Music To Their Ears: Second Circuit Reinstates Insurers' Music DJ
In light of the widely different provisions of state law pertaining to insurance issues, the venue in which a coverage dispute is litigated can affect the outcome as much as the merits. Even so, as with recent New Jersey rulings in cases such as Sensient Colors and Mine Safety Appliances, insurer efforts to obtain favorable venues have recently been thwarted in cases where courts ruled that the insurers acted with unseemly haste to file in a forum that had little or no connection to the coverage dispute. Now comes a new opinion of the Second Circuit, reinstating an insurer's forum selection and giving a strong boost to the "first filed" rule.
The claims in Employers Ins. of Wausau v. Fox Entertainment Group, 06-4652 (2d Cir. March 27, 2008) arose out of claims for copyright infringement involving music for the 1980's TV potboiler, Santa Barbara. In 2004, a class action was brought in California against the parent companies of the show's producer (New World Entertainment) on behalf of all of the individuals who had composed music for the show. After receiving a separate demand by various music companies, Fox Entertainment's legal department faxed a notice from its California office to its media E&O carriers, Wausau and National Casualty. The insurers sought information concerning the relationship between Fox and their original insured. Within weeks after receiving this confirming information, the carriers filed a DJ in federal district court in Manhattan against various Fox entitites but not New World Entertainment. Two weeks later, they also issued a formal denial of coverage.
Wthin weeks, Fox filed its own DJ in state court in California, including all of the New York parties, as well as New World Entertainment. Although the insurers then added New World as a defendant in the New York case, Judge Mukasey (now our Attorney General) subsequently dismissed the DJ, holding that the defendants had established "special circumstances" warranting their claim that the California DJ should go forward even though it was not the first DJ to be filed. The court focused on the fact that Wausau and National Casualty had filed the DJ even before announcing their coverage position and had initially not included New World Entertainment, presumably in view of its close ties to California. Around the same time, the federal court in California declined to transfer venue to New York.
In reversing the District Court's dismissal, the Second Circuit adopted an analysis of the "special circumstances" exception to the "first filed" rule similar to that followed by courts in assessing forum non convenients challenges. The court held that "special circumstances" would only apply in a narrow group of cases, as where the DJ was anticipatory in nature or was filed in order to thwart the natural selecton of forum for the controversy. In this case, the court ruled that the insurers' DJ was not anticipatory as not having been filed in response to any direct threats of litigation or deadlines from the insureds and that the insurers were under no obligation to announce their coverage position before filing the DJ. Further, the court ruled that the insurers' choice of New York (whose law is more favorable than California's on late notice issues (at least for now)) was not purely prompted by forum shopping. While acknowledging that strategic considerations properly play a role in where to sue, the court found that there were, in fact, significant links between New York and this controversy. Fox TV is a New York corporation and has offices in NY, even though its headquarters is in California. The court did not express an opinion on the relative merits of this controversy, however, and remanded the issue back to the District Court for a determination of whether New York or California was the more appropriate forum using a forum non conveniens analysis.
