United States District Court, D. Connecticut
RULING ON MOTION TO DISMISS
BOND ARTERTON, U.S.D.J.
Susan Kostin brings this action for breach of contract and
bad faith, claiming that Defendants Pacific Indemnity Company
and Federal Insurance Company have wrongfully refused to
defend and indemnify her. Plaintiff's family company had
an investment account with Bernard Madoff, and Plaintiff
withdrew $3.75 Million from the company's Madoff account
in 2007-2008. After the discovery of Madoff's fraud, the
Bankruptcy Trustee commenced an adversary proceeding against
Plaintiff and others for recovery of withdrawn funds, and
settled with Plaintiff for $3.375 Million. Plaintiff alleges
that her losses were caused by Madoff making “wrongful
entries in the [Kostin] Company Account in order to
perpetuate [his] Ponzi Scheme[, ]” and that the Primary
Policy and Excess Policy at issue here define covered
personal injuries to include “wrongful entry.”
For the reasons set forth below, Defendants' Motion to
Dismiss is GRANTED.
is a resident of Darien, Connecticut, while Defendants
maintain their principal place of business in New Jersey.
(Compl. [Doc. # 1-2] ¶¶ 1-4.) Plaintiff's late
husband, Edward Kostin, purchased from Defendants a
Masterpiece Homeowner's Insurance Policy (the
“Primary Policy”) and a Masterpiece Excess
Liability Policy (the “Excess Policy”).
(Id. ¶¶ 7-9.) The Primary Policy insured
the Kostins' home and personal property and provided
personal liability coverage to covered persons. (Id.
¶ 12.) The Excess Policy provided coverage excess to the
Primary Policy. (Id. ¶ 13.)
Kostin formed the Kostin Company, a family partnership, to
manage the family assets. (Id. ¶ 15.) Beginning
in approximately 1972, Mr. Kostin, through the Kostin
Company, maintained an account with Bernard L. Madoff
Investment Securities, LLC (“Madoff”).
(Id. ¶ 16.) Federal law enforcement and
regulatory authorities subsequently discovered that Madoff
was perpetrating a massive Ponzi scheme. (Id. ¶
17.) When members of the Kostin Company withdrew funds that
they believed to be investment returns from Madoff, these
funds were in fact money that other customers had given to
Madoff. (Id. ¶ 20-21.) At the time that the
Madoff fraud was revealed by federal authorities in December
2008, the Kostin Company Account had a purported net asset
value of approximately $121 Million. (Id. ¶
result of the pyramid scheme, Plaintiff “lost”
the $121 Million she believed was in the account, as well as
her family's principal-the real money that they had
actually put in. (Id. ¶ 23.) Between April 2,
2007 and October 1, 2008, Plaintiff withdrew a total of $3.75
Million from the Company's Madoff account. (Id.
¶ 24.) Plaintiff claims that Madoff during this time
period “made wrongful entries into the Personal Account
of [Plaintiff], to disburse to her money belonging to other
[Madoff] customers in order to further the goals of the Ponzi
scheme[.]” (Id. ¶ 25.)
result of the public disclosure of the Ponzi scheme
perpetrated by Madoff, Plaintiff learned that the account
entries made by Madoff evidencing profits were wrongful in
that the entries actually consisted of fictitious profits and
that the funds transferred by Madoff into Plaintiff's
personal account consisted of other people's money.
(Id. ¶ 27.) In the aftermath of the revelation
of the fraudulent scheme, a bankruptcy proceeding focused on
the liquidation of Madoff's company and Madoff's
personal assets was commenced in the United States Bankruptcy
Court for the Southern District of New York. (Id.
¶ 28.) Irving H. Picard was appointed as Bankruptcy
Trustee. (Id.) In November 2010, the Trustee
commenced an adversary proceeding in the United States
Bankruptcy Court against Plaintiff, the Kostin Company, and
other Kostin family members, denominated as Picard v.
Kostin Company, Adversary Proceeding No. 10-04950 (BRL).
(Id. ¶ 29.) The Trustee's complaint did not
allege that Plaintiff or the Kostin Company had any knowledge
of the fraud. (Id. ¶ 30.)
alleges that she timely notified Defendants of the claims
being made against her and sought coverage. (Id.
¶ 34.) The Primary Policy requires the insurer to
“cover damages a covered person is legally obligated to
pay for personal injury or property damage which take place
anytime during the policy period and are caused by an
occurrence.” (Id. ¶ 35.) Defendants
denied Plaintiff's claim. (Id. ¶ 44.)
Plaintiff secured counsel at her own expense, who contested
the Trustee's claim over the course of four years.
(Id. ¶ 46.) Following a mediation, Plaintiff
settled the Trustee's claim, agreeing to return $3.375
Million. (Id. ¶ 48.) Plaintiff's
attorney's fees and litigation costs exceeded $799, 000.
(Id. ¶ 47.) Defendants refused to reimburse
Plaintiff for the costs of her legal defense or for the
settlement amount. (Id. ¶¶ 51-52.)
survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.' ”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). Although detailed allegations are not required, a
claim will be found facially plausible only if “the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. Conclusory
allegations are not sufficient. Id. at 678-79;
see also Fed. R. Civ. P. 12(b)(6). “[A]
complaint ‘is deemed to include any written instrument
attached to it as an exhibit or any statements or documents
incorporated in it by reference.' ” Holloway v.
King, 161 Fed.Appx. 122, 124 (2d Cir. 2005) (quoting
Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d
Breach of Contract
claims that Defendants' “refusal, neglect, and
failure to defend [her] and to indemnify her constitutes a
breach of the Primary Policy and Excess Policy.”
(Compl. ¶ 59.)
interpretation of an insurance contract presents a question
of law . . . .” Misiti, LLC v. Travelers Prop. Cas.
Co. of Am., 308 Conn. 146, 154 (2013) (citations
omitted). This interpretation “involves a determination
of the intent of the parties as expressed by the language of
the policy[.]” Id. (internal quotation marks
and citations omitted). An insurance contract “must be
viewed in its entirety” with the words of the policy
given “their natural and ordinary meaning . . . [and
construing] any ambiguity ...