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Cultural Care, Inc.. v. AXA Insurance Co.

United States District Court, D. Colorado

June 15, 2018




         This matter comes before the Court on defendant AXA Insurance Company's (“AXA”) Motion to Dismiss for Failure to State a Claim (ECF No. 23) and plaintiff Cultural Care, Inc.'s (“CCI”) Motion for Partial Summary Judgment (ECF No. 28). For the reasons stated herein, AXA's motion to dismiss is DENIED and CCI's motion for partial summary judgment is GRANTED.

         I. BACKGROUND

         This is an insurance coverage dispute about whether AXA is obligated to insure CCI for its expenses incurred in defending a lawsuit against CCI (Beltran, et al. v. Interexchange, No. 14-cv-03074-CMA-CBS (D. Colo.)). CCI is a United States State Department-designated sponsor of au pairs, and as such is responsible for hiring and placing foreign national au pairs with host families in the United States. ECF No. 28 at 3-4. The underlying Beltran suit is a class action brought on behalf of au pairs alleging that au pair sponsors, including CCI, conspired to set au pair rates of compensation below market rate in violation of federal and state minimum wage laws and in violation of racketeering, tort, and consumer protection laws. ECF No. 23-4 at 2, 7. The sponsor companies are accused of fixing rates at the price floor authorized by Fair Labor Standards Act (“FLSA”) regulations of $195.75 per 45-hour work week, which amounts to $4.35 per hour. Id. at 3. According to the Beltran plaintiffs, this rate is below the federal minimum wage and several states' minimum wages. Id. at 49, 51-54, 76. The sponsors are also accused of misinforming the au pairs that they could not ask their host families to pay them above this price floor. Id. at 53.

         AXA issued CCI liability insurance policies that were in effect during the relevant time period for the Beltran suit.[1] ECF No. 28 at 1. AXA has denied any duty to defend the Beltran suit and has not reimbursed CCI for its costs to defend the suit. Id. The first amended Beltran complaint was filed March 13, 2015. After CCI gave notice of the complaint, AXA denied coverage in two letters in April and July of 2015. ECF No. 28-5 at 2. The operative Second Amended Complaint in the Beltran suit was filed October 17, 2016 and asserts nine counts:

Count I: Restraint of Trade in Violation of the Sherman Act;
Count II: Civil Racketeering Influenced and Corrupt Organizations Act (RICO);
Count III: Breach of Fiduciary Duty;
Count IV: Negligent Misrepresentation;
Count V: Constructive Fraud;
Count VI: Consumer Protection;
Count VIII[2]: Failure to Pay Minimum Wage and Overtime in Violation of FLSA;
Count IX: Unpaid Wages under State Laws;
Count X: Violations of New York Wage Act;

ECF No. 23-4 at 104-15.

         According to the “Travel Agents and Tour Operators General and Professional Liability Policy, ” which is attached as Endorsement #8 of CCI's insurance policy with AXA, AXA agrees to “pay on behalf of the Insured those sums that the Insured becomes legally obligated to pay as Damages[3] because of a negligent act or negligent omission committed by the Insured . . . in the conduct of Travel Agency Operations[4] by the Named Insured” that occurs during the policy period and in the coverage territory. ECF No. 23-1 at 64. The policy also provides that AXA has a “duty to defend any Suit against the Insured seeking Damages on account of such . . . ‘negligent act' or ‘negligent omission' . . . to which this insurance applies, even if any of the allegations of the Suite [sic] are groundless, false, or fraudulent.” Id.

         The insurance policy also contains various exclusions. The two key exclusions at issue in these motions are Exclusions J and K, which provide that “[t]his endorsement does not apply to”:

[Exclusion] J. Any claim or Suit based upon or arising out of any violation of the Fair Labor Standards Act or any similar federal, state or local law pertaining to working conditions, hours, employee benefits or wages.
[Exclusion] K. Any claim or Suit based upon or arising out of any Occurrence, act or omission, or offense by the Insured which is intentional, dishonest, fraudulent or malicious, or criminal, regardless of whether the resultant Damages were intended.

ECF No. 23-1 at 65-66.

         In its complaint, CCI argues that AXA has a duty to defend CCI since the Beltran suit contains a negligent misrepresentation claim. ECF No. 1. CCI asserts that AXA breached the insurance policy when it failed to defend CCI with respect to the Beltran suit. Id. CCI also seeks a declaratory judgment that AXA is obligated to defend CCI in connection with the Beltran action. Id. In contrast, AXA contends that the suit as a whole, and the negligent misrepresentation claim in particular, arise from or are based on alleged violations of FLSA or similar wage laws, such that Exclusion J forecloses AXA's duty to defend. ECF No. 23 at 8. As a result, AXA moves to dismiss CCI's complaint. Id. For its part, CCI moves for partial summary judgment on its breach of contract claim. ECF No. 28. The motions have been fully briefed, and the Court heard oral argument on May 10, 2018. See ECF Nos. 23, 27, 28, 30-33.


         To survive a 12(b)(6) motion to dismiss, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plausible claim is a claim that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court must accept the well-pleaded allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002), purely conclusory allegations are not entitled to be presumed true, Iqbal, 556 U.S. at 681. However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, he has met the threshold pleading standard. See, e.g., Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008).

         The Court may grant summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A fact is material “if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A dispute as to a material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The Court will examine the factual record and make reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         III. ...

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