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Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 1 of 30

UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF NEW YORK

NAUTILUS INSURANCE COMPANY,


Plaintiff,

Civil Action
Case No. 14-CV-5680 (SHS)

v.
GAWKER MEDIA, LLC AKA GAWKER
Document filed electronically
MEDIA; GAWKER MEDIA GROUP, INC.
AKA GAWKER MEDIA; GAWKER
ENTERTAINMENT, LLC; GAWKER
TECHNOLOGY, LLC; GAWKER SALES,
LLC; NICK DENTON; A.J. DAULERIO;
KATE BENNERT; BLOGWIRE HUNGARY
SZELLEMI ALKOTAST HASZNOSITO KFT
AKA GAWKER MEDIA; AND TERRY
BOLLEA.
Defendants.

NAUTILUS INSURANCE COMPANYS MEMORANDUM OF LAW IN SUPPORT OF


ITS MOTION FOR SUMMARY JUDGMENT

Of Counsel and On the Brief,


Justin N. Kinney, Esq.

920809

COUGHLIN DUFFY LLP


88 Pine Street, 28th Floor
New York, New York 10005
Attorneys for Plaintiff
Nautilus Insurance Company

Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 2 of 30

TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .................................................................................................... iii, iv
PRELIMINARY STATEMENT .....................................................................................................1
STATEMENT OF FACTS ..............................................................................................................2
I.

General Background ......................................................................................................2

II.

The Nautilus Policy........................................................................................................4

III.

Tender and Nautilus Response .....................................................................................8

IV.

The Declaratory Judgment Action ...............................................................................10

ARGUMENT.........................................................................................................11
Point I.

NEW YORK LAW SHOULD GOVERN


THE DUTY TO DEFEND ANALYSIS11

Point II.

NAUTILUS HAS NO OBLIGATION TO


DEFEND GAWKER BECAUSE THE CLAIMS
IN THE BOLLEA ACTION DO NOT FALL
WITHIN THE SCOPE OF THE INSURING
AGREEMENT OF COVERAGE A OF THE
NAUTILUS POLICY11
A. The Claims in the Bollea Action Do Not Seek
Damages Because of Injury Caused by An Occurrence..12
B. The Claims in the Bollea Action Fall Outside the
Scope of the CGL Coverage Under the Nautilus Policy..15

Point III. NAUTILUS HAS NO OBLIGATION TO


DEFEND GAWKER IN THE BOLLEA ACTION
BASED ON POLICY EXCLUSIONS..17
Point IV. NAUTILUS HAS NOT WAIVED AND IS NOT
ESTOPPED FROM DENYING COVERAGE
BASED ON THE ABOVE DEFENSES...18
A. New York Insurance Law 3420(d)(2) Does Not Apply18
B. Common Law Estoppel And Waiver Do Not Apply...21
i

Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 3 of 30

Point V.

THE UNDISPUTED MATERIAL FACTS WARRANT


SUMMARY JUDGMENT IN NAUTILUS FAVOR...23

CONCLUSION..............................................................................................................................25

ii

Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 4 of 30

TABLE OF AUTHORITIES
Page(s)
CASES
Albert J. Schiff Assocs., Inc. v. Flack,
51 N.Y.2d 692 (1980) ..................................................................................................18, 21, 22
American Safety Indem. Co. v Loganzo,
2011 N.Y. Misc. LEXIS 4791 (N.Y. Sup. Ct. Oct. 4, 2011) ...................................................21
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242 (1986).................................................................................................................23
Black Bull Contr., LLC v Indian Harbor Ins. Co.,
2013 N.Y. Misc. LEXIS 6339 (N.Y. Sup. Ct. Dec. 31, 2013).................................................21
Brennan v. Liberty Mut. Fire Ins. Co.,
204 A.D.2d 675 (2d Dept 1994) .......................................................................................19, 20
Celotex Corp. v. Catrett,
477 U.S. 317 (1986).................................................................................................................23
Certain Underwriters at Lloyds v. Foster Wheeler Corp.,
822 N.Y.S.2d 30 (1st Dept 2006), affd, 844 N.Y.S.2d 773 (2007)........................................11
Columbia Cas. Co. v. Natl Emergency Servs.,
723 N.Y.S.2d 473 (1st Dept 2001) ..........................................................................................18
Commercial Union Assur. Co. v. Oak Park Marina, Inc.,
198 F.3d 55 (2d Cir. 1999)............................................................................................... passim
Dana v. Oak Park Marina,
230 A.D.2d 204 (4th Dept 1997).............................................................................................19
Gelfman v. Capitol Indem. Corp.,
2014 U.S. Dist. LEXIS 125456 (E.D.N.Y. June 10, 2014) .....................................................22
Hargob Realty Assoc., Inc. v. Firemans Fund Ins. Co.,
901 N.Y.S.2d 657 (2d Dept 2010)..........................................................................................20
K. Bell & Assocs. V. Lloyds Underwriters,
1997 U.S. Dist. LEXIS 2417 (S.D.N.Y. Mar. 4, 1997) .....................................................22, 23
Lapolla Indus., Inc. v. Aspen Specialty Ins. Co.,
566 Fed. Appx. 95 (2d Cir. 2014)............................................................................................11
Matsushita Elect. Industrial Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574 (1987).................................................................................................................23
iii

Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 5 of 30

Nabutousky v. Burlington Ins. Co.,


81 A.D.3d 615 (2d Dept 2011) ...............................................................................................21
Natl Union Fire Ins. Co. v 221-223 W. 82,
2014 N.Y. Slip Op. 06377 (1st Dept 2014).............................................................................23
New York Univ. v. Contl Ins. Co.,
662 N.E.2d 763 (1995).............................................................................................................22
ODowd v. American Surety Co.,
3 N.Y.2d 347 (1957) ................................................................................................................22
Roundabout Theatre Co. v. Contl Cas. Co.,
302 A.D.2d 1 (1st Dept 2002) .................................................................................................11
Sears Oil Co., Inc. v. Merchants Ins. Group,
88 A.D.2d 753 (4th Dept 1982)...............................................................................................22
Worcester Ins. Co. v. Bettenhauser,
95 N.Y.2d 185 (2000) ........................................................................................................19, 20
Zappone v. Home Ins. Co.,
55 N.Y.2d 131 (1982) ..............................................................................................................20
STATUTES
New York Insurance Law 3420 ......................................................................................18, 19 , 24
New York Insurance Law section 3420(d)(2) ....................................................................... passim

iv

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PRELIMINARY STATEMENT
Nautilus Insurance Company (Nautilus) submits this Memorandum of Law in Support
of its Motion for Summary Judgment seeking a declaration that Nautilus has no obligation to
defend Gawker Media, LLC (Gawker), a company that owns and operates a gossip website, in
the underlying action involving dismissed defendant Terry Bollea (also known as Hulk Hogan)
pending in the Circuit Court of the Sixth Judicial Circuit in and for Pinella County, Florida, case
no.: 12012447-CI-01 (the Bollea Action). The Bollea Action seeks damages for Gawkers
October 4, 2012, posting of a sex video and narrative involving Terry Bollea and Heather Clem
and contains allegations relating to infliction of emotional distress, invasion of privacy and
publication of private facts. Nautilus issued a commercial lines policy to Gawker that limited
general liability coverage to office liability exposure occurring at 210 Elizabeth Street, New
York, NY (the Office) and completely deleted any coverage that would normally fall within
Coverage B personal and advertising injury coverage such as written publication of material
that violated a persons right of privacy.
Although Nautilus initially disclaimed coverage for the Bollea Action, Gawker
challenged the disclaimer and took the position that the Nautilus policy applied to the claim. In
response, Nautilus agreed to provide a defense to Gawker subject to a complete reservation of
rights, including the right to seek a determination by declaratory judgment as to Nautilus
obligations under the Nautilus policy. By virtue of this Motion for Summary Judgment, Nautilus
respectfully requests that this Court grant it summary judgment declaring that Nautilus has no
duty to defend Gawker in the Bollea Action.
There are three distinct reasons why the Court can and should reach this conclusion.
First, under prevailing Second Circuit law the claims asserted against Gawker do not seek

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damages for injury caused by an occurrence within the meaning of the Nautilus policy.
Second, the claims asserted fall outside the scope of the coverage grant of the Nautilus policy.
Third, the claims asserted against Gawker fall entirely within the scope of the exclusions
contained in the Nautilus policy. Though Nautilus expects that Gawker will argue, among other
things, that Nautilus has waived and/or is estopped from asserting these defenses, there was no
waiver and can be no estoppel here because New York Insurance Law section 3420(d)(2) does
not apply, the defenses Nautilus asserts cannot be waived at common law, and Gawker cannot
prove estoppel as it cannot demonstrate detrimental reliance given, among other things, Nautilus
express reservation of rights and the fact that Gawker has been defended in the Bollea Action
with counsel of its choosing.
For these reasons, as discussed in more detail below, Nautilus respectfully requests that
this Court grant its motion for summary judgment and declare that Nautilus had and has no
obligation to defend Gawker in the Bollea Action.
STATEMENT OF FACTS
I.

General Background
In 2006 Terry Bollea was secretly videotaped while engaging in sexual activity with

Heather Clem. See Rule 56.1 Statement of Undisputed Material Facts (SUMF), 1. In
October 2012 the video was posted by Gawker to a website owned by Gawker, and was
accompanied by an explicit narrative created by Gawker.

SUMF, 2.

Gawker owns and

operates a website that contains gossip for followers of entertainment, media and news. SUMF,
3 Mr. Bollea was in Florida when he learned that Gawker posted the video and accompanying
narrative. SUMF, 4.

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Subsequent to learning of Gawkers posting and narrative, Bollea sued Todd Alan Clem
and Heather Clem in the Circuit Court for the Sixth Judicial Circuit in and for Pinellas County
Florida. SUMF, 5. On or about December 28, 2012, Bollea filed a first amended complaint
dropping Todd Alan Clem and adding the Gawker Defendants. SUMF, 6. Bollea asserts the
following causes of action: 1) invasion of privacy (against Heather Clem); 2) publication of
private facts (against Heather Clem); 3) publication of private facts (against the Gawker
Defendants); 4) invasion of privacy (against the Gawker Defendants); 5) violation of Florida
Common Law Right to Publicity (against the Gawker Defendants); 6) intentional infliction of
emotional distress (against all defendants); 7) negligent infliction of emotional distress (against
all defendants); and 8) violation of section 934.10 of the Florida Statutes (against all defendants).
SUMF, 7. Bollea alleges that he is a resident and citizen of Pinellas County, Florida. SUMF,
8. Bollea alleges that the defendants engaged in outrageous, irresponsible and despicable
conduct that should be punished to the maximum extent under the law. SUMF, 9. Bollea
states that on October 4, 2012, the Gawker Defendants posted to the Internet a one-minute and
forty-second highlight reel of the secretly-taped video and audio footage depicting Mr. Bollea
naked and engaged in private consensual sexual relations with Clem in a private bedroom. . . .
The Gawker Defendants also posted, with the Video, a graphic narrative. SUMF, 10. In
opposing a motion to dismiss filed by Gawker in the Bollea Action, Bollea argued:
With certain exceptions, the impact rule bars a plaintiff from
recovering damages for his or her emotional distress that is caused
by anothers negligence but does not flow from physical injury.
But the impact rule does not bar injunctive relief. Mr. Bollea
seeks injunctive relief in connection with this claim.
[SUMF, 11 (emphasis in original).]

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In this action and by this motion, Nautilus seeks a declaration that it does not owe Gawker a duty
to defend in the Bollea Action because the claims asserted in that action are not covered under
the Nautilus policy.
II.

The Nautilus Policy


Nautilus issued Gawker a commercial lines policy bearing policy number NN224201

with commercial general liability (CGL) limits of liability of $1,000,000 per occurrence and
$2,000,000 in the aggregate (the Nautilus Policy). SUMF, 12. The general liability coverage
premium for the Nautilus Policy was $3,210, and the premium basis for such premium was the
square footage of Gawkers offices at 210 Elizabeth Street, New York, New York. SUMF, 13.
The insuring agreement for Coverage A of the CGL coverage under the Nautilus Policy
provides, in relevant part, as follows:
a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of bodily injury or
property damage to which this insurance applies. We will
have the right and duty to defend the insured against any suit
seeking those damages even if the allegations of the suit are
groundless, false or fraudulent. However, we will have no duty
to defend the insured against any suit seeking damages for
bodily injury or property damage to which this insurance
does not apply. We may, at our discretion, investigate any
occurrence and settle any claim or suit that may result.
But:
(1) The amount we will pay for damages is limited as
described in Section III Limits Of Insurance; and
(2) Our right and duty to defend end when we have used up
the applicable limit of insurance in the payment of
judgments or settlements under Coverages A or B or
medical expenses under Coverage C.
No other obligation or liability to pay sums or perform acts or
services is covered unless explicitly provided for under
Supplementary Payments Coverages A and B.

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b. This insurance applies to bodily injury and property damage


only if:
(1) The bodily injury or property damage is caused by
an occurrence that takes place in the coverage territory;
(2) The bodily injury or property damage occurs during
the policy period; and
[SUMF, 14.]
The Nautilus Policy contains the following relevant definitions:
3. Bodily injury means bodily injury, sickness or disease
sustained by a person, including death resulting from any of
these at any time.
*

13. Occurrence means an accident, including continuous or


repeated exposure to substantially the same general harmful
conditions.
14. Personal and advertising injury means injury, including
consequential bodily injury, arising out of one or more of the
following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy of a room,
welling or premises that a person occupies, committed
by or on behalf of its owner, landlord or lessor;
d. Oral or written publication, in any manner, of material
that slanders or libels a person or organization or
disparages a person's or organization's goods, products
or services;
e. Oral or written publication, in any manner, of material
that violates a person's right of privacy;
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.
[SUMF, 15.]

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Coverage A of the CGL coverage under the Nautilus Policy includes the following
relevant exclusion:
This insurance does not apply to:
o.

Personal And Advertising Injury


Bodily injury arising out of personal and advertising injury.
[SUMF, 16.]

The Nautilus Policy also includes an endorsement that provides:


EXCLUSION PERSONAL AND ADVERTISING INJURY
This endorsement modifies insurance provided under the
following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART.
COVERAGE B (Section I) does not apply and none of the references to it in the
Coverage Part apply.
[SUMF, 17.]
In other words, on its face the Nautilus Policy CGL coverage included no Personal and
Advertising Injury coverage of any kind.
The Nautilus Policy also includes an endorsement entitled LIMITATION OF
COVERAGE TO DESIGNATED OPERATIONS, which provides:
This endorsement modifies insurance provided under the
following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
A.

The following exclusion is added to 2. Exclusions of


Section I - Coverage A - Bodily Injury And Property
Damage Liability, Coverage B - Personal And Advertising
Injury Liability and Coverage C Medical Payments:

This insurance does not apply to bodily injury, property


damage, personal and advertising injury or medical payments
arising out of, or in any way related to, operations performed by
any insured or any person or organization for whom any insured
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may be legally or contractually responsible, unless such operations


are designated operations.
B.

For the purpose of this endorsement, the following


definition is added to the Definitions section:
Designated operations means only those operations
performed by any insured that are described on the
General Liability Coverage Part Declarations, the
endorsements, or supplements of this insurance.
[SUMF, 18 ]

The General Liability Coverage Part Declarations of the Nautilus Policy identifies the business
description as office and identifies the 210 Elizabeth Street address. SUMF, 19. That page
also identifies the risk classifications for the CGL coverage as well as the premium basis.
SUMF, 20. The classifications were Buildings or Premises office OTNFP, Additional
Insured-All Other and Waiver of Transfer of Rights of Recovery Against Others to Us-L605.
SUMF, 21. The only premium basis used for the CGL coverage was area square footage for the
office location at Elizabeth Street. SUMF, 22.
Subsequent to the issuance of the Nautilus Policy, Gawkers agent, York-Jersey
Underwriters, Inc. (York), approached Nautilus broker, Jimcor Agencies, Inc. (Jimcor), to
seek special event coverage. SUMF, 23. In response, Jimcor questioned York about articles
relating to copyright infringement, alleged bribes, and an FBI investigation, among other issues.
SUMF, 24. In response, York said:
Gawker won the copyright infringement case. There has been no
action taken on the alleged bribe and no investigation is pending.
The insured does not know of any FBI investigation and he is the
lead counsel for Gawker. They did settle with Sarah Palin with no
admission of liability.
Because of their operations, they (sic) are always accusations being
made which are handled in house by their legal dept. Our policy
covers their office liability exposure and occasional (sic) they need
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event coverage. Yes they have a separate E&O media liability


policythe insured is forwarding a copy . . . .
[SUMF, 25.]
The separate E&O media liability policy maintained by Gawker was issued by non-party
Federal Insurance Company.

SUMF, 26.

The premium on that policy is $23,004.00,

approximately eight times the amount of the CGL premium on the Nautilus Policy. See SUMF,
27.
III.

Tender and Nautilus Response


On or about July 3, 2013, Nautilus received notice of the Bollea Action from Gawker.

SUMF, 28. On July 18, 2013, Nautilus issued a disclaimer letter to Gawker. SUMF, 29. The
grounds for the disclaimer included, but were not limited to, the fact that the conduct alleged in
the Bollea Action was not accidental in nature, and therefore would not constitute an
occurrence as defined in the policy. SUMF, 30. In addition, Nautilus stated that there are
no allegations . . . that would constitute a claim involving bodily injury or property damage
[and t]herefore Coverage A would not apply. SUMF, 31. Nautilus also advised that there was
no coverage for bodily injury or property damage intentionally caused by or at the direction
of the insured based on the Expected or Intended Injury Exclusion of Coverage A, and that
there was no coverage [] provided for any claims of personal and advertising injury based on
the Exclusion-Personal and Advertising Injury Endorsement. SUMF, 32.
In a letter dated August 1, 2013, Gawker challenged the disclaimer letter. SUMF, 33.
Gawker stated that [b]ecause the Policy in fact affords coverage for this claim, Gawker requests
that Nautilus immediately reverse its coverage denial and assume responsibility for the costs of
defense and, if necessary, indemnification for this claim. SUMF, 34. Gawker claimed that
the Bollea Action seeks damages as a result of the emotional distress suffered by Bollea, and
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that the negligent infliction of emotional distress at a minimum triggers the Policys coverage;
otherwise, claims alleging negligence would not be covered and the Policys coverage would be
illusory. SUMF, 35, 36. In addition, Gawker challenged Nautilus assertion that there was
no accident and that the expected or intended exclusion applied. SUMF, 37. Gawker stated that
the complaint alleges that the injuries were caused at least in part by accidental, negligent
conduct that was not intended or expected by the insured [and therefore] Coverage A of the
Policy applies. SUMF, 37.
In response to Gawkers challenge, on September 12, 2013, Nautilus issued a reservation
of rights letter to the Gawker Defendants and advised that Nautilus will agree to contribute to
the defense of [the Gawker Defendants]. SUMF, 38. Nautilus reserved the right to litigate all
coverage defenses and withdraw from the defense of the Gawker Defendants if a court
determines that Nautilus has no duty to defend with respect to the claims asserted by Terry
Bollea. SUMF, 39. Nautilus identified certain policy provisions that could apply to limit or
preclude coverage for the claims against Gawker, including the Insuring Agreement of Coverage
A, Exclusions a. and o. of Coverage A, the Personal and Advertising Injury Exclusion, and the
Limitation of Coverage to Designated Operations endorsement. SUMF, 40. Nautilus also
stated that:
Nautilus Insurance Company reserves the right to disclaim
coverage and to bring an action in an appropriate state or federal
court of competent jurisdiction and venue in order to limit, obtain a
declaration, or interplead, to enforce the limitations mentioned
herein and declare the obligations and responsibilities of the parties
hereto under the contract of insurance. Nautilus Insurance
Company, by this letter, by contributing to the defense of the
Gawker Defendants, and by its continued investigation, does not
waive nor invalidate any of the other terms, conditions or
exclusions of the policy. We specifically reserve the right to
exercise any of the other terms, conditions or exclusions, which
now exist or may later become apparent.
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[SUMF, 41.]
The law firms of Levine, Sullivan, Koch & Schultz, LLP and Thomas & LoCicero PL
have been serving as defense counsel for the Gawker Defendants in the Bollea Action. SUMF,
42. These firms are the Gawker Defendants own counsel, selected by the Gawker Defendants,
and are not appointed by Nautilus. SUMF, 43. Nautilus has not controlled the defense of the
Bollea Action. SUMF, 44.
IV.

The Declaratory Judgment Action


On July 29, 2014, Nautilus filed the present action against the Gawker Defendants and

Bollea seeking a declaration that Nautilus has and had no duty to defend or indemnify the
Gawker Defendants for the claims asserted by Bollea in the Bollea Action based on the terms of
the Nautilus Policy, as well as reimbursement of defense costs incurred in the defense of the
Bollea Action. SUMF, 45. Nautilus has since dismissed the action against Bollea and the
Gawker Defendants other than Gawker. SUMF, 46.
On August 19, 2014, Gawker filed an answer and counterclaim.

SUMF, 47. On

September 9, 2014, Nautilus answered the counterclaim. SUMF, 48. On September 24, 2014,
the parties requested permission to file dispositive motions on the duty to defend. SUMF, 49.
This application was granted on September 29, 2014. SUMF, 50. This motion is being filed
pursuant to the schedule affirmed by the Court in its Order.

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ARGUMENT
POINT I:

NEW YORK LAW SHOULD GOVERN THE DUTY TO DEFEND


ANALYSIS.

New York law should apply to the present action because the Nautilus Policy was a
commercial lines policy limited to coverage for a single office location in New York. In a
diversity action, the choice of law rules of the forum state here, New York govern.
Lapolla Indus., Inc. v. Aspen Specialty Ins. Co., 566 Fed. Appx. 95, 97 (2d Cir. 2014). New
York choice of law principles dictate that a court should apply the law of the state that the parties
understood to be the principal location of the risk unless with respect to an issue, some other
state has a more significant relationship. See, e.g., Certain Underwriters at Lloyds v. Foster
Wheeler Corp., 822 N.Y.S.2d 30, 33 (1st Dept 2006), affd, 844 N.Y.S.2d 773 (2007). Here, the
Nautilus Policy provides CGL coverage for office liability exposure for Gawkers offices located
at 210 Elizabeth Street, New York, New York. SUMF, 12-14. In other words, the principal,
and in fact only, location of the risk was in New York. Id. There also is no other state with a
more significant relationship to the duty to defend issue. Accordingly, New York law should
govern the duty to defend analysis. Foster Wheeler, 822 N.Y.S.2d at 33.
POINT II:

NAUTILUS HAS NO OBLIGATION TO DEFEND GAWKER BECAUSE


THE CLAIMS IN THE BOLLEA ACTION DO NOT FALL WITHIN THE
SCOPE OF THE INSURING AGREEMENT OF COVERAGE A OF THE
NAUTILUS POLICY.

Gawker bears the initial burden of showing that the insurance contract covers the loss.
Roundabout Theatre Co. v. Contl Cas. Co., 302 A.D.2d 1, 6 (1st Dept 2002). Thus, Gawker
must prove in the first instance that the claims asserted in the Bollea Action fall within the scope
of the insuring agreement of Coverage A of the Nautilus Policy to trigger a duty a defend. See
id. According to the Second Circuit:

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Under governing New York law, an insurer's duty to defend is


exceedingly broad and is separate from and more expansive than
the duty to indemnify. It is not, however, without limits. An
insurer cannot be obliged to defend if there is no legal or factual
allegation in the underlying complaint for which the insurer might
eventually have to indemnify the insured.
[Commercial Union Assur. Co. v. Oak Park Marina, Inc., 198 F.3d 55, 59 (2d Cir. 1999)
(internal citations and quotations omitted).]
A. The Claims in the Bollea Action Do Not Seek Damages Because of Injury Caused
by An Occurrence.
By its express terms the insuring agreement of Coverage A of the Nautilus Policy
provides that the policy only applies to damages because of bodily injury or property
damage caused by an occurrence. SUMF, 14. An occurrence is defined in the Nautilus
Policy as an accident, including continuous or repeated exposure to substantially the same
general harmful conditions. SUMF, 13. The word accident has been construed to mean an
event which from the insureds point of view was unexpected, unusual and unforeseen. Oak
Park Marina, 198 F.3d at 59 (quoting Allegany Co-op Ins. Co. v. Kohorst, 254 A.D.2d 744 (4th
Dept 1998)). On facts similar to this matter, the Second Circuit in Oak Park Marina held, under
New York law, that a general liability insurer had no duty to defend its insureds for claims
arising out of the insureds intentional publication of explicit videos because the insuring
agreement in the general liability policy was not triggered by such claims. Oak Park Marina, 198
F.3d at 59.
In Oak Park Marina the defendants owned and operated a public marina on a lake in
upstate New York. Id. The defendants permitted patrons to use the bathroom and shower
facilities at the marina for a fee. Id. Furthermore, lifeguards employed by the marina used the
facilities. Id. In order to curb vandalism and theft the defendants installed hidden cameras in
the shower and changing rooms. Id. The defendants then played at a local bar, which they also
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owned and operated, the recordings of patrons and female lifeguards changing and showering for
the amusement of the bar patrons. Id. The underlying claimants, mostly female lifeguards, later
discovered the videotapes and filed complaints against the defendants for negligent infliction of
emotional distress, reckless and intentional infliction of emotional distress and publication of the
videotapes without consent. Id. at 58.
The defendants general liability insurer refused to provide coverage because, among
other things, the insuring agreement in its policy was not triggered as there was no accident.
The Court noted that damages arising from negligence may constitute an accident for
purposes of coverage, but ultimately held that there was nothing accidental about [the
Defendants] alleged conduct in this case. Id. at 59. The Court ruled that the defendants
intentionally installed the concealed video cameras and intentionally exhibited the resulting
footage in a bar. Id. Furthermore, it rejected the defendants claim that there was an accident
because they did not intend the resulting harm, i.e., the emotional distress, stating:
Whether or not the emotional distress was inflicted negligently,
however, the harm arose out of conduct that was indisputably an
intentional, albeit furtive, wrong. The only unintended or
negligent aspect of this case was the [defendants] expectation that
their victims would never discover the video voyeurism. The mere
fact that the [the defendants] got caught does not constitute an
unintended . . . [subsequent] event[] sufficient to make the
resulting damage to plaintiffs accidental.
[Id. at 60.]
Simply stated, the Second Circuit held that the intentional videotaping and publishing of the
videos causing emotional distress was not an accident under a general liability policy and
therefore, the insurer did not owe a duty to defend. Id.
In challenging Nautilus disclaimer, Gawker took the position that there was an
accident because publication of content that a plaintiff later contends is tortious still qualifies
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. . . as an accident or unintended act [and] the Complaint expressly alleges non-intentional


conduct in plaintiffs cause of action for negligent infliction of emotional distress. SUMF, 37 .
But Gawker cannot dispute the fact that all of the causes of action against it, regardless of title,
arise out of the October 4, 2012, posting of a one-minute and forty-second highlight reel of the
secretly-taped video and audio footage depicting Mr. Bollea naked, along with the explicit
narrative created by Gawker. SUMF, 5, 10. In other words, the causes of action all arise out
of an intentional, albeit furtive, wrong, which as in Oak Park Marina involved the publication
of an explicit videotape. 198 F.3d at 59. Here, as in Oak Park Marina, it is of no consequence
that one of the causes of action in the Bollea Action is for negligent infliction of emotional
distress. Id. Thus, as in Oak Park Marina, any bodily injury here was not caused by an
accident or occurrence and therefore, falls outside the scope of the insuring agreement of
Coverage A of the Nautilus Policy. As such, Nautilus has no duty to defend Gawker in the
Bollea Action.
As noted, Gawker has and presumably will stress the fact that the Bollea Action includes
a claim for negligent infliction of emotional distress. See SUMF, 35. But even assuming that
claim could be deemed to involve injury caused by an occurrence, it does not create a duty to
defend here because Bollea is not seeking money damages on that cause of action. In opposing
Gawkers motion to dismiss filed in the Bollea Action, Bollea stated:
With certain exceptions, the impact rule bars a plaintiff from
recovering damages for his or her emotional distress that is caused
by anothers negligence but does not flow from physical injury.
But the impact rule does not bar injunctive relief. Mr. Bollea
seeks injunctive relief in connection with this claim.
[SUMF, 11 (emphasis in original)]

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In other words, Bolleas negligent infliction claim does not seek damages because of bodily
injury but rather, injunctive relief. Id. Accordingly, for this reason as well, the negligent
infliction of emotional distress claim does not trigger the insuring agreement of Coverage A of
the Nautilus Policy, and Nautilus therefore has no duty to defend Gawker in the Bollea Action.
In sum, Nautilus has no obligation to defend Gawker in the Bollea Action because the
claims asserted against it in that action do not seek damages because of injury caused by an
occurrence. Nautilus therefore is entitled to judgment in its favor as a matter of law declaring
that it has no duty to defend Gawker in the Bollea Action.
B. The Claims in the Bollea Action Fall Outside the Scope of the CGL Coverage
Under the Nautilus Policy.
As set forth above, the Nautilus Policy contains a LIMITATION OF COVERAGE TO
DESIGNATED OPERATIONS Endorsement that provides:
A.

The following exclusion is added to 2. Exclusions of


Section I - Coverage A - Bodily Injury And Property
Damage Liability, Coverage B - Personal And Advertising
Injury Liability and Coverage C Medical Payments:

This insurance does not apply to bodily injury, property


damage, personal and advertising injury or medical payments
arising out of, or in any way related to, operations performed by
any insured or any person or organization for whom any insured
may be legally or contractually responsible, unless such operations
are designated operations.
B.

For the purpose of this endorsement, the following


definition is added to the Definitions section:
Designated operations means only those operations
performed by any insured that are described on the
General Liability Coverage Part Declarations, the
endorsements, or supplements of this insurance.
[SUMF, 18.]

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Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 21 of 30

The General Liability Coverage Part Declarations identifies the business description as office
with a location at 210 Elizabeth Street, New York, New York. SUMF, 19.
In other words, on its face the CGL coverage of the Nautilus Policy is limited to premises
liability exposure stemming from the offices at the Elizabeth Street location. This is confirmed
by the CGL coverage premium of $3,210, which was calculated based on the square footage of
the offices. SUMF, 13.
Gawkers agent, York, confirmed the limited scope of the Nautilus CGL coverage in an
exchange with Nautilus broker, Jimcor. Subsequent to the issuance of the Nautilus Policy and
in connection with Yorks request on behalf of Gawker to add special event coverage to the
Nautilus Policy for two events, York advised as follows:
Gawker won the copyright infringement case. There has been no
action taken on the alleged bribe and no investigation is pending.
The insured does not know of any FBI investigation and he is the
lead counsel for Gawker. They did settle with Sarah Palin with no
admission of liability.
Because of their operations, they (sic) are always accusations being
made which are handled in house by their legal dept. Our policy
covers their office liability exposure and occasional (sic) they need
event coverage. Yes they have a separate E&O media liability
policythe insured is forwarding a copy . . . .
[SUMF, 25 (emphasis added)]
In short, the CGL coverage of the Nautilus Policy does and was intended by the parties to
provide only office liability exposure and occasional event coverage. Indeed, as York noted,
Gawker maintained a separate E&O media liability policy, which specifically provides internet
liability coverage for claims like those asserted in the Bollea Action. SUMF, 26.
The claims in the Bollea Action do not arise from Gawkers office liability exposure
for the Elizabeth Street location or from event coverage. Put another way, any injury at issue

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in the Bollea Action for which recovery is sought from Gawker did not arise out of the
designated operations -- i.e., the Elizabeth Street offices -- within the meaning of the Nautilus
Policy. As such, the claims asserted in the Bollea Action fall outside the scope of the CGL
coverage of the Nautilus Policy. Nautilus therefore is entitled to judgment in its favor as a matter
of law declaring that it has no duty to defend Gawker in the Bollea Action.
POINT III:

NAUTILUS HAS NO OBLIGATION TO DEFEND GAWKER IN THE


BOLLEA ACTION BASED ON POLICY EXCLUSIONS

A general liability policy can have two separate coverage grants, coverage A and
coverage B. See, e.g., Oak Park Marina, 198 F.3d at 593. Coverage B typically provides
coverage for claims seeking damages because of personal and advertising injury. Personal
and advertising injury is defined in the Nautilus Policy as:
14. Personal and advertising injury means injury, including
consequential bodily injury, arising out of one or more of
the following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy of a room,
welling or premises that a person occupies, committed
by or on behalf of its owner, landlord or lessor;
d. Oral or written publication, in any manner, of
material that slanders or libels a person or
organization or disparages a persons or
organizations goods, products or services;
e. Oral or written publication, in any manner, of
material that violates a persons right of privacy;
f. The use of anothers advertising idea in your
advertisement; or
g. Infringing upon anothers copyright, trade dress or
slogan in your advertisement.
[SUMF, 15 (emphasis added)]

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The Nautilus Policy, however, removed Coverage B and coverage for any bodily injury
arising out of personal and advertising injury by virtue of Exclusion o. of Coverage A and the
Personal and Advertising Injury Exclusion removing Coverage B from the policy. SUMF, 16,
17. In short, the Nautilus Policy provides no personal and advertising injury coverage of any
kind. This makes sense given the limited scope of the CGL coverage of the Nautilus Policy and
the fact that Gawker maintained a separate policy covering personal and advertising injury
claims arising from its internet activities. SUMF, 16, 17, 26.
By virtue of the above policy exclusions, the claims asserted in the Bollea Action are not
covered under the Nautilus Policy. Nautilus therefore is entitled to a declaration that it does not
owe Gawker a duty to defend in the Bollea Action.
POINT IV:

NAUTILUS HAS NOT WAIVED AND IS NOT ESTOPPED FROM


DENYING COVERAGE BASED ON THE ABOVE DEFENSES

Gawker raised as its second affirmative defense that the Nautilus Complaint . . . is
barred, in whole or in part, by the doctrine of waiver [and] estoppel. Waiver and estoppel in
New York can be statutory, such as under New York Insurance Law 3420, or under the
common law. See Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692, 698 (1980). As
demonstrated below, neither statutory nor common law waiver or estoppel apply here to prevent
Nautilus from denying coverage to Gawker based on the above defenses.
A. New York Insurance Law 3420(d)(2) Does Not Apply
Section 3420(d)(2) provides that if a liability insurer issuing or delivering a policy in
New York intends to disclaim liability for an accident that occurred in New York involving
death or bodily injury, the insurer must give written notice of disclaimer as soon as is reasonably
possible, and it will be estopped from denying coverage based on a policy condition or exclusion
if notice of the disclaimer is unreasonably delayed. N.Y. Ins. Law 3420(d)(2); Columbia Cas.
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Co. v. Natl Emergency Servs., 723 N.Y.S.2d 473, 474 (1st Dept 2001). The statute does not
apply when the claim falls outside the scope of the policy. Worcester Ins. Co. v. Bettenhauser,
95 N.Y.2d 185, 188 (2000).
Here, section 3420(d)(2) does not apply for several reasons. First, though Nautilus
contends, as argued above, that there was no accident here, any accident within the meaning of
the statute did not occur in New York such that the statute simply is not implicated by the claims
asserted in the Bollea Action. Brennan v. Liberty Mut. Fire Ins. Co., 204 A.D.2d 675, 676 (2d
Dept 1994) (Insurance Law 3420(d) did not apply to accident that occurred in Florida).
Though the Court in Oak Park Marina concluded that there was no accident sufficient
to trigger coverage, 198 F.3d at 59, it also analyzed the timing of any accident to determine
whether it occurred during the policy period at issue because the defendants installed the cameras
as early as 1993 and the claimants did not learn of the videotapes until 1995. 198 F.3d at 56-57.
The Court held that any accident did not occur until the injured claimants suffered emotional
distress by virtue of their awareness that they had been videotaped and that the videotape was
published, which was in 1995. Id. at 60; see also Dana v. Oak Park Marina, 230 A.D.2d 204,
210 (4th Dept 1997)(cause of action for intentional infliction of emotional distress did not accrue
until victim suffered emotional distress). Under this analysis, if there is an accident here, it
occurred when Bollea became aware of Gawkers publication of the videotape with Gawkers
accompanying narrative. 198 F.3d at 59-60.
Mr. Bollea is a resident and citizen of the State of Florida and was in that State when he
learned that Gawker posted the video and narrative. SUMF, 4.

Accordingly, even assuming

this matter could be deemed to involve an accident, it did not occur in New York. Oak Park

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Marina, 198 F.3d at 59-60. Therefore, section 3420(d)(2) does not apply here at all. N.Y. Ins.
Law 3420(d)(2); Brennan, 204 A.D.2d at 676.
Second, the defenses based on the Coverage A insuring agreement and the designated
operations limitation go to coverage in the first instance and not a policy condition or exclusion
and so do not implicate section 3420(d)(2). Said differently, section 3420(d)(2) does not apply
to those defenses because the claims at issue fall outside the scope of the coverage grant of the
policy. See Worcester, 95 N.Y.2d at 188; see also Hargob Realty Assoc., Inc. v. Firemans Fund
Ins. Co., 901 N.Y.S.2d 657, 660 (2d Dept 2010)(timely disclaimer not required where
disclaimer based on lack of inclusion rather than by reason of exclusion)(citing Zappone v.
Home Ins. Co., 55 N.Y.2d 131 (1982)).
Nautilus acknowledges that with respect to the designated operations limitation the policy
identifies it as an exclusion. SUMF, 18. However, that simply is the means by which to
accomplish the limitation, which should not be determinative here. As the Court of Appeals
explained in Zappone, the reason for the rule that section 3420(d)(2) does not apply to claims
falling outside the scope of the coverage grant is that an insurer should not be required to provide
coverage for something that had never been contracted for and for which no premium had ever
been paid. Zappone, 55 N.Y.2d at 135.
Here, it cannot be disputed that Gawker never contracted for, and paid no premium to
Nautilus for, liability coverage for its internet publishing activities. The total premium paid for
the CGL coverage was $3,210.00, and the sole basis for calculating that premium was the square
footage of Gawkers Elizabeth Street office location. SUMF 13. Thus, the relevant risk that
Gawker contracted and paid a premium for was its premises liability exposure, as confirmed by
its agent, York. SUMF, 25 (Our policy covers Gawkers office liability exposure). Indeed,

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Gawker obtained and maintained a separate errors and omissions media liability policy
specifically to provide coverage for internet liability, which policy had a premium that was
approximately eight times that of the Nautilus Policy. SUMF, 26. Under these circumstances,
the fact that the designated operations limitation was accomplished by naming it an exclusion
should not be dispositive. See, e.g., American Safety Indem. Co. v Loganzo, 2011 N.Y. Misc.
LEXIS 4791 (N.Y. Sup. Ct. Oct. 4, 2011) (The notice requirements set forth pursuant to
Insurance Law Section 3420(d)(2) only apply where an insurer disclaims coverage, not in
instances such as this, where the insurer merely limits coverage), affd in part, 107 A.D.3d 835
(2d Dept 2013); see also Black Bull Contr., LLC v Indian Harbor Ins. Co., 2013 N.Y. Misc.
LEXIS 6339 (N.Y. Sup. Ct. Dec. 31, 2013).
Third, even assuming that section 3420(d)(2) could be deemed to apply here, in its
disclaimer, sent within fifteen (15) days of Nautilus receipt of the first amended complaint in the
Bollea Action, Nautilus raised as a ground for its disclaimer that the claims asserted did not
involve injury caused by an occurrence, did not trigger the Coverage A insuring agreement and
the exclusion entitled Exclusion Personal and Advertising Injury. SUMF 29-32. Thus, as
to these grounds Nautilus disclaimer was timely as a matter of law under section 3420(d)(2).
Nabutousky v. Burlington Ins. Co., 81 A.D.3d 615 (2d Dept) (disclaimer issued 30 days after
notice found to be timely under section 3420(d)(2)), leave dend, 16 N.Y.3d. 713 (2011).
B. Common Law Estoppel And Waiver Do Not Apply
Common law waiver and estoppel are separate concepts that require two different
analyses under New York law. Waiver may be asserted by the insured when the insurer fails to
assert a known policy defense. See Luria Bros & Co., Inc., 780 F.2d 1082, 1090-91 (2d Cir.
1986). However, defenses that relate to the existence or scope of coverage cannot be waived.

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Albert J. Schiff, 417 N.E.2d at 87 (where the issue is the existence or nonexistence of coverage
(e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable); Sears
Oil Co., Inc. v. Merchants Ins. Group, 88 A.D.2d 753, 753-54 (4th Dept 1982)(waiver is
inapplicable where the issue is the existence or nonexistence of coverage). This is because
courts will not create coverage based on waiver where none exists. Albert J. Schiff, 417 N.E.2d
at 87. As the New York Court of Appeals has stated: [w]hile the insurer may waive the right to
disclaim based on the insureds noncompliance with a condition precedent, its right to disclaim
coverage based on a policy exclusion can be defeated only by estoppel. New York Univ. v.
Contl Ins. Co., 662 N.E.2d 763, 772 (1995). Here, waiver does not apply because at common
law, all of the defenses relied on by Nautilus above concern the existence or nonexistence of
coverage, or scope of coverage, and therefore cannot be waived. Albert J. Schiff, 417 N.E.2d at
87.
In order to prove estoppel, Gawker would need to show the following: (1) lack of
knowledge of the true facts; (2) reliance on the conduct of the party to be estopped; and (3) a
prejudicial change in its position. K. Bell & Assocs. V. Lloyds Underwriters, 1997 U.S. Dist.
LEXIS 2417 (S.D.N.Y. Mar. 4, 1997); see also ODowd v. American Surety Co., 3 N.Y.2d 347,
355 (1957)(prejudice an essential element of estoppel); Sears Oil, 88 A.D.2d at 753-54 (insurer
may be estopped if the insured has been prejudiced by the insurers conduct). As a general rule,
the fact that an insurer undertakes the defense of an insured, even for an extended period of time,
does not constitute a legally cognizable source of prejudice unless the representation occurred
absent a reservation of rights or was such that the character and strategy of the lawsuit could no
longer be altered. Gelfman v. Capitol Indem. Corp., 2014 U.S. Dist. LEXIS 125456 (E.D.N.Y.
June 10, 2014), adopted by, 2014 U.S. Dist. LEXIS 113164 (E.D.N.Y. Aug. 14, 2014); K. Bell &

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Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 28 of 30

Assocs., 1997 U.S. Dist. LEXIS 2417 at *28-*29 (there is no prejudice when the insureds
chosen counsel has ran the defense and insurer issued a reservation of rights); Natl Union Fire
Ins. Co. v 221-223 W. 82, 2014 N.Y. Slip Op. 06377 (1st Dept 2014).
Here, Gawker cannot sustain its burden to prove prejudice because: 1) Nautilus did not
control the defense of the Bollea Action; 2) Nautilus issued a reservation of rights letter to
Gawker; and 3) Gawker has at all times been defended in the Bollea Action by counsel of its
choosing. SUMF, 42-44. Under these circumstances, Gawker cannot demonstrate prejudice
sufficient to support estoppel. K. Bell & Assocs., 1997 U.S. Dist. LEXIS 2417 at *28-*29.
For the foregoing reasons, there is no statutory or common law basis to bar Nautilus from
denying coverage to Gawker based on the defenses set forth above. Nautilus therefore is entitled
to judgment in its favor as a matter of law declaring that it had and has no duty to defend Gawker
in the Bollea Action.
POINT V:

THE UNDISPUTED MATERIAL FACTS WARRANT SUMMARY


JUDGMENT IN NAUTILUS FAVOR.

The granting of summary judgment is proper if the pleadings, depositions, answers to


interrogatories, and admissions on file, together with affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law. FED R. CIV. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317 (1986)
(discussing summary judgment rule). The moving party has the burden of showing the absence
of any genuine disputes over facts that, under the substantive law governing the issue, might
affect the outcome of the action. See Celotex, 477 U.S. at 323. If this burden is met, the
nonmoving party must present significant probative evidence showing that genuine, material
factual disputes remain to defeat summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S.

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242, 250 (1986); Matsushita Elect. Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586,
(1987).
There is no dispute over the facts material to the determination that Nautilus does not
owe Gawker a duty to defend in the Bollea Action. Furthermore, for the reasons expressed
above, Nautilus is entitled to judgment in its favor as a matter of law, in particular because the
Bollea Action arises out of the intentional posting of an explicit videotape, which under
controlling Second Circuit law does not constitute an accident and so, the claims asserted do not
involve injury caused by an occurrence. Even assuming the negligent infliction claim could be
deemed to involve injury caused by an occurrence, it does not seek damages because of such
injury and so still falls outside the scope of the insuring agreement of Coverage A of the CGL
coverage under the Nautilus Policy. Moreover, the CGL coverage of the Nautilus Policy on its
face is limited to premises liability exposure for Gawkers Elizabeth Street, New York offices.
The claims asserted against Gawker in the Bollea Action plainly do not implicate office liability
exposure stemming from Gawkers Elizabeth Street location. Finally, the Nautilus Policy
specifically excludes all personal and advertising injury coverage. In short, as a matter of law
the claims asserted in the Bollea Action are not covered under the Nautilus Policy such that
Nautilus had and has no duty to defend Gawker in that action.
Likewise, as a matter of law Nautilus did not waive its defenses and is not estopped from
asserting them. New York Insurance Law 3420(d)(2) is not implicated here because there was
no accident, and even if there was, it did not occur in New York. Section 3420(d)(2) does not
apply to Nautilus defenses based on the policy insuring agreement and the designated operations
limitation because those defenses are based on a lack of inclusion not by reason of exclusion. In
addition, even assuming section 3420(d) could apply, it would not bar coverage defenses that

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Case 1:14-cv-05680-SHS Document 28 Filed 10/23/14 Page 30 of 30

were timely raised in Nautilus disclaimer. Common law waiver does not apply because the
coverage defenses raised by Nautilus relate to the scope of coverage and so cannot be waived.
Finally, Gawker cannot prove estoppel because it cannot demonstrate prejudice here as Nautilus
issued a reservation of rights letter to Gawker, Nautilus has not controlled the defense and only
paid attorneys fees, and Gawker has been defended at all times by its own chosen defense
counsel.
For these reasons, summary judgment in Nautilus favor is appropriate declaring that
Nautilus had and has no obligation to defend Gawker in the Bollea Action and dismissing the
first and second counterclaims filed by Gawker.
CONCLUSION
Based on the foregoing, Nautilus respectfully requests that this Court grant Nautilus
Motion for Summary Judgment and declare that Nautilus had and has no obligation to defend
Gawker in the Bollea Action.
COUGHLIN DUFFY LLP
/s/ Justin N. Kinney, Esq.
Justin N. Kinney, Esq.
88 Pine Street, 28th Floor
New York, New York 10005
(212) 483-0105
Attorneys for Plaintiff
Nautilus Insurance Company
Dated: October 23, 2014

25