brown in its Hartford, Connecticut office between September 2006 and September 2007, and later between June 2010 and September 2012. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶¶ 11-12, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶¶ 11-12.) When Brown rejoined Roth in June 2010, he executed an employment agreement (the “Employment Agreement”). (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶¶ 12-13, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶¶ 12-13.) The Employment Agreement contained restrictive covenants, including non-competition, confidentiality, and non-solicitation clauses. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶¶ 11-12, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶¶ 11-12.) After Brown left Roth, he joined OEM ProStaffing, Inc. (“ProStaffing”). (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶ 18, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶ 18.) ProStaffing also provides staffing services in the Hartford area. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶ 25, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶ 25.)

         On February 25, 2013, Roth sued Brown and ProStaffing in this Court (the “Underlying Action”). (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶ 1, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶ 1.) Roth amended its complaint twice, adding OEM as a defendant after the first amendment and Fernandez as a defendant after the second amendment. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶¶ 5-6, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶¶ 5-6.) Roth alleged, inter alia, that Brown had breached the Employment Agreement and that ProStaffing had tortiously interfered with the Employment Agreement. (ECF No. 50-3 at ¶¶ 45-57.) Roth's second amended complaint (the “Second Amended Complaint”) sought to pierce ProStaffing's corporate veil to render Fernandez and OEM liable for ProStaffing's conduct. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶¶ 5, 7, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶¶ 5, 7.)

         The Second Amended Complaint includes the following allegations:

In or around January 2013, Roth Staffing learned that Brown, working on behalf of…ProStaffing, was soliciting business from Lincoln Waste Management, a Roth Staffing customer whom he had serviced during his employment by Roth Staffing. Roth Staffing also learned that Brown, working on behalf of…ProStaffing, had successfully placed at least one temporary employee with Lincoln Waste Management, and that he was attempting to place other candidates with that customer.
Additionally, Brown has placed postings on job search websites on behalf of…ProStaffing. The job postings advertise manufacturing and production positions, and customer service positions, which Brown is seeking to fill for customers in the Hartford area. The postings list Brown as the contact person for…ProStaffing…The recruitment and placement of manufacturing and production professionals, and customer service representatives, are services which directly compete with Roth Staffing's Ultimate Staffing line of business. Indeed, Brown performed those same services for Roth Staffing during 2012 and earlier.
One of [Brown's] job postings describes…ProStaffing as follows:…ProStaffing is dedicated to the recruitment and placement [sic] of manufacturing and production professionals. With decades of experience we work with the most respected clients in the Hartford market place and place top talent with them.

(ECF No. 50-3 at ¶¶ 35-37.)

         After cross-motions for summary judgment, the court in the Underlying Action concluded that the Employment Agreement's restrictive covenants were enforceable and that Brown had breached those covenants. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶ 36, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶ 36.) The court granted Roth's motion for partial summary judgment and denied the motions by OEM and Fernandez. On February 16, 2016, the parties reported that the case had settled, and the court issued an order of dismissal. (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶ 37, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶ 37.)

         B. The Zurich Policy

         Zurich issued a “Staffing Industry Professional Liability” insurance policy to OEM for the period between February 28, 2012, and February 28, 2013 (the “Zurich Policy”). (Def.'s L.R. 56(a)(1) Stmt., ECF No. 50 at ¶ 38, Pl.'s L.R. 56(a)(2) Stmt., ECF No. 57-1 at ¶ 38.) The Zurich Policy provides:

         Section I - INSURING AGREEMENTS

         A. Coverage

1. We will pay those sums that the insured becomes obligated to pay as “damages” because of any “claim” arising from a “wrongful act” to which this insurance applies. The “wrongful act” must take place:
a. During the policy period; and b. In the “coverage territory”.

         B. Defense and Investigation

We shall have the right and duty to defend the insured against any “claim” based on a “wrongful act” seeking “damages” to which this insurance applies, even if any of the allegations of the “claim” are groundless, false or fraudulent.
We shall have the right to select defense counsel for the investigation, defense or settlement of the “claim” and we shall pay all reasonable “claim expenses” arising from the “claim.”

(ECF No. 50-8 at 3.) The Zurich Policy defines a “claim” as:

1. Written demand for money resulting from a “wrongful act”; or
2. “Suit” resulting from a “wrongful act”.

(Id. at 11.) The Zurich Policy defines a “Wrongful Act” as:

Any actual or alleged act, error or omission, misstatement, or misleading statement in the course of providing “staffing services” to your clients by you or by any ...

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