bbi international et al v. westchester fire insurance company complaint

8/8/2019 BBI INTERNATIONAL et al v. WESTCHESTER FIRE INSURANCE COMPANY Complaint

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UNITED STATES DISTRACT COURTNORTHERN DISTRICT OF NEW YORK

BBI International and Michael Bryan, in his capacity asChairman of BBI International,

Plaintiffs,

vs.

Westchester Fire Insurance Company,

Defendant.

JURY TRIAL DEMANDED

COMPLAINT

Plaintiffs BBI International, Inc. (BBI) and Michael Bryan, BBIs Chairman (Bryan)

(Plaintiffs collectively, BBI and Bryan), by and through their undersigned counsel, allege for

their Complaint against Defendant Westchester Fire Insurance Company (Defendant) as

follows:

NATURE OF ACTION

1. This is an action for breach of contract, and for declaratory and other relief.2. This action arises out of BBIs and Bryans claims for insurance coverage,

including defense and indemnification, in connection with an underlying arbitration proceeding

captioned Empire State Ethanol & Energy, LLC v. BBI International and Michael Bryan ,

American Arbitration Association, Case No. 13 122 2387 09 (the Arbitration Proceeding), as

well as the underlying litigation captioned Empire State Ethanol & Energy, LLC v. BBI

International, et al, Civil Action No. 08-CV-0623 (GLS/RFT), which is pending in United States

District Court for the Northern District of New York (the Federal Court Action).

Case 1:10-cv-01585-TJM -RFT Document 1 Filed 12/30/10 Page 1 of 40

1:10-CV-1585

(TJM/DRH)


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3. BBI and Bryan seek a judicial determination regarding the parties respectiverights and obligations under an insurance policy issued by Defendant. BBI and Bryan also seek

an award of Claims Expenses, indemnification of damages that are covered under the subject

insurance policy, and attorneys fees, to the extent permitted by contract and as a matter of law.

BBI and Bryan further seek damages and/or other relief for causes of action sounding in breach

of contract, unfair claims practices and bad faith by Defendant.

4. BBIs and Bryans request for a declaratory judgment and other requested reliefarises from (1) Defendants breach of its contractual obligations to BBI and Bryan under

Miscellaneous Professional Liability Policy No. G23617006 001 issued to BBI for the policy

period of August 1, 2007 to August 1, 2008 for third-party claims that were asserted against BBI

and Bryan in connection with the Arbitration Proceeding and the Federal Court Action, and

(2) Defendants breach of its contractual obligations to BBI and Bryan under a Confidential

Allocation Agreement, effective September 10, 2010 (the Allocation Agreement).

THE PARTIES

5. Plaintiff BBI is a domestic corporation organized and existing under the laws ofthe State of Colorado, with its principal business offices located at 308 2nd Ave N., Suite 304,

Grand Forks, North Dakota 58203.

6. Plaintiff Michael Bryan is the Chairman of BBI. Michael Bryan is a citizen of theState of Colorado, residing at 5015 County Road 12, Cotopaxi, Colorado 81223.

7. Defendant is a domestic corporation, organized and existing under the laws of theState of New York, with its principal place of business in Roswell, Georgia.

8. Defendant is an insurance company that is licensed to do business and doestransact business in the State of New York.



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JURISDICTION AND VENUE

9. BBI and Bryan file this action under and pursuant to the Federal DeclaratoryJudgment Act, 28 U.S.C. 2201.

10. This Court has jurisdiction of this action pursuant to 28 U.S.C. 1332(a) and(c)(1) as complete diversity of the parties exists and the amount in controversy exceeds the sum

of Seventy-Five Thousand Dollars ($75,000.00), exclusive of costs and interest.

11. Venue is proper in this District pursuant to 28 U.S.C. 1391 because Defendantis subject to personal jurisdiction in this District and because a substantial part of the events and

omissions giving rise to this claim occurred in this District, including commencement of the

Federal Court Action, which is being litigated in this judicial district. In addition, the allegations

against BBI and Bryan in the Arbitration Proceeding and Federal Court Action pertain to a

potential development site located in Albany, New York.

THE POLICY

12. Defendant issued Miscellaneous Professional Liability Policy No. G23617006001 to BBI for the policy period of August 1, 2007 to August 1, 2008 (the Westchester Policy).

13. Upon information and belief, a true and correct copy of the Westchester Policy isannexed hereto and made a part hereof as Exhibit A.

14. The Westchester Policy requires Defendant to defend BBI and Bryan for Claimsfirst made against the insured and reported to the Defendant during the Policy Period and to pay

related Claims Expenses, including attorneys fees.

15. The Westchester Policy requires Defendant to pay Damages arising from coveredClaims, including judgments, any award or prejudgment and post-judgment interest, awards and

settlements.



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16. The Westchester Policy affords coverage for Claims Expenses incurred anddamages awarded in connection with the Arbitration Proceeding and the Federal Court Action.

17. BBI and Bryan timely tendered notice of their claims for coverage under theWestchester Policy for the Federal Court Action and the Arbitration Proceeding, including the

Arbitration Award.

THE ALLOCATION AGREEMENT

18. Defendant disputed coverage for certain of BBI and Bryans Claims and ClaimsExpenses incurred in connection with the Arbitration Proceeding, as well as for potential

damages to be awarded in that proceeding.

19. On or about September 10, 2010, the parties entered into a confidential allocationagreement (Allocation Agreement).

20. The Allocation Agreement contains a confidentiality provision that states, ThisAgreement is confidential. No Party nor any person or entity in privity with such Party will

disclose, publish, use, or refer to this Agreement, any of its terms, or any negotiations leading to

its formation, except to the extent necessary to enforce this Agreement or to respond to a court

order, a subpoena, or other obligation at law . . . . (emphasis added).

21. In the Allocation Agreement, Defendant agreed to indemnify BBI and Bryanbased on a 50/50 allocation of Claims Expenses incurred in the Arbitration Proceeding,

payment of one hundred percent (100%) of the damages if BBI and/or Bryan were found liable

in the Arbitration Proceeding for only covered Claims, and payment of fifty percent (50%) of

the damages if BBI and/or Bryan were found liable in the Arbitration Proceeding for any

uncovered Claim(s).



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FACTUAL ALLEGATIONS

22. On June 13, 2008, an action was commenced by Empire State Ethanol andEnergy, LLC (Empire State Ethanol) against BBI and certain other defendants by the filing of

a summons and complaint in the Federal Court Action.

23. On or about June 27, 2008, BBI tendered notice of the Federal Court Action toDefendant.

24. By letter dated July 11, 2008, Defendant issued an acknowledgment letter tocounsel for BBI regarding BBIs request for coverage of the Federal Court Action.

25. By letter dated July 25, 2008, Defendant set forth its coverage position withrespect to BBIs request for coverage of the Federal Court Action and denied coverage under the

Westchester Policy.

26. Empire State Ethanol named Bryan as a defendant in the Federal Court Action uponthe filing of the Amended Summons and Amended Complaint on or about September 10, 2008.

27. On October 3, 2008, BBI and Bryan moved to dismiss Empire State Ethanolsclaims and compel arbitration.

28. By letter dated December 11, 2008, Defendants counsel issued a supplementalcoverage position letter with respect to the Amended Complaint in the Federal Court Action,

which letter reiterated Defendants previously-stated position and declined any coverage

obligation under the Westchester Policy.

29. Pursuant to a March 20, 2009 Decision and Order, the Court granted BBIs andBryans motion to compel arbitration and stayed the Federal Court Action proceedings pending

final resolution of the arbitration.

30. Empire State Ethanol filed Demand for Arbitration (Arbitration Demand), datedSeptember 11, 2009, with the American Arbitration Association.



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31. Empire State Ethanol filed an Amended Arbitration Demand (AmendedArbitration Demand), dated December 21, 2009, with the American Arbitration Association.

32. Empire State Ethanol filed a Supplemental Amended Arbitration Demand(Supplemental Arbitration Demand), dated June 14, 2010, with the American Arbitration

Association.

33. By letter dated December 29, 2009, BBI and Bryan timely tendered notice of theArbitration Proceeding and requested coverage under the Westchester Policy, including coverage

of Claims Expenses and Damages.

34. As part of the Arbitration Proceeding, Empire State Ethanol and BBI and Bryanmutually selected an arbitrator, Walter Gans, Esq, and engaged in discovery and various pretrial

motions. The Arbitration Proceeding culminated in a five-day arbitration hearing held from

June 21, 2010 to June 25, 2010.

35. On September 22, 2010, the arbitrator issued the Award of Arbitrator(Arbitration Award).

36. The Arbitration Award resolved all of the claims previously alleged by EmpireState Ethanol in the Arbitration Proceeding and awarded Empire State Ethanol damages in the

amount of one hundred twenty thousand dollars ($120,000.00), plus interest, as well as

one hundred thousand dollars ($100,000.00) in attorneys fees, and twenty three thousand,

one hundred eighty six dollars and twenty seven cents ($23,186.27) representing reimbursement

for a portion of the arbitration costs (collectively Arbitration Damages).

37. On September 23, 2010, BBI and Bryan gave written notice to Defendantrequesting coverage of the Arbitration Damages in accordance with the Allocation Agreement.



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38. On November 10, 2010, Defendant notified BBI and Bryan of its coverageposition with respect to prior Claims Expenses and the Arbitration Damages, which position was

substantially inconsistent with the policy provisions of the Westchester Policy as well as the

terms to which Defendant agreed in the Allocation Agreement.

39. On November 15, 2010, in the Federal Court Action, BBI and Bryan submitted aNotice of Motion to Confirm Arbitration Award and for Dismissal of the Action, for an Order

pursuant to Section 1 of the Federal Arbitration Act (9 U.S.C. 9) confirming the Arbitration Award

in favor of BBI and Bryan and dismissing all claims against them in the Federal Court Action.

40. By letter dated November 29, 2010, BBI and Bryan rejected Defendantscoverage position and reiterated its request for indemnification of the Arbitration Damages.

41. On December 20, 2010, Empire State Ethanol filed papers in the Federal CourtAction reporting its agreement that the Arbitration Award should be confirmed.

42. To date, Defendant has refused to assume its contractual obligations under theWestchester Policy and the Allocation Agreement, including but not limited to the

indemnification of BBI and Bryan for the Arbitration Damages and the full payment of Claims

Expenses related to the Arbitration Proceeding and Federal Court Action.

DEFENDANTS BREACH OF CONTRACT UNDER

THE WESTCHESTER POLICY

43. BBI and Bryan provided Defendant with timely notice of both the Federal CourtAction and the Arbitration Proceeding.

44. BBI and Bryan have satisfied the conditions precedent to coverage under theWestchester Policy.



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45. Unless plainly not covered or expressly excluded by the Westchester Policy, theClaims Expenses and Arbitration Damages arising from the Arbitration Proceeding and the

Federal Court Action are covered by the Westchester Policy.

46. Defendant has refused to honor its contractual obligations to BBI and Bryan inconnection with its defense and indemnification obligations relative to the Arbitration

Proceeding and the Federal Court Action.

47. By refusing to honor its obligations to BBI and Bryan, Defendant has breached itscontractual obligations to BBI and Bryan.

FIRST CLAIM FOR RELIEF

(Declaratory Relief)

48. BBI and Bryan repeat and reallege the allegations set forth in paragraphs 1through 47 as if fully set forth herein.

49. An actual and justiciable controversy exists between BBI and Bryan and Defendantregarding the parties rights, duties and obligations under the Westchester Policy and

Allocation Agreement in connection with the Arbitration Proceeding and the Federal Court Action.

50. Pursuant to 28 U.S.C. 2201, BBI and Bryan are entitled to a declarationregarding the parties rights, duties and obligations under the Westchester Policy and Allocation

Agreement with respect to the Claims Expenses and Arbitration Damages arising from the

Arbitration Proceeding and Claims Expenses arising from the Federal Court Action.

51. BBI and Bryan are entitled to a judicial declaration that Defendant is contractuallyobligated to provide coverage for the Claims Expenses and Arbitration Damages awarded in

connection with the Arbitration Proceeding, and for Claims Expenses incurred by BBI and Bryan

in connection with the defense of the Federal Court Action.



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SECOND CLAIM FOR RELIEF

(Declaratory Judgment - Coverage for Claims Expenses and Damages)


53. By issuing and delivering the Westchester Policy, Defendant becamecontractually obligated to provide coverage for Claims Expenses and Damages as those terms are

defined within the Westchester Policy.

54. BBI and Bryan have incurred Claims Expenses and been found liable forArbitration Damages for which the Westchester Policy affords coverage.

55. Defendant has breached its obligations under the Westchester Policy by failingand refusing to provide insurance coverage, including indemnification, for Claims Expenses and

Arbitration Damages arising from the Arbitration Proceeding and Claims Expenses related to the

Federal Court Action.

56. As a direct and proximate result of its breach of contract, Defendant has deprivedBBI and Bryan of the benefit of insurance coverage for which BBI and Bryan paid substantial

premiums.

57. An actual bona fide controversy exists between BBI and Bryan and Defendant asto whether Defendant has fulfilled its obligations under the Westchester Policy, including

providing coverage for Claims Expenses and Arbitration Damages related to the Arbitration

Proceeding and Claims Expenses related to the Federal Court Action.

58. BBI and Bryan seek a judicial declaration by this Court that Defendant mustprovide coverage for the Claims Expenses incurred by and on behalf of BBI and Bryan in the

defense of the Arbitration Proceeding and Federal Court Action, including reimbursement of



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such Claims Expenses, and to indemnify BBI and Bryan for the Arbitration Damages awarded

against BBI and Bryan in the Arbitration Proceeding.

THIRD CLAIM FOR RELIEF

(Breach of Contract - Arbitration Proceeding

Claims Expenses and Damages)


60. By issuing and delivering the Westchester Policy, Defendant becamecontractually obligated to provide coverage for Claims Expenses and Damages as those terms are

defined within the Westchester Policy.

61. BBI and Bryan have incurred Claims Expenses and been found liable forArbitration Damages for which the Westchester Policy affords coverage.

62. Defendant has breached its obligations under the Westchester Policy by failingand refusing to provide insurance coverage, including indemnification, for Claims Expenses and

Arbitration Damages arising from the Arbitration Proceeding.


premiums.


providing coverage for Claims Expenses and Arbitration Damages related to the Arbitration

Proceeding.

65. BBI and Bryan seek compensatory relief from Defendant, including but notlimited to indemnification for the Claims Expenses incurred by and on behalf of BBI and Bryan



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in the defense of the Arbitration Proceeding and the Arbitration Damages awarded to Empire

State Ethanol in the Arbitration Proceeding.

FOURTH CLAIM FOR RELIEF

(Breach of Contract Federal Court Action

Claims Expenses)


67. BBI and Bryan have incurred covered Claims Expenses in connection with theFederal Court Action.

68. Defendant has breached its obligations under the Westchester Policy by failingand refusing to cover Claims Expenses arising from Federal Court Action.


premiums.


providing coverage for Claims Expenses related to the Federal Court Action.

71. BBI and Bryan request compensatory relief from Defendant for coverage of theClaims Expenses incurred by and on behalf of BBI and Bryan in the Federal Court Action.

FIFTH CLAIM FOR RELIEF

(Breach of Contract Allocation Agreement)




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73. BBI and Bryan and Defendant entered into an Allocation Agreement datedSeptember 10, 2010 to address Claims Expenses and Arbitration Damages in connection with the

Arbitration Proceeding and the allocation of responsibility between the parties for such costs and

potential liabilities.

74. In the Arbitration Proceeding, BBI and Bryan incurred covered Claims Expensesand Arbitration Damages that are covered by the Allocation Agreement and the Westchester

Policy.

75. Defendant has refused to indemnify and/or otherwise honor its obligations to BBIand Bryan consistent with the terms of the Allocation Agreement.

76. Defendant has breached its obligations under the Allocation Agreement.77. As a direct and proximate result of its breach of the Allocation Agreement,

Defendant has deprived BBI and Bryan of the benefit of insurance coverage for which BBI and

Bryan paid substantial premiums.

78. An actual bona fide controversy exists between BBI and Bryan and Defendant asto whether Defendant has satisfied its contractual obligations under the Allocation Agreement.

79. As a result of Defendants breach of the Allocation Agreement, BBI and Bryanhave sustained damages in connection with the liabilities to Empire State Ethanol based on the

Arbitration Award, including but not limited to the Arbitration Damages and attorneys fees.

80. BBI and Bryan seek reimbursement and indemnification of the Claims Expensesand Arbitration Damages from Defendant, consistent with the terms of the Allocation

Agreement.



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SIXTH CLAIM FOR RELIEF

(Breach of Duty of Good Faith and Fair Dealing)


82. As an insurer, Defendant owes BBI and Bryan a duty of good faith and fairdealing in connection with the Westchester Policy.

83. Defendant has refused to indemnify and/or otherwise honor its obligations to BBIand Bryan consistent with the terms of the Westchester Policy, causing BBI and Bryan to sustain

damages.

84. Defendants denial of coverage for the Arbitration Proceeding, including theArbitration Damages, and Federal Court Action is unreasonable under the circumstances, based

on the existence of covered Claims and Damages under the Westchester Policy.

85. As a result of Defendants denial of coverage for the Arbitration Proceeding andFederal Court Action, Defendant has breached its duty of good faith and fair dealing to BBI and

Bryan under Westchester Policy.

SEVENTH CLAIM FOR RELIEF

(Unfair and Deceptive Claims Practices)


87. Defendant has refused to indemnify and/or otherwise honor its obligations to BBIand Bryan consistent with the terms of the Westchester Policy.



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88. Defendants refusal to pay Claims Expenses and Damages under the WestchesterPolicy are unreasonable under the circumstances, where liability arising from and relating to the

Arbitration Proceeding, including the Arbitration Award, and Federal Court Action, are clear.

89. As a direct and proximate result of its breach of the Westchester Policy and theAllocation Agreement, Defendant has deprived BBI and Bryan of the benefit of insurance

coverage for which BBI and Bryan paid substantial premiums.

90. As a direct and proximate result of its breach of the Westchester Policy and theAllocation Agreement, Defendant has forced BBI and Bryan to commence the instant litigation

to recover amounts due to BBI and Bryan under the terms of the Westchester Policy and the

Allocation Agreement.

91. Defendants actions and failure to assume its coverage obligations under theWestchester Policy and the Allocation Agreement constitute unfair and deceptive claims

practices.

EIGHTH CLAIM FOR RELIEF

(Bad Faith)


93. Defendant has refused to indemnify and/or otherwise honor its obligations to BBIand Bryan consistent with the terms of the Westchester Policy and the Allocation Agreement.

94. Defendants refusal to pay Claims Expenses and Damages under the WestchesterPolicy is unreasonable under the circumstances and constitutes bad faith where liability arising

from and relating to the Arbitration Proceeding, including the Arbitration Award, and Federal

Court Action are clear.



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95. Defendants actions and failure to assume its coverage obligations under theWestchester Policy and the Allocation Agreement constitute bad faith.

PRAYER FOR RELIEF

WHEREFORE, BBI and Bryan demand judgment in their favor and against Defendant as

follows:

1. On the First Claim for Relief, that the Court enter a Declaratory Judgmentdetermining the parties rights, duties and obligations under the Westchester Policy and the

Allocation Agreement with respect to the allegations against BBI and Bryan in the Arbitration

Proceeding and the Federal Court Action;

2. On the Second Claim for Relief, that the Court issue a judicial determination thatDefendant has breached its defense and indemnity obligations under the Westchester Policy,

including but not limited to its obligations to pay, indemnify, and/or reimburse BBI and Bryan in

connection with the Arbitration Proceeding, including Claims Expenses and Arbitration

Damages, and the Federal Court Action, including Claims Expenses;

3. On the Third Claim for Relief, that the Court enter a monetary judgment in favorof BBI and Bryan and against Defendant and award BBI and Bryan compensatory damages for

Defendants breach of its contractual obligations under the Westchester Policy in failing to

defend and indemnify BBI and Bryan in connection in the Arbitration Proceeding, in an amount

to be determined at trial;

4. On the Fourth Claim for Relief, that the Court enter a monetary judgment in favorof BBI and Bryan and against Defendant and award BBI and Bryan compensatory damages for

Defendants breach of its contractual obligations under the Westchester Policy in failing to



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defend and indemnify BBI and Bryan in connection in the Federal Court Action, in an amount to

be determined at trial;

5. On the Fifth Claim for Relief, that the Court enter a determination that Defendanthas breached its obligations under the Allocation Agreement and is legally required to reimburse

or indemnify BBI and Bryan pursuant to the terms of the Allocation Agreement;

6. On the Sixth Claim for Relief, that the Court enter a determination that Defendanthas breached its duty of good faith and fair dealing under the Westchester Policy, and award

damages to BBI and Bryan in an amount to be determined at trial;

7. On the Seventh Claim for Relief, that the Court enter a determination that theDefendant has engaged in unfair and deceptive claims practices, and award damages to BBI and

Bryan in an amount to be determined at trial;

8. On the Eighth Claim for Relief, that the Court enter a determination that theDefendant has engaged in bad faith in failing to honor its contractual obligations under the

Westchester Policy and the Allocation Agreement, and award damages to BBI and Bryan in an

amount to be determined at trial;

9. For the award of pre-judgment and post-judgment interest on the amount whichDefendant has refused to pay BBI and Bryan in connection with the Claims Expenses, attorneys

fees, and Arbitration Damages in the Arbitration Proceeding;

10. All costs incurred in bringing this action, including attorneys fees;11. Punitive damages for Defendants failure to act reasonably in making its coverage

determinations with respect to the Arbitration Proceeding, Arbitration Award, and Federal Court

Action; and



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12. Such other and further relief as this Court may deem just and proper under thecircumstances.

Dated: December 29, 2010Albany, New York /s/ Yvonne E. Hennessey

The West Firm, PLLCYvonne E. Hennessey, Esq. (Bar Roll No. 510021)Attorneys for Plaintiffs BBI International and

Michael Bryan, in his capacity as Chairman

of BBI International

677 Broadway, 8th FloorAlbany, New York 12207(518) 641-0500



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EXHIBIT A



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bbi international et al v. westchester fire insurance company complaint

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