Opinion
Case No. 06-25918-svk, Adv. Proc. No. 07-2292.
May 11, 2009
DECISION ON THE PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT
Facts and Procedural Background
Milwaukee Notions, Inc. (the "Debtor") and Erie Insurance Exchange ("Erie") have each filed Motions for Summary Judgment in this adversary proceeding. The dispute is whether Erie must reimburse the Debtor under a commercial general liability insurance policy for certain actions taken by a third party against the Debtor at the outset of the Debtor's bankruptcy case.
A motion for summary judgment is appropriate when the facts of a case are not subject to material dispute and a decision can be made as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). This case certainly qualifies as there are no disputed facts, and the question is purely a legal issue. On October 6, 2006, Johnson Johnson and LifeScan, Inc. (collectively "LifeScan") filed a complaint against the Debtor and several other defendants in the United States District Court in the Eastern District of New York (the "New York action" or "underlying litigation"). The complaint alleges that the Debtor and others distributed counterfeit diabetic test strips, and includes causes of action for federal trademark infringement, federal false advertising, federal dilution of mark, common law unfair competition and unjust enrichment and seeks both damages and an injunction prohibiting the sale and distribution of the diabetic test strips.
On about October 17, 2006, the Debtor contacted its insurer, Erie, to request that Erie defend the Debtor against the claims in the New York action. Erie had issued a Commercial General Liability Policy to the Debtor effective July 3, 2006 through July 7, 2007 and an Umbrella Policy providing excess coverage above the Commercial General Liability Policy limits. For our purposes, the Commercial General Liability Policy and Umbrella Policy (collectively the "Insurance Policy") contain identical provisions and definitions. While not admitting coverage, Erie retained counsel to defend against the New York lawsuit, and Erie continues to defend the Debtor in the New York action under a "reservation of rights."
Three days later, on October 20, 2006, the Debtor filed a petition in this Court under Chapter 11 of the Bankruptcy Code. At the "first day hearings" on October 24, 2006, LifeScan made an oral motion for modification of the stay of § 362 to continue a temporary restraining order issued at the outset of the New York action. When the oral motion was denied, LifeScan immediately filed a written emergency motion to modify the automatic stay. A hearing was held on October 24, 2006, and the Court denied the emergency motion for relief from stay, indicating, among other findings, that the New York court's injunction was too broad. However, the Court enjoined the Debtor from selling counterfeit goods as identified by the Food and Drug Administration, and required the Debtor to cooperate with LifeScan's discovery and investigative efforts regarding the source and disposition of the counterfeit test strips. The Court asked LifeScan's attorney to draft a proposed Order embodying this ruling with input from the Debtor. The Debtor and LifeScan were unable to agree on the terms of the Order, and on November 22, 2006, LifeScan filed a Memorandum in Support of its proposed Order, in which it argued that the Debtor was continuing to sell counterfeit products in violation of the Court's directive, and realleged many of the causes of action raised in the New York action. Various briefs and declarations were filed with respect to the scope of the Order, and multiple hearings were held in December 2006.
Meanwhile, around the same time as the parties were arguing about the terms of the Order from the October 24 hearing, the Debtor had filed a Motion to Quash a Subpoena issued by LifeScan to the Debtor's Bank. This Motion to Quash sought sanctions for LifeScan's alleged violation of the automatic stay for issuing the Subpoena and taking discovery of the Debtor's customers. Although LifeScan eventually withdrew the Subpoena of the Bank, the Debtor continued to seek sanctions against LifeScan for its actions in serving the Subpoena and pursuing discovery of the Debtor's customers. The sanctions action eventually was scheduled for a two-day trial, but after mediation, a resolution was reached.
Throughout the Chapter 11 proceedings, the Debtor has been represented by bankruptcy counsel, Howard, Solochek Weber (appointed November 17, 2006, effective October 20, 2006) and general counsel, Demark, Kolbe Brodek (appointed January 6, 2009, effective October 20, 2006). On March 16, 2007, the Debtor applied for the appointment of Susan Stromberg of Milber, Plousadis Seiden, LLP as special counsel to monitor the New York action on the Debtor's behalf. The Application recites that Erie had agreed to pay for the special counsel's services. The Order authorizing the appointment of special counsel was signed on March 26, 2007, effective October 20, 2006. No mention of Erie is made in the Applications to appoint Howard, Solochek Weber or Demark, Kolbe Brodek.
On November 7, 2007, the Debtor filed this adversary proceeding against Erie for a declaratory judgment that Erie owes the Debtor insurance coverage for LifeScan's prosecution of its claims in the bankruptcy case, and further seeking a declaration that Erie breached its duty to defend the Debtor, thereby preventing Erie from raising any future challenges to coverage. See Prof'l Office Bldgs., Inc. v. Royal Indem. Co., 145 Wis. 2d 573, 427 N.W.2d 427 (Ct.App. 1988) (adopting the rule that an insurer's "improper refusal" to defend results in a waiver of coverage challenges). The Debtor relies on well-developed Wisconsin case law regarding insurance policy interpretation, as well as duties of insurers and insureds under policies, to argue that the Policy provides coverage for the claims raised in the New York action, and that coverage is broad enough to cover costs the Debtor incurred in defending against LifeScan's actions in this Court.
Erie vigorously disagrees with the Debtor's interpretation of the applicable law. Although conceding that Wisconsin law requires Erie to provide a defense in the New York action, Erie contends that its Policy is not broad enough to cover the defense of LifeScan's motions in the early stages of the bankruptcy case, and asserts that to hold an insurer liable for these expenses would be to expand the scope of coverage beyond that contemplated by the parties. Following the parties' extensive briefing and a hearing on the cross-motions, the Court ruled that defense costs the Debtor incurred for two pleadings LifeScan filed in the bankruptcy case and related hearings should be reimbursed by Erie. The Court reserved ruling on whether by failing to cover the bankruptcy related costs, Erie breached its duty to defend under the Policy, with the result that Erie is foreclosed from raising any further challenges to coverage. The parties have now briefed this issue as well, and this Decision constitutes the Court's findings of fact and conclusions of law.
Analysis
The guidelines for determining an insurer's obligations under an insurance policy under Wisconsin law are not subject to strenuous debate. Insurance policy construction is contract interpretation at its core, and a court must compare the allegations of a complaint to the terms of the insurance policy at issue to determine if a policy entitles an insured to coverage. See, e.g., Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 261 Wis. 2d 4, 660 N.W.2d 666 (2003). The coverage issue is decided by looking within the "four corners" of a complaint and policy; the issue is a question of law for which extrinsic evidence is unnecessary. See, e.g., Smith v. Katz, 226 Wis. 2d 798, 595 N.W.2d 345 (1999). Terms are given their ordinary meaning unless otherwise defined in a policy. Johnson Controls, Inc., v. Employers Ins. of Wausau, 264 Wis. 2d 60, 665 N.W.2d 257 (2003). The allegations in the complaint are construed liberally, and any ambiguity is necessarily interpreted in favor of the insured. Fireman's Fund, 261 Wis. 2d at 19. Additionally, "What is important is not the legal label that the plaintiff attaches to the [insured's] conduct, but whether that conduct as alleged in the complaint is at least arguably within one or more of the categories of wrongdoing that the policy covers." Curtis-Universal, Inc. v. Sheboygan Emergency Med. Servs., Inc., 43 F.3d 1119 (7th Cir. 1994). If one of the claims is covered by the policy, an insurer must defend against the entire complaint, even if some of the claims would not be within the scope of coverage. Doyle v. Engelke, 219 Wis. 2d 277, 580 NW.2d 245 (1998). A court must only look to the allegations of a complaint, as the merits of the case are irrelevant to this determination. Smith, 226 Wis. 2d at 800.
These familiar principles and numerous supporting cases are cited in the parties' briefs. However, none of the cases considers an insurer's duty to defend an insured in the bankruptcy court after a pending lawsuit is stayed by the insured's bankruptcy petition. However, bankruptcy proceedings are civil proceedings, and to the extent LifeScan pressed its claims in the underlying litigation in this Court, the same principles would apply to make the coverage determination. Since applicable Wisconsin law dictates that a coverage determination is made by comparing the claims alleged to the coverage provided in a policy, the Court must determine whether the claims made in LifeScan's bankruptcy pleadings are covered by the Policy.
The starting point is the language contained in the Policy. The relevant provisions state:
a. We will pay those sums that the insured becomes legally obligated to pay as damages, including punitive or exemplary damages to the extent allowed by law, because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply. We may, at our discretion, investigate any offense and settle any claim or "suit" that may result.
b. This insurance applies to "personal and advertising injury" caused by an offense . . . if the offense was committed in the "coverage territory" during the policy period.
The Policy also defines several key terms:
"Suit" means a civil proceeding in which damages because of "bodily injury," "property damage" or "personal and advertising injury" to which this insurance applies are alleged. "Suit" includes:
a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
"Personal and advertising injury" means injury, including consequential "bodily injury," arising out of one or more of the following offenses:. . . .
f. The use of another's advertising idea in your "advertisement"; or
g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."
Read together, the Policy provisions establish three requirements to trigger Erie's duty to defend: (1) a party must bring a "suit" against the Debtor; (2) the party must allege that the Debtor caused a "personal or advertising injury"; and (3) the party must allege damages on account of the "personal or advertising injury."
The Debtor asserts that LifeScan's filings and assertions in the bankruptcy case meet the three-part test. First, LifeScan filed an emergency motion on October 24, 2006 seeking relief from the automatic stay to continue the New York court's restraining order prohibiting the Debtor from selling counterfeit products (the "October Motion"). The October Motion recites the history of the New York action and events leading up to the suit's initiation. It references an FDA press release alerting consumers about counterfeit test strips in the market, and warning consumers of the potential injury these counterfeit strips could cause. The October Motion alleges that, based on LifeScan's investigation, the Debtor distributed the counterfeit strips, and states that the New York court temporarily enjoined the Debtor from distributing counterfeit strips until a final hearing (which was stayed by the Debtor's bankruptcy filing). Therefore, in the October Motion, LifeScan asked the Court to (1) modify the automatic stay to allow the New York action to continue; and (2) enjoin the Debtor from selling counterfeit test strips LifeScan alleged created "extreme public health concerns and potentially fatal risks . . . on consumers." (October Motion, ¶ 13). At the emergency hearing on the October Motion, the Court declined to grant LifeScan relief from the automatic stay. However, the Court enjoined the Debtor from selling counterfeit test strips, required the Debtor to cooperate with discovery, and allowed LifeScan to inspect the Debtor's inventory and records.
Then, on November 22, 2006, LifeScan filed a memorandum (the "November Memorandum"), due to the continuing dispute between the Debtor and LifeScan over the terms of the Order arising from the October Motion. In the November Memorandum, LifeScan alleged that the Debtor continued to sell test strips in violation of the previous injunction, and alleged violations of the Lanham Act for selling purportedly harmful products. Concerning the Lanham Act claims, LifeScan made identical allegations of copyright and trademark infringement as it did in its complaint in the New York action. Moreover, the November Memorandum discusses the New York litigation in detail, specifically LifeScan's seizure of test strips and the temporary restraining order issued in that action. The November Memorandum is replete with allegations of trademark and copyright violations, seizure orders under the Lanham Act, and harm LifeScan allegedly suffered due to the Debtor's actions. For example, it states:
The law thus squarely charges distributors like Debtor with the obligation to verify the authenticity of the goods they sell. Movants' proposed order does just that, compelling Debtor to trace the authenticity of the OneTouch products it sells when it chooses to sell products not authorized for sale in the U.S. In contrast, Debtor attempts to shirk its responsibilities under the Lanham Act by offering a proposal that imposes on Movants a duty to verify the products Debtor sells, even though those products are purchased outside the authorized and controlled distribution network that Movants already have established for the purpose of, among other things, ensuring authenticity.
One line later, the November Memorandum says: "In any case, because the law imposes a strict obligation on distributors like the Debtor, not trademark holders like Movants, to avoid dealing in counterfeits and infringing on trademarks, Movants' proposed order should be entered."
After comparing the allegations of these pleadings with the applicable Policy provisions, the Court concludes that the Debtor's fees and costs related to the October Motion and November Memorandum are covered by the Policy. First, LifeScan's claims in these pleadings seek damages in civil proceedings within the Policy definition. A bankruptcy proceeding is a "civil" proceeding, as opposed to a criminal proceeding, and therefore falls within the category of "suit". See also Sauk County v. Employers Ins. of Wausau, 202 Wis. 2d 433, 440, 550 N.W.2d 439, 442 (Ct.App. 1996) ("key factor is whether the parties to the action are involved in `actual court proceedings'") (citing City of Edgerton v. Gen. Casualty Co., 184 Wis. 2d 750, 517 N.W.2d 463 (1994)). The claims made in the October Motion and November Memorandum are virtually identical to the allegations of the complaint in the New York action, and those claims constitute a "suit" against the Debtor just as the New York complaint did.
In the same way, LifeScan's bankruptcy pleadings allege "personal and advertising injuries" as defined in the Policy, and also allege that LifeScan suffered damages from these injuries. LifeScan claims that the Debtor infringed upon its copyrights and trademarks, violated the Lanham Act, and engaged in advertising that caused injury to LifeScan. In Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., the court determined that a similarly worded commercial general liability policy provided defense coverage based on a complaint that alleged Lanham Act violations and trade dress infringement. 261 Wis. 2d 4, 26, 660 N.W.2d 666 (2003) (fact that policy "arguably" covered one of the claims was sufficient). The Policy here plainly covers injury on account of trademark infringement, and the pleadings specifically allege that the Debtor infringed on LifeScan's trademark by marketing counterfeit products. Given that the language of the Policy is accorded its ordinary meaning and ambiguity is construed in the Debtor's favor, the Policy arguably provides coverage, meeting the requisite standard. Acuity v. Bagadia, 310 Wis. 2d 197, 750 N.W.2d 817 (2008).
Erie argues that the term "damages" has a technical meaning under Wisconsin law and must be read narrowly. See Sch. Dist. of Shorewood v. Wausau Ins. Co., 170 Wis 2d 347, 368, 488 N.W.2d 82, 89 (1992) (citing Black's Law Dictionary for the proposition that the term "damages" does not encompass the costs of complying with an injunctive decree). Shorewood involved an insurer's obligation to defend against proceedings seeking costs to repair environmentally damaged property, and the court determined that the policy did not cover those damages. However, the Wisconsin Supreme Court has since rejected the holding of Shorewood on this issue. Johnson Controls, 264 Wis. 2d at 89 ("we reject [ Shorewood's] overly restrictive definition of damages"). The Johnson Controls court noted that the authorities cited in Shorewood did not support the narrow interpretation of the term damages. In doing so, the Shorewood court reiterated that the key inquiry is an insured's reasonable expectation of coverage. Id. ("We hold that Johnson Controls reasonably expected that its CGL insurers' duty to defend would begin after it received potentially responsible party letters and conveyed them to the insurers.") Giving the term "damages" its ordinary meaning as interpreted by a reasonable insured, the Court finds that the pleadings filed by LifeScan in this Court do allege damages as defined by Wisconsin insurance law.
The October Motion and the November Memorandum directly discuss the allegations of the underlying litigation, alleging that the Debtor is continuing to sell the counterfeit test strips, and asserting that that Erie is being damaged by the Debtor's activities. Although not determinative on this issue, it should be noted that Erie is defending the underlying New York action under a reservation of rights, and the claims alleged in that action are identical to those alleged in these two pleadings. Given the principles that must be applied: comparing the four corners of the complaint to the Policy; interpreting the Policy from the perspective of the insured; construing any ambiguity in favor of the insured; and recognizing that the duty to defend is triggered by allegations alone (whether or not they are true), the Court finds that the requirements are met. See Liebovich v. Minn. Ins. Co., 299 Wis. 2d 331, 728 N.W.2d 357 (2007) (Wisconsin courts apply the "four corners" test); Fireman's Fund, 261 Wis. 2d at 674 (court must make reasonable inferences and resolve doubt in favor of insured).
Aside from the October Motion and November Memorandum, the Debtor seeks a determination that Erie is responsible for the fees and costs the Debtor incurred related to other matters including LifeScan's Rule 2004 examinations of the Debtor's employees, and the dispute over the subpoena of records from the Debtor's Bank and customers. The Court agrees with the Debtor's contention that the Rule 2004 examinations aided LifeScan with discovery in the underlying litigation. However, as Erie correctly notes, Rule 2004 examinations are a right given to creditors under the Bankruptcy Code to investigate the affairs of the debtor. Debtors may suffer such an investigation whether or not a bankruptcy is caused by a pending lawsuit. Erie also cites persuasive case law holding that an insurer is not required to fund an insured's affirmative claims. See, e.g., Se. Wis. Prof'l Baseball Park Dist. v. Mitsubishi Heavy Indus. Am., Inc., 304 Wis. 2d 637, 738 N.W.2d 87 (Ct.App. 2007) (apportioning costs between offensive and defensive claims). Under this principle, an action initiated by an insured is, by its nature, not a defense cost properly covered under a policy. Towne Realty, Inc. v. Zurich Ins. Co., 201 Wis. 2d 260, 273, 548 N.W.2d 64, 69 (1996) (policy's language providing for defense of claims "clearly precludes" recovery for offensive actions). The Debtor here sought affirmative relief (sanctions) and an injunction against LifeScan. These expenses are properly viewed as affirmative actions under Towne, and therefore are not defensive costs covered by the Policy. In LifeScan's response to the Motion for Sanctions, it did not allege that the Debtor was continuing to distribute counterfeit test strips, as it had in the October Motion and November Memorandum. Rather LifeScan defended its ability to take discovery of non-debtor parties, notwithstanding the automatic stay preventing LifeScan's actions against the Debtor. While these activities undoubtedly aided LifeScan in the underlying litigation, and some of the Debtor's costs could conceivably become defense costs if an adversary proceeding or claim objection involving LifeScan is filed in this Court, no such proceeding is pending. For these reasons, the Court finds that the Debtor's costs and fees incurred in bringing its affirmative motion to quash and attending Rule 2004 exams are not covered by the Policy.
To be clear, the Policy does not cover the fees the Debtor incurred to file bankruptcy, prepare Schedules, negotiate a cash collateral agreement, or any other general bankruptcy matters, because those costs do not relate to the defense of the LifeScan's claims. If the Debtor objects to LifeScan's proof of claim, Erie would be responsible for the costs of "defending" the Debtor against that proof of claim. However, to date, the Policy covers only the Debtor's fees and costs associated with defending against the October Motion and November Memorandum.
Having determined that Erie is responsible for some of the costs and fees the Debtor incurred in this bankruptcy case, the issue is whether this finding compels the conclusion that Erie breached its duty to defend and is estopped from contesting any coverage issues under the Policy. See, e.g., Newhouse v. Sec. Mut. Ins. Co., 176 Wis. 2d 824, 501 N.W.2d 1 (1993); Radtke v. Fireman's Fund Ins. Co., 217 Wis. 2d 39, 577 N.W.2d 366 (Ct.App. 1998). The Debtor argues that an insurer's failure to defend the Debtor in the Bankruptcy Court constitutes a breach of the duty to defend under Wisconsin Law. On the other hand, Erie argues that it did not breach its duty to defend, as it has defended the Debtor fully with respect to the New York litigation under a reservation of rights. Erie asserts that the Debtor retained bankruptcy counsel for the specific purpose of handling the bankruptcy matters, and that the Court's finding that it must reimburse the Debtor for these expenses is not a basis for finding a breach of the duty to defend. To Erie, the issue is more properly framed as a determination of the scope of Erie's duty and allocation of fees between the parties.
Under Wisconsin law, when faced with an insured's tender of coverage, an insurer has some alternatives:
An insurer believing that its policy does not indemnify against a particular claim has several options for preserving its rights without violating its duty to defend. It may seek a judicial resolution of coverage before the underlying claim is tried, or it may defend its insured under a reservation of rights. The insurer may, on the other hand, simply refuse to assist and leave the insured to his or her own defense. If the insurer is correct that it owes no duty to defend, then it suffers no negative consequences of this action. However, the insurer should be very wary of taking this route, because if it is later found that the insurer did have a duty to defend, the breach of that duty estops the insurer from contesting coverage in the underlying action.
Liebovich v. Minn. Ins. Co., 299 Wis. 2d at 360-61 (citations omitted). In the present case, although some preliminary motions have been filed, the "underlying claim" has not yet been tried (it will presumably be tried following a claim objection or in estimating LifeScan's claim for purpose of confirmation of the Debtor's plan). The facts of this case are unique in that the New York action was stayed upon the bankruptcy filing; a bifurcated trial on the issue of coverage has not yet occurred. Before Erie had an opportunity to determine if coverage is owed for the New York action, the Debtor filed a Chapter 11 petition, and LifeScan filed an emergency Motion to continue the New York action. The proceedings in the bankruptcy court were extremely time-sensitive — occurring in the first few days of the bankruptcy case — and no declaratory ruling or bifurcated trial could have preceded them. There simply was no way the Court could stay the emergency proceedings in the bankruptcy case to determine if Erie should be fronting the costs.
The Liebovich noted that an insurer has the option of defending under a reservation of rights. Here, Erie has been defending the underlying litigation under a reservation of rights, and such a defense is sufficient under Wisconsin law to maintain Erie's coverage defenses. See Towne Realty, 201 Wis. 2d at 260 (insurer who denied coverage of underlying suit estopped form contesting coverage); Sauk County v. Employers Ins. of Wausau, 202 Wis. 2d 433, 550 N.W.2d 439 (Ct.App. 1996) (insurer did not breach duty to defend when it made "partial" payments and defended under a reservation of rights). In their briefs, the parties have begun to quibble over the extent to which the special counsel Erie retained to defend the Debtor in the underlying litigation was involved with proceedings in the bankruptcy case. The Debtor highlights the fact that the attorney has not been active, but the New York action was stayed by the Debtor's filing. The fact remains that Erie did retain counsel and is defending the Debtor in the underlying litigation, which Wisconsin cases have deemed sufficient to preclude a breach.
The Debtor quotes Sauk County for the rule that an insurer's partial payment of defense costs does not satisfy the insurer's duty to defend. But the Sauk County court noted that while that statement of the law is correct, "the unique procedural posture of the instant case demands a closer look at this broad statement." 202 Wis. 2d at 446. In Sauk County, the insurer only paid the portion of legal fees related to several counterclaims (the insurer refused to pay fees on account of a DNR complaint seeking to require the insured to engage in environmental cleanup). The insurer ultimately paid the fees the insured's counsel incurred defending the counterclaims several years after the costs were incurred. The court concluded that, given the unique circumstances of the case, the "partial payment" was actually "full payment" for defense fees, because the insurance policy did not cover the initial DNR complaint. Id. Therefore, the insurer did not breach its duty to defend under the policy.
The facts of the current case are also unusual. As discussed above, Erie has attempted to comply with the principles required by Wisconsin law. LifeScan's claims against the Debtor have not yet been litigated, and Erie did retain counsel under a reservation of rights to defend the Debtor in the New York litigation. The Liebovich court cautioned insurers to take these actions to stave off a later finding of breach. The Debtor chides Erie for its failure to have retained counsel to storm into this Court at the outset of the bankruptcy, when the Debtor had employed bankruptcy counsel specifically for the bankruptcy case, and did not mention Erie as a source of funding in the attorney's employment application. The Debtor characterizes Erie's actions as "refusal" to assist, leaving the Debtor to handle things wholly on its own under Liebovich. See 299 Wis. 2d at 360-61. However, the Court finds that Erie's actions, under the unique facts of this case, are not a breach of Erie's duty to defend and Erie is not estopped from contesting coverage.
Conclusion
The Court finds that the fees and costs the Debtor incurred related to the October Motion and November Memorandum are properly covered by the Policy. Because the costs associated with the Debtor's motion to impose sanctions and to defend itself during discovery are either affirmative actions not covered by the Policy, general bankruptcy-related costs, or costs that may be later sought as part of a claim objection or adversary proceeding, Erie is not obligated to reimburse the Debtor for those expenses at this time. Concerning the Debtor's allegation that Erie has breached its duty to defend, and therefore is estopped from challenging coverage and is responsible for all damages flowing from the breach, the Court finds that Erie's defense of the New York action under a reservation of rights, and the fact that no determination of the underlying claims has been made, does not result in a breach of Erie's duty to defend. The Court will issue an order consistent with this Decision.