W3i MOBILE, LLC v. WESTCHESTER FIRE INSURANCE COMPANY Complaint

8/7/2019 W3i MOBILE, LLC v. WESTCHESTER FIRE INSURANCE COMPANY Complaint

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UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA

W3i Mobile, LLC,

Plaintiff, v. Civil No. 08-63

ORDERWestchester Fire InsuranceCompany,

Defendant.

Steven P. Zabel, Esq., Leonard Street and Deinard, PA, appeared for Plaintiff W3i Mobile, LLC.

Jeffrey M. Thompson, Esq., and Tony J. Kriesel, Esq., Meagher & Geer PLLP, appeared forDefendant Westchester Fire Insurance Company.

Plaintiff W3i Mobile, LLC (W3i) was insured by Defendant Westchester Fire Insurance

Co. (Westchester) under a Business and Management Indemnity Policy (Policy) effective from

January 1, 2008, until January 1, 2009. In this action, W3i asserts a claim for breach of contract

and seeks a declaration that the Policy requires Westchester to defend and indemnify it for

expenses related to two class action lawsuits brought against W3i in California and Minnesota in

September 2008 (Underlying Claims).1 The matter is before the Court on Westchester’s Motion

for Summary Judgment. For the reasons stated below, the Court grants Westchester’s motion.

I. BACKGROUND

The Underlying Claims are materially similar. According to the complaints, W3i

provides “mobile content,” which includes “products that range from the basic (customized

ringtones for use with cell phones, sports score reports, weather alerts, stock tips, horoscope

services, and the like) to the advanced (direct payment services, interactive radio and

1 Both actions were originally filed in state court and removed to federal court.

Case 0:08-cv-06370-JNE-RLE Document 23 Filed 10/20/09 Page 1 of 10

November 16 200Appellate Case: 09-3701 Page: 5 Date Filed: 11/23/2009 Entry ID: 3608467



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participatory television).” The mobile content industry consists of providers of mobile content,

aggregators, and wireless carriers. Providers develop the mobile content and deliver it to

customers through cellular telephone technology. Aggregators serve as intermediaries on behalf

of several providers and negotiate commercial agreements to give the providers access to

wireless carriers’ billing and collection mechanisms. To bill a customer, a provider gives the

aggregator the customer’s phone number and the amount to be charged. The aggregator passes

the information to the wireless carrier and the carrier includes the charge on its bill to the

customer. Only the wireless carrier has a contractual relationship with the customer. Upon

receiving payment, the wireless carrier keeps a percentage of the payment for the mobile content

and gives the remainder to the aggregator. The aggregator does the same and remits the

remaining funds to the provider. The complaints allege that W3i regularly caused customers to

be charged for unauthorized mobile content. The Minnesota complaint asserts that W3i’s billing

practices violated Minnesota deceptive trade practices law. See Minn. Stat. §§ 325D.44, 325F.69

(2008). The California complaint asserts violations of the California Consumer Legal Remedies

Act and California’s Unfair Competition Law. See Cal. Civ. Code § 1770 (West 2008); Cal.

Bus. & Prof. Code § 17200 (West 2008). Both complaints include claims for unjust enrichment

and tortious interference with a contract.

On October 14, 2008, W3i tendered the Underlying Claims to Westchester for coverage.

Westchester denied coverage in a letter dated November 1, 2008, indicating that coverage was

excluded under the Policy. W3i brought this breach of contract and declaratory judgment action

in December 2008. Westchester now moves for summary judgment.





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II. DISCUSSION

A. Standard of review

Summary judgment is proper “if the pleadings, the discovery and disclosure materials on

file, and any affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). The movant “bears the

initial responsibility of informing the district court of the basis for its motion,” and must identify

“those portions of [the record] which it believes demonstrate the absence of a genuine issue of

material fact.” Celotex Corp. v. Catrett , 477 U.S. 317, 323 (1986). If the movant satisfies its

burden, the party opposing the motion must respond by submitting evidentiary materials that “set

out specific facts showing a genuine issue for trial.” Fed. R. Civ. P. 56(e)(2);see Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In determining whether

summary judgment is appropriate, a court must look at the record and any inferences to be drawn

from it in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 255 (1986).

B. Policy interpretation

The Policy contains a General Terms and Conditions section followed by three coverage

sections: Employment Practices; Directors & Officers and Company (D&O and Company); and

Fiduciary. Clauses A.1. and A.2. of the D&O and Company Coverage Section grant coverage

for certain non-indemnified losses incurred by W3i’s directors and officers and for W3i’s

indemnification of its directors and officers. Clause A.3. requires Westchester to “pay theLoss

of [W3i] which [W3i] becomes legally obligated to pay by reason of a Claim first made against

[W3i] during the Policy Period . . . and reported to [Westchester] for any Wrongful Act taking





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place prior to the end of the Policy Period.”2 The D&O and Company Coverage Section also

requires Westchester to defend W3i against “any Claim.” In relevant part, a Claim is “a civil

proceeding against any Insured seeking monetary damages or non-monetary or injunctive relief,

commenced by the service of a complaint or similar pleading.” Westchester acknowledges that

the Underlying Claims are Claims and that W3i timely reported those Claims. Westchester

argues, however, that it has no duty to defend or indemnify W3i under the following three

exclusions to the D&O and Employer Coverage Section:

1. Exclusions Applicable to All Insuring Clauses

[Westchester] shall not be liable for Loss under this Coverage Section onaccount of any Claim: . . . .

q. alleging, based upon, arising out of, attributable to, directlyor indirectly resulting from, in consequence of, or in anyway involving the rendering or failing to renderprofessional services.3

. . . . 2. Exclusions Applicable Only to Insuring Clause A.3.

[Westchester] shall not be liable for Loss on account of any Claim:

a. alleging, based upon, arising out of, attributable to, directlyor indirectly resulting from, in consequence of, or in anyway involving the actual or alleged breach of any contractor agreement; except and to the extent [W3i] would havebeen liable in the absence of such contract or agreement; or

b. alleging, based upon, arising out of, attributable to, directly

or indirectly resulting from, in consequence of, or in anyway involving:

2 Terms in bold are defined by the Policy. 3 This exclusion was added by an endorsement.





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. . .

ii. any goods or products manufactured, produced,processed, packaged, sold, marketed, distributed,advertised or developed by [W3i] (Products

Exclusion). “The duty to defend is broader than the duty to indemnify.” Meadowbrook, Inc. v. Tower

Ins. Co., 559 N.W.2d 411, 415 (Minn. 1997). An insurer generally must defend an insured

against “‘any claim [that] is arguably covered under a policy.’” Murray v. Greenwich Ins. Co.,

533 F.3d 644, 648 (8th Cir. 2008) (quoting SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305,

316 (Minn. 1995), overruled on other grounds by Bahr v. Boise Cascade Corp., 766 N.W.2d

910, 918-19 (Minn. 2009)). To determine whether a claim is arguably covered, a court

“compare[s] the allegations in the complaint of the underlying cause of action with the terms of

the insurance policy.” Id. (citing Meadowbrook , 559 N.W. 2d at 415). “If any claim is arguably

covered under a policy, the insurer must defend and reserve any arguments regarding coverage.”

SCSC Corp., 536 N.W.2d at 316.

General principles of contract interpretation apply to the construction of an insurance

policy. SECURA Supreme Ins. Co. v. M.S.M., 755 N.W.2d 320, 323 (Minn. Ct. App. 2008).

Unambiguous language is given its plain and ordinary meaning. Id. Ambiguous language is

construed in favor of the insured. Id. A court, however, “should be vigilant against finding

ambiguity when none actually exists.” Id. at 323-24. The insured bears the initial burden of

establishing coverage under the policy but the insurer must establish the applicability of

exclusions to coverage. Id. at 323. Exclusions are interpreted strictly against the insurer.Id.

Westchester first argues that coverage is excluded under the Products Exclusion because

the allegations in the Underlying Claims arise out of the mobile content. Specifically,

Westchester maintains that without the mobile content, there could be no unauthorized billing for





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that content. W3i contends that the Underlying Claims do not arise out of the mobile content

because they challenge only W3i’s billing practices.4

Minnesota courts broadly construe the phrase “arising out of” in grants of coverage and

exclusions in insurance policies. See Murray, 533 F.3d at 649-50. “The term ‘arising out of’

requires only a causal connection; it does not require proximate cause.” Ross v. City of

Minneapolis, 408 N.W.2d 910, 912 (Minn. Ct. App. 1987) (citing Rausch v. Beech Aircraft

Corp., 277 N.W.2d 645, 647 (Minn. 1979)). In other words, “the ‘arising out of’ language is

satisfied if there is a causal connection between the [content] identified in the exclusion and the

injuries for which compensation is being sought.” SECURA, 755 N.W.2d at 327. A causal

connection in this context means “‘originating from,’ ‘growing out of,’ or ‘flowing from.’” Gen.

Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W.2d 572, 576 (Minn. 2009) (quoting Dougherty

v. State Farm Mut. Ins. Co., 699 N.W.2d 741, 744 (Minn. 2005)).

Westchester’s argument stretches the “arising out of” language too far. It is true that

absent the mobile content there would have been no charges, and without charges, there would

4 The Underlying Claims refer to mobile content as both products and services. (See, e.g.,Minn. Compl. ¶¶ 4 (“text message services, also known as ‘mobile content,’ include productsthat range from . . . .”), 25 (referring to mobile content as “products and services”); Cal. Compl.¶¶ 6, 14.) W3i does not expressly argue that mobile content is a service rather than a product,but an affidavit submitted in support of W3i’s opposition memorandum states that mobilecontent “includes services such as ringtones, quizzes, horoscopes, and weather alerts.” Inresponse to a request for admission pursuant to Rule 36 of the Federal Rules of Civil Procedure,however, W3i admitted that “mobile content was a product or products sold and marketed byW3i,” so long as mobile content “is defined to mean ringtones, wallpapers and other subscriptionbased services” that are the subject of the Underlying Claims. Moreover, in a letter toWestchester’s counsel regarding a discovery dispute, W3i’s counsel represented that “[t]here isno dispute that W3i’s mobile content was a product sold and marketed by W3i.” In light of W3i’s admissions, the Court determines that mobile content is a product rather than a service.See Fed. R. Civ. P. 36(b) (“A matter admitted under this rule is conclusively established unlessthe court, on motion, permits the admission to be withdrawn or amended.”); Bender v. Xcel

Energy, Inc., 507 F.3d 1161, 1168 (8th Cir. 2007) (“[A]s a general rule, admissions made inresponse to a Rule 36 request for admissions are binding on that party.”).





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have been no unauthorized charges. The Underlying Claims, however, could have omitted

details about the mobile content and still alleged that W3i’s billing for unauthorized charges

violated the law. Thus, the Underlying Claims did not originate from, grow out of, or flow from

the mobile content. Rather, the genesis of the Underlying Claims was W3i’s alleged failure to

procure proper authorization for the provision of mobile content before billing for that content.

Westchester argues that Rausch requires the opposite conclusion. InRausch, a lessor

leased a plane to an insured. 277 N.W.2d at 645. The plane crashed and several lawsuits were

brought against the lessor. Id. The lease agreement required the insured to defend the lessor, but

the insured refused. Id. After obtaining judgment against the insured, the lessor sought

garnishment from the insurer. Id. The applicable insurance policy excluded coverage for

“liability arising out of the ownership, maintenance, operation, use, loading, or unloading of

aircraft owned by or chartered without crew by or on behalf of the named insured.” Id. at 646.

In determining that the exclusion applied, the court stated:

Clearly the use of an airplane is a “but for” cause of [the insured’s] liability. Butit is more than that. It is the original activity out of which this entire matter arose.Far from incidental, it is fundamental to all that followed. It is true that the leasecontract is also a but for cause of the liability. Yet every effect has many causes;there may be among those any number that are quite substantial and even of which it could be said that the effect “arose out of” such cause.

Id. at 647.

Unlike Rausch, where the plane crash gave rise to the original liability that was then

borne by the insured pursuant to the lease agreement, the Underlying Claims in this case do not

allege that the mobile content was faulty or otherwise gave rise to the alleged causes of action.

Instead, the allegedly unauthorized billing for mobile content was “the original activity out of

which [the Underlying Claims] arose.” Accordingly, the “arising out of” language in the

Products Exclusion does not preclude coverage.





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Westchester further contends that the Underlying Claims are “attributable to, directly or

indirectly resulting from, in consequence of, or in any way involving” the mobile content. The

Court determines that the plain meaning of the latter phrase excludes coverage. Specifically, the

Underlying Claims’ allegations of unauthorized billing for mobile content “in any way

involv[e]” that content. See In re SRC Holding Corp., 545 F.3d 661, 668 (8th Cir. 2008) (“The

word ‘any’ when read naturally has an expansive meaning.” (citation and quotation marks

omitted)); Foster v. Summit Med. Sys., Inc., 610 N.W.2d 350, 3353-54 (Minn. Ct. App. 2000)

(suggesting that “indirectly resulting from or in consequence of, or in any way involving”

language is broader than “arising out of”); The American Heritage College Dictionary 730 (4th

ed. 2007) (defining “involve” as to “contain as a part” or to “have as a necessary feature or

consequence”).

Such broad exclusionary language requires consideration of the illusory coverage

doctrine, which provides “an independent means to avoid an unreasonable result when a literal

reading of a policy unfairly denies coverage.” Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d

116, 118 (Minn. Ct. App. 1995). The doctrine modifies the general rule requiring courts to

enforce insurance contracts pursuant to their plain meaning by providing that “liability insurance

contracts should, if possible, be construed so as not to be a delusion to the insured.” Id.

(quotation marks omitted). “[T]he doctrine is best applied ‘where part of the premium is

specifically allocated to a particular type or period of coverage and that coverage turns out to be

functionally nonexistent.’” Kabanuk Diversified Inv., Inc. v. Credit Gen. Ins. Co., 553 N.W.2d

65, 73 (Minn. Ct. App. 1996) (quoting Jostens, 527 N.W.2d at 119).

Westchester indicates that the Policy covers types of liability beyond W3i’s products,

“such as wrongful employment practices, wrongful acts relating to employee benefit plans, and





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general business-type torts that might be committed by directors and officers, such as libel,

slander, trademark infringement, copyright violation, and misappropriation of trade secrets, to

name a few.” An exclusion in the same subsection as the Products Exclusion, however,

expressly states that Westchester shall not be liable for loss incurred by W3i “on account of any

Claim . . . in any way involving any actual or alleged infringement, misappropriation, or

violation of copyright, patent, service marks, trademarks, trade secrets, title or other proprietary

or licensing rights or intellectual property of any products, technologies or services.” Thus, the

majority of the “business-type torts” identified by Westchester are seemingly excluded from the

coverage granted to W3i by Clause A.3. of the D&O and Company Coverage Section.

Moreover, wrongful employment practices are covered by the Employment Practices Coverage

Section and coverage related to employee benefit plans is addressed in the Fiduciary Coverage

Section. Nevertheless, W3i has not shown that it paid a specific premium for coverage under

Clause A.3. or that coverage under other sections of the Policy is illusory. The absence of such

showings precludes application of the illusory coverage doctrine. See SRC Holding Corp., 545

F.3d at 671 (relying on existence of other coverage under policy and absence of evidence of

premium allocation to find illusory coverage doctrine inapplicable); Kabanuk , 553 N.W.2d at 73

(finding illusory coverage doctrine inapplicable because no showing of any premium specifically

allocated to cover certain claims); Jostens, 527 N.W.2d at 118 (“But Jostens cannot argue that it

paid $90,000 for nothingthat is, for illusory discrimination coveragebecause the policy was

much more than a simple ‘discrimination damages’ policy. Rather, it afforded excess and

umbrella coverage for a wide variety of damages other than those arising from discrimination.”).

Therefore, because the Underlying Claims in any way involve the mobile content, they are not

covered by the Policy. Accordingly, Westchester has no duty to defend or indemnify W3i for





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expenses associated with the Underlying Claims, and summary judgment in favor of Westchester

is warranted.

III. CONCLUSION

Based on the files, records, and proceedings herein, and for the reasons stated above, IT

IS ORDERED THAT:

1. Westchester’s Motion for Summary Judgment [Docket No. 12] is GRANTED.

2. Westchester does not have a duty to defend or indemnify W3i in the Minnesotaand California class actions.

3. W3i’s breach of contract claim against Westchester is DISMISSED.

LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: October 20, 2009

s/ Joan N. EricksenJOAN N. ERICKSENUnited States District Judge





Form Modified: 09/16

OAO450 (Rev. 5/85) Judgment in a Civil Case

UNITED STATES DISTRICT COURT

District of Minnesota

W3i Mobile, LLC,JUDGMENT IN A CIVIL CASE

V.

Case Number: 08cv6370 JNE/RLE

Westchester Fire Insurance Company,

Jury Verdict. This action came before the Court for a trial by jury. The issues have been tried and the jur

has rendered its verdict.

X Decision by Court. This action came to trial or hearing before the Court. The issues have been tried or

heard and a decision has been rendered.

IT IS ORDERED AND ADJUDGED THAT:

1. Westchester’s Motion for Summary Judgment [Docket No. 12] is GRANTED.

2. Westchester does not have a duty to defend or indemnify W3i in the Minnesota and California class

actions.

3. W3i’s breach of contract claim against Westchester is DISMISSED.

October 20, 2009 RICHARD D. SLETTEN, CLERK Date

s/V. Moralez(By) V. Moralez, Deputy Clerk





H:\XFR\forms\civil\Appeals\8thcircuitprehearingconf.wpd Form Modified 10/27/04

United States Court of AppealsFOR THE EIGHTH CIRCUIT

Prehearing Conference Program

The United States Court of Appeals for the Eighth Circuit has established an early

intervention Prehearing Conference Program. The purpose of the program is twofold: (1) to

facilitate settlement discussions in civil cases by providing an impartial atmosphere for an open

discussion of the case and alternative methods of disposition and (2) to promote the delineation

of issues, early resolution of procedural problems, and effective administration of an appeal

throughout the appellate process. See 8th Cir. R. 33A.

The program is directed by Mr. John Martin. Mr. Martin screens newly filed appeals

based on information furnished by both appellants and appellees in the court’s Appeal

Information Forms A and B. Contact with counsel is by telephone and in personal conferences

held in several cities throughout the Circuit. All communications with Mr. Martin are

confidential. Counsel can openly discuss and evaluate the issues and explore alternatives in a

non-adversarial setting without fear that the subsequent processing of the appeal or ultimate

disposition of the case will be adversely affected by participation in the program.

Participation in the program is voluntary. However, the Court strongly encourages your

participation and cooperation. Over the past twenty years, the program has enabled many

appellate litigants to achieve mutually satisfactory resolution of certain issues or an overall

settlement prior to progressing through all stages of the appellate process. Issue delineation

enables counsel to focus only on those issues that need judicial resolution. The program has

helped relieve the ever-increasing caseload confronting the Court, and it has also saved litigants

and attorneys substantial amounts of time and money.

In order for the program to function effectively certain information must be provided at

the initiation of the appeal. Eighth Circuit Rule 3B directs each civil appellant to: (1) file a

completed Appeal Information Form A with the Notice of Appeal at the time the Notice is filed

with the District Court clerk and (2) forward a copy of the completed Form A and a copy of

Appeal Information Form B to the appellee for completion. Appellee may complete Form B and

send it to the clerk of the Court of Appeals. If you have any questions about the Prehearing

Conference Program or the Appeal Information Forms, please contact Mr. Martin at (314)-244-

2499.

Forms A and B are available from the District Court clerk and the Court of Appeals clerk

and can be found on the forms page of the Court of Appeals’ website at:

http://www.ca8.uscourts.gov and the District Court’s website at: http://www.mnd.uscourts.gov.

October 27, 2004

Case 0:08-cv-06370-JNE-RLE Document 24-1 Filed 10/20/09 Page 1 of 1




UNITED STATES DISTRICT COURTDistrict of Minnesota

Richard D. Sletten, Clerk

Wendy S. Osterberg, Chief Deputy Clerk

700 Federal Building 202 U.S. Courthouse 417 Federal Building 212 U.S. Courthouse

316 North Robert Street 300 South Fourth Street 515 West. First Street 118 South Mill Street

St. Paul, MN 55101 Minneapolis, MN 55415 Duluth, MN 55802 Fergus Falls, MN 56537

(651) 848-1100 (612) 664-5000 (218) 529-3500 (218) 739-5758

K:\Xfr\forms\civil\APPEALNOCIVF1.wpd Form Modified 5/22/07

CIVIL NOTICE

The appeal filing fee is $455.00. If you are indigent, you can apply for leave to proceed in forma

pauperis, ("IFP").

The purpose of this notice is to summarize the time limits for filing with the District Court Clerk's Office a Notice of

Appeal to the Eighth Circuit Court of Appeals from a final decision of the District Court in a civil case.

This is a summary only. For specific information on the time limits for filing a Notice of

Appeal, review the applicable federal civil and appellate procedure rules and statutes.

Rule 4(a) of the Federal Rules of Appellate Procedure (Fed. R. App. P.) requires that a Notice of Appeal be filed

within:

1. Thirty days (60 days if the United States is a party) after the date of "entry of the

judgment or order appealed from;" or

2. Thirty days (60 days if the United States is a party) after the date of entry of an

order denying a timely motion for a new trial under Fed. R. Civ. P. 59; or

3. Thirty days (60 days if the United States is a party) after the date of entry of an

order granting or denying a timely motion for judgment under Fed. R. Civ. P. 50(b),

to amend or make additional findings of fact under Fed. R. Civ. P. 52(b), and/or to

alter or amend the judgment under Fed. R. Civ. P. 59; or

4. Fourteen days after the date on which a previously timely Notice of Appeal was

filed.

If a Notice of Appeal is not timely filed, a party in a civil case can move the District Court pursuant to Fed. R. App.

P. 4(a)(5) to extend the time for filing a Notice of Appeal. This motion must be filed no later than 30 days after the

period for filing a Notice of Appeal expires. If the motion is filed after the period for filing a Notice of Appeal

expires, the party bringing the motion must give the opposing parties notice of it. The District Court may grant the

motion, but only if excusable neglect or good cause is shown for failing to file a timely Notice of Appeal.





















UNITED STATES DISTRICT COURT

District of Minnesota

Richard D. Sletten, Clerk

Wendy S. Osterberg, Chief Deputy Clerk

700 Federal Building 202 U.S. Courthouse 417 Federal Building 212 U.S. Courthouse

316 North Robert Street 300 South Fourth Street 515 West First Street 118 South Mill Street

St. Paul, MN 55101 Minneapolis, MN 55415 Duluth, MN 55802 Fergus Falls, MN 56537

(651) 848-1100 (612) 664-5000 (218) 529-3500 (218) 739-5758

f \ i il\ l \ l i l f difi d 2/14/08

TRANSMITTAL OF APPEAL

Date: November 16, 2009

To: U.S. COURT OF APPEALS, 8TH CIRCUIT

From: Rena L. Riemer, Deputy Clerk

In Re: District Court Case No.: 08-6370 JNE/RLE

Eighth Circuit Case No.:

Case Title: W3i Mobile, LLC v. Westchester Fire Insurance Company,

The statutory filing fee has:

X been paid, receipt # 4039235.

not been paid as of 11/16/09. IFP is is not pending.

been waived because:

Application for IFP Granted USA filed appeal

Length of Trial: days

Was a court reporter utilized? Yes No

If yes, please identify the court reporter:

Name: Carla Bebault

Address: 316 North Robert Street

St. Paul, MN 55101

Phone: 651-848-1220

Forms A & B were not received; please see attached forms.

Forms A & B were given to counsel at the counter.

X Completed Form A enclosed in transmittal letter.

Original file(s), consisting of file(s) and expandable(s)

Transcript(s): Volume Date Proceeding


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W3i MOBILE, LLC v. WESTCHESTER FIRE INSURANCE COMPANY Complaint