would violate public policy by imposing an unreasonable restraint of trade. This assertion lacks adequate support in the record. TFA was not unduly restrained in its efforts to secure continuing protection for any wrongful acts it may have committed prior to January 1, 1979. At the end of its 1978 policy term, TFA could have either negotiated an extension of its coverage with Aetna or purchased from another insurer a policy with retroactive coverage. There is no persuasive evidence that such options were unavailable to TFA, or that defendant was otherwise unreasonably restrained. Indeed, the record is barren of indications that TFA even sought additional protection. TFA evidently made a business decision not to extend coverage, under Article X of the Aetna policy or through another insurer. This decision, while perhaps imprudent, was its own. Considerations of public policy simply do not arise.
Federal-TNG Insurance Coverage
Federal, insurer for the other corporate defendant, also hopes to establish that the actions complained of do not fall within the scope of the coverage it extended. Material provisions of the contractual liability insurance policy protect TNG against claims for damages "arising out of negligent act, error or omission of the insured in the processing of data or records of others in the insured's business as a data processor." This coverage does not extend "to any dishonest, fraudulent, criminal or malicious act, error or omission." Because the acts complained of are alleged to involve deliberately malicious or reckless conduct, and negligence is nowhere expressly charged, Federal argues that it is not obligated to defend the action against TNG. The absence of allegations in the complaint referencing errors or omissions in electronic data processing is urged as an additional ground for denying coverage.
Whether the applicable law is that of New York or the District of Columbia,
it is settled that an insurance company's duty to defend an action against its insured is determined by reference to the allegations of the complaint. Donnelly v. Transportation Insurance Co., 589 F.2d 761 (4th Cir. 1978); S. Freedman & Sons, Inc. v. Hartford Fire Insurance Co., 396 A.2d 195 (D.C. App. 1978); Boyle v. National Casualty Co., 84 A.2d 614 (D.C. App. 1951); McGroarty v. Great American Insurance Co., 36 N.Y.2d 358, 368 N.Y.S.2d 485, 329 N.E.2d 172 (1975); International Paper Co. v. Continental Casualty Co., 35 N.Y.2d 322, 361 N.Y.S.2d 873, 320 N.E.2d 619 (1974). If these allegations include facts upon which a covered cause of action might be based, the insurer is obligated to defend. E.g., Donnelly, supra, 589 F.2d at 767; McGroarty, supra, 329 N.E.2d at 176. In interpreting the allegations of the complaint, which are neither drafted by the insured nor advanced in contemplation of an insurer's role, excessively literal or rigid construction is to be avoided. An insurer's obligation to defend is of course not tantamount to a duty to indemnify. But so long as facts are alleged which could form a basis for recovery within the coverage of the policy, the duty to defend exists.
The main complaint in this action pleads facts that reasonably can be construed to sound in negligence. Although allegations abound of willful or malicious conduct, there also are facts effectively charging a lack of due care in recordkeeping, claims processing and other matters. See, e.g., paragraphs 20, 21, 28, 29. Indeed, paragraph 29 specifically identifies a lack of "care, prudence and diligence" in the discharge of fiduciary and contractual duties. Further, absent proof of malice or its equivalent, the acts complained of could still result in a verdict of negligence at trial.
Errors and omissions in electronic data processing also are implicated in the allegations of the complaint. The failure to mention "computers" in the complaint is not dispositive in this regard. Recordkeeping and claims processing for the plans were handled in part by computer during material time periods. There is evidence linking tasks performed by computer to at least some of the acts complained of in areas such as accurate recordkeeping, bank statement reconciliations, and orderly transition to the new administrator. At a minimum, the errors or omissions complained of, coupled with reliance on computers to perform tasks material thereto, establish disputed issues of fact. Summary judgment is therefore inappropriate. Indemnification is a wholly separate matter, to be resolved by the trier-of-fact.
To summarize, defendants' motion to dismiss or for summary judgment is denied in its entirety. The Court has subject matter jurisdiction over count one. Recovery of punitive damages is not foreclosed as a matter of law. The four remaining individual defendants have transacted sufficient business in the District of Columbia to be "found" here. Defendants Pero and Fiumefreddo are voluntarily dismissed. Third-party defendant Aetna's motion for summary judgment is granted; Aetna is dismissed from the case. Third-party defendant Federal's motion for summary judgment is denied. Federal remains in the case as an insurer, with an obligation to defend TNG. An appropriate order is attached.
The above case is set down for a status conference in Courtroom No. 6 on May 14, 1980, at 10:00 a.m., to set the scope and limits of subsequent discovery, and to arrange a discovery schedule as well as dates for pretrial and trial. [EDITOR'S NOTE: The following court-provided text does not appear at this cite in 581 F. Supp.]
Upon consideration of defendants' and third-party defendants' motions to dismiss or for summary judgment, the numerous memoranda in support thereof and in opposition thereto, oral arguments of counsel, and the entire record herein, it is, for the reasons stated in the Court's Memorandum Opinion filed this day, hereby
(1) Defendants' motion to dismiss or for summary judgment is denied in its entirety.
(2) Defendants Pero and Fiumefreddo are voluntarily dismissed from this action.
(3) Third-party defendant Aetna's motion for summary judgment is granted, and Aetna is dismissed from this action.
(4) Third-party defendant Federal's motion for summary judgment is denied.