DISTRICT COURT OF THE VIRGIN ISLANDS
DIVISION OF ST. CROIX
║
CERTAIN UNDERWRITERS AT LLOYD'S, ║ LONDON SUBSCRIBING TO POLICY ║ NO. MCP60699, ║
Plaintiffs, ║ 1:13-cv-00062-RAM-EAH
v. ║ ║
BOQUERON COMMUNICATION GROUP ║ GROUP (V.I.), INC., ║ ║
Defendant. ║
________________________________________________________ ║ TO: Neal R. Novak, Esq.
Gordon K. Walton, Esq.
Kevin A. Rames, Esq.
Semaj I. Johnson, Sr., Esq.
REPORT AND RECOMMENDATION
THIS MATTER comes before the Court on a March 26, 2026 Order by Chief Judge Robert A. Molloy, referring pending and future dispositive motions in this case to the undersigned for the issuance of a Report and Recommendation. Dkt. No. 143. After Plaintiff Certain Underwriters at Lloyd's, London Subscribing to Policy No. MCP60699 ("Underwriters") filed an Amended Complaint, Defendant Boqueron Communications Group (V.I.) ("BCG") filed a Motion to Dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). Dkt. No.
98. Underwriters filed an Opposition, Dkt. No. 106, and BCG filed a Reply, Dkt. No. 117. For the reasons that follow, the Court recommends that BCG's Motion to Dismiss under Rule 12(b)(1) be denied, and its Motion to Dismiss under Rule 12(b)(6) be granted in part and denied in part.
BACKGROUND
In June 2013, Underwriters filed an initial Complaint for Declaratory Judgment and Other Relief against Defendants BCG and Ameritech Utility Group, Ltd. ("Ameritech"). Dkt.
1
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No. 1. Underwriters asked the Court to determine the rights and obligations of the parties to the Business Automobile Policy issued to BCG, bearing policy no. MCP60699 (the "Policy"). The Defendants answered, Dkt. Nos. 4, 6, and the parties proceeded to discovery.
A. The First Amended Complaint
The Court granted Plaintiff's Motion to Amend, and Underwriters filed a First Amended Complaint for Declaratory Judgment and Other Relief ("FAC") against BCG in October 2014. Dkt. No. 89. The FAC alleged that Underwriters are syndicates consisting of privately owned companies authorized to insure risks at Lloyd's, London. In this case, Canopius Syndicate 4444 subscribed to 100% of the risk under the Policy. The Names for the 2011 year of account are SCOR Underwriting Ltd, Canopius Capital Four Ltd, Canopius Capital Five Ltd, Canopius Capital Seven Ltd, Canopius Capital Nine Ltd, Canopius Capital Ten Ltd and Flectat, Ltd. All of the Names identified herein are incorporated under the laws of England and Wales with their principal places of business in London, England.
Dkt. No. 89 ¶ 2. BCG is a telecommunications company incorporated in Puerto Rico with its principal place of business in Puerto Rico. Id. ¶ 3. It has a branch office on St. Croix and its President is Paul Olsofsky. Id.
Underwriters attached a copy of the Policy, effective from September 16, 2011 to September 16, 2012, to the FAC. Id. ¶ 7, Dkt. No. 89-1. The FAC set forth various Policy provisions that Underwriters deemed relevant to this action. In Section I, "Covered Autos,"
one category of "Specifically Described Autos" was denoted with a number "7," described as
"[o]nly those 'autos described in Item Three of the Declarations for which a premium charge is shown (and for Liability Coverage any 'trailers you don't own while attached to any power unit described in Item Three)." Dkt. No. 89 at 3; Dkt, No. 89-1 at 10. Section II of the Policy described "Liability Coverage."
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We will pay all sums an "insured" legally must pay as damages because of
"bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto."
* * *
We have the right and duty to defend any "insured" against a "suit" asking for such damages . . . However, we have no duty to defend any "insured" against a
"suit" seeking damages for "bodily injury" or "property damage". . . to which this insurance does not apply.
Id.; Dkt. No. 89-1 at 11. As to the question "Who Is An Insured," the Policy provides that "[t]he following are 'insureds': a. You for any covered 'auto.' b. Anyone else while using with your permission a covered "auto" you own, hire or borrow. . . " Id. Condition IV(B)(2) of the Policy, concerning "Concealment, Misrepresentation or Fraud," provides:
This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other "insured", at any time intentionally conceal or misrepresent a material fact concerning:
a. This Coverage Form;
b. The covered "auto";
c. Your interest in the covered "auto"; or
d. A claim under this Coverage Form.
Dkt. No. 89 ¶ 3; Dkt. No. 89-1 at 17.
As to the underlying facts, the FAC alleged that BCG's president, Paul Olsofsky, advised Underwriters' coverholder, Marshall & Sterling ("M&S") in correspondence dated February 28, 2012 that "my partner, Joseph Marceno, has two trucks that need coverage." Dkt. No. 89 ¶ 11, Dkt. No. 89-2. Mr. Marceno arrived at M&S's office later that day, requesting that two vehicles be added to the Policy; one was a 2004 Chevy Van. Mr. Marceno provided M&S with a certificate of title showing the van owner's name and address as: "Ameritech Utility Group, Ltd. Joseph John Marceno 2731 N.C. Hwy 55, Ste. 208 Cary, NC 27519." Id. ¶ 12; Dkt, No. 89-
3. Mr. Marceno represented that BCG had purchased the van in February 2012 and that title was to be transferred to BCG. Based on these representations, M&S added the van to Item
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Three of the Policy with designation symbol "7." Id. ¶ 12, Dkt. No. 89-1 at 35. Later on February 28, 2012, BCG registered and titled the van in Ameritech's name at the V.I. Bureau of Motor Vehicles, but referenced the Policy issued to BCG. Id. ¶ 13; Dkt. No 89-4. On July 3, 2012, Lionel Lucena, a BCG independent contractor, was driving the van and struck a vehicle operated by Krysta Paddie, injuring her. Id. ¶ 14. Paddie filed a complaint against Ameritech in September 2012 in the Superior Court of the Virgin Islands: Paddie v. Ameritech Utility Grp., Ltd., SX-12-cv-363 (the "Underlying Action"). Dkt. No. 89-5. The lawsuit alleged that Lucena, an Ameritech employee at the time of the accident, was negligently driving a vehicle licensed to Ameritech and caused Paddie's injuries. Id. ¶ 15. BCG tendered Ameritech's defense to Underwriters. Id. ¶ 16.
In response, Underwriters requested information about the ownership of the van, the relationship among BCG, Ameritech, Marceno, and Innovative, and information about Lucena, including whether he was an employee or independent contractor of BCG or Ameritech. Id. ¶ 17. BCG failed to provide information that it owned or had an interest in the van around February 28, 2012, why title was in Ameritech's name, and whether Lucena was an employee of BCG or Ameritech. Id. ¶ 18. On October 16, 2012, BCG provided an unsigned February 15, 2012 Bill of Sale, purporting to show the sale of the van from Ameritech to BCG. The FAC alleges that Ameritech prepared that document in September 2012 when Underwriters sought information related to the alleged purchase of the van by BCG. Id. ¶ 19; Dkt. No. 89-6. On November 20, 2012, following Underwriters' November 7, 2012 declination, Dkt. No. 89-7, the van was registered in BCG's name. Id. ¶ 21; Dkt. No. 89-8. The FAC further alleges that, in March 2013, counsel for Ameritech and BCG asked Underwriters to reconsider its denial. The correspondence stated that "when those vehicles
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were registered, the titles and registrations were not properly transferred from Ameritech to BCG" by the officials at the V.I. Department of Motor Vehicles and their initial registration was in Ameritech's name. Id. ¶ 22; Dkt. No. 89-9. In April 2013, per Underwriters' instructions, M&S deleted the van from the Policy, retroactively effective to February 28, 2012, and returned the premium paid. Id. ¶ 23; Dkt. No. 89-10. In correspondence to BCG, Underwriters explained that BCG did not have an insurable interest in the van on the date of the loss and the fact it was scheduled on the Policy was the result of mistake, misrepresentation, or both. Id. ¶ 24, Dkt. No. 89-11. BCG rejected the returned premium and deletion of the van from the policy. Id. ¶ 25.
BCG had moved to amend the complaint in the Underlying Action to add itself as a defendant; again, it tendered its defense to Underwriters. Id. ¶ 26; Dkt. No. 89-12. On May 10, 2013, Underwriters denied any obligation to defend or indemnify BCG and Ameritech in the Underlying Action. Dkt. No. 89-13. According to the FAC, BCG responded on June 3, 2013 and, inter alia, shifted its theory of coverage from "specifically described autos" (designation symbol 7) to "nonowned autos only" (designation symbol 9). Id. ¶ 28; Dkt. No. 89-14. In response, Underwriters agreed to defend BCG subject to the objections that formed the bases of its declinations on November 7, 2012 and May 10, 2013. Id. ¶¶ 27-29. Since BCG was a party to the Underlying Action and Underwriters accepted the defense subject to a reservation of rights, Underwriters states the instant declaratory judgment action is necessary to determine the rights and obligations of the parties under the Policy. Id. ¶ 29. Underwriters asserts four causes of action: BCG had no insurable interest in the van when it was scheduled on the Policy or on the date of the loss, as it was registered and titled in Ameritech's name and was not a covered auto (Count I); BCG intentionally concealed or
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misrepresented its insurable interest in the vehicle in February 2012 and the van would not have been scheduled on the Policy but for the misrepresentations and/or concealments (Count II); BCG breached the policy's condition to cooperate with Underwriters when it failed to provide information to identify the proper chain of title of the van or explain why it was added to BCG's Policy when it was registered and titled to Ameritech (Count III); and the van is not a "non-owned auto" under the Policy (Count IV).
B. The Motion to Dismiss
BCG moved to dismiss the FAC pursuant to Rule 12(b)(1) for lack of diversity jurisdiction, and moved to dismiss Counts I, II, and IV pursuant to Rule 12(b)(6) for failure to state a claim. Dkt. No. 98, 99. It did not seek dismissal of Count III for failure to state a claim, asserting that it was "more properly determined by summary judgment." Dkt. No. 99 at 15. Moreover, since BCG "did not intend to argue" that the van was a "non-owned auto"
(designation number 9), it took the position that Count IV was moot and should be dismissed. Underwriters agreed with that stance on Count IV, observing that since BCG did not intend to argue that the vehicle was a non-owned auto, "Underwriters hereby withdraw Count IV and agree that it can be dismissed." Dkt. No. 106 at 3. Therefore, Counts III and IV are not at issue in the Motion to Dismiss for failure to state a claim, and will not be discussed further, other than recommending that the Motion to Dismiss be granted in part as to Count IV.
1. Lack of Diversity Jurisdiction
BCG first argues that the FAC avers that Underwriters is a syndicate consisting of privately owned companies authorized to insure risk at Lloyds, listing seven limited entities as Names that comprise Canopius Syndicate 4444. Dkt. No. 99 at 6. BCG cites cases holding that, for diversity purposes, corporate citizenship depends on the citizenship of the members
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of the entity. It posits that although Underwriters calls the seven entities Names as opposed to Syndicates, "it is unclear that that is an accurate characterization, and Underwriters proffers no evidence to support this position." Id. It concludes that because syndicates are unincorporated associations, the named entities must plead the citizenship of each member to establish diversity jurisdiction; since Underwriters did not do so, the FAC must be dismissed without prejudice. Id. at 7.
2. Failure to State a Claim
As indicated above, only Counts I and II are at issue for failure to state a claim pursuant to Rule 12(b)(6). According to BCG, Count I alleges that it did not have an insurable interest in the van at the time of the accident because it was not titled or registered in BCG's name, but ownership is not required to establish an insurable interest under the Policy. Id. at 8. The insured is described as "you for any covered 'auto'" in Section II(A)(1). The Policy's designation symbols are critical to the question of coverage as they describe the ownership interest an insured must possess for a vehicle to be covered. The van was designated under symbol "7," one of two designations that do not contemplate an insured's ownership as a prerequisite for coverage; this designation depends on only two factors: (1) being listed on the Declarations Page; and (2) payment of the premium, and both conditions were satisfied. Id. at 10. Thus, regarding the insurable interest, the causes of action flowing from the allegation that the van was not titled, registered, or owned by BCG are of no consequence. Id. As to the allegation that BCG lacked an insurable interest in the van because BCG's president and Mr. Marceno informed M&S that title would be transferred from Ameritech to BCG, and the transfer did not occur until November 2012, such an allegation did not support Underwriters' contention because, again, ownership was not required for coverage. In
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addition, the FAC does not allege that the Policy required transfer of title by a date certain. Id. at 11. Count I must therefore be dismissed because Underwriters failed to state a claim as to the question of an insurable interest.
BCG contends that Count II—"a claim for negligent misrepresentation and/or concealment"—fails to state a claim because the FAC alleges that BCG disclosed that Ameritech owned the vehicle at the time it was scheduled on the Policy. Id. Paragraphs 11 and 12 of the FAC alleged that Mr. Marceno provided M&S with a certificate of title on February 28, 2012 that showed, inter alia, the van owner's name and address as Ameritech/Marceno, with an address in North Carolina, and the FAC alleges that Underwriters knew and acknowledged that the van was not titled in BCG's name when it was scheduled on the Policy. Id. at 12-13. Moreover, Underwriters scheduled the van under designation 7 because "it knew that BCG did not own the vehicle". Id. at 13-14. The FAC contains no allegation that there was any agreement to register the van in BCG's name by a date certain or that it was required to do so. Id. at 14. As to the Bill of Sale, even accepting Underwriters' allegation as true, the tender occurred in October 2012, long after the van was scheduled and could not have induced Underwriters to schedule the van on the Policy in February 2012. Because Underwriters failed to allege fraud, concealment or misrepresentation, Count II must be dismissed for failure to state a claim. Id.
C. Plaintiff's Opposition
Underwriters takes issue with many of BCG's arguments, calling them a "distortion of the pleadings" based on a misunderstanding of insurance law—in particular, the difference between ownership and an insurable interest. Dkt. No. 106 at 2-3. It first argues that the FAC alleges diversity jurisdiction because all of the Names identified in Canopius Syndicate 4444
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are "incorporated under the laws of England and Wales with their principal places of business in London, England," and BCG is incorporated in Puerto Rico with its principal place of business there. Id. at 6. Underwriters further argues that the Syndicates are not limited liability companies or general partnerships, as contended by BCG, and do not require diversity jurisdiction to be based on the citizenship of the members of each Name. Canopius Syndicate 4444 is a corporate Name—"Ltd." and each Name is a corporate entity. The FAC alleges the place of incorporation and principal place of business for each Name, and thus the FAC properly pleads subject matter jurisdiction. Id. at 8.
With regard to Count I, the FAC alleges that BCG did not have an insurable interest in the van, but none of the allegations state that it did not have an insurable interest "because the vehicle was not titled or registered or owned by BCG." Id. at 9. The presence of an insurable interest goes to the validity of an insurance contract, not to the existence of coverage for a particular item of property: it is defined as "any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction or pecuniary damage." Id., quoting 22 V.I.C. § 804(b). If there is no insurable interest, "the contract is void and unenforceable." Id., quoting 44 Am. Jur. 2d Insurance § 933 (2012). In the Virgin Islands, the rights of the parties are determined at the time of the loss and any change after the time of the loss does not affect the amount that the insured can recover under the policy. Id. at 9-10. While there is no question the van was added to the policy, BCG did not have a right to add it because it did not have an economic interest in the van at that time. Underwriters contends the van was added because of a misrepresentation, and that BCG and Ameritech later colluded to conceal material facts about the status of the vehicle by attempting to establish an insurable interest in October 2012 by producing a
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fraudulent bill of sale purporting to show the sale of the van from Ameritech to BCG in February 2012. But placing the van on the Policy did not retroactively establish an insurable interest: BCG did not own the van, did not have a contract to purchase it, and did not have an insurable interest in it when it was added to the Policy. Id. at 10. Count II is not a claim for "negligent misrepresentation and concealment," as BCG described it, but a claim for material misrepresentation that BCG bought the van in February 2012 and there was an intentional concealment because the bill of sale, purportedly created around February 15, 2012, was actually created in September 2012. This establishes that the Policy was void under Condition IV(B)(2)(b) and (d). Id. at 11.
C. The Reply
In its Reply, BCG reiterates its position that the FAC failed to plead diversity jurisdiction. Dkt. No. 117 at 3-4. As to Count I, BCG asserts that Underwriters alleged that it lacked an insurable interest because it had no "economic interest" in the van, but Count I is premised entirely on who had title to the van and did not allege lack of an economic interest. Id. at 4-5. The FAC pleads lack of title to show no insurable interest, and Underwriters concedes that ownership is not required to establish an insurable interest under the Policy. Id. citing Dkt. No. 106 at 9.
BCG observes that under Virgin Islands law, an insurable interest vests where there is "any" lawful and substantial and economic interest. Id. at 6-7, citing 22 V.I.C. § 804 and a Pennsylvania case that an equitable title or interest would suffice, and contends that its use and operation of the vehicle sufficed for an insurable interest in the Virgin Islands. Id. at 7. BCG then raises, for the first time, the Virgin Islands Compulsory Automobile Liability Insurance Act (the "Liability Insurance Act"), 22 V.I.C. § 703, to argue, citing a Pennsylvania
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case, that an insurable interest is established when a person has a "reasonable expectation of benefit from preservation of property," and that when it registered the van in Ameritech's name at the V.I. Bureau of Motor Vehicles, that established BCG's possession of the van and its responsibility for the vehicle. Id. at 8. BCG adds that 22 V.I.C. § 804 applies to claims concerning property, not liability. The lack of insurable interest does not apply to contracts of liability insurance; and the V.I. Liability Insurance Act supersedes the insurable interest clause of the Policy and precludes Underwriters from denying coverage based on a lack of insurable interest. Id at 11-12.
BCG also contends, for the first time, that Count II must be dismissed as a matter of law because when automobile liability insurance is compulsory, claims for fraud or misrepresentation at the inception of the policy will not lie to avoid coverage and escape liability to a third party. Id. at 13. Thus, Condition IV(B)(2) of the Policy was never valid or enforceable with respect to liability coverage. Id. at 14. Count II also fails to allege intentional misrepresentation because the FAC alleges that BCG disclosed that the vehicle was titled in Ameritech's name when Underwriters added it to the Policy, and therefore knew that the van was not titled in BCG's name. Id. at 15-18.
DISCUSSION
I. Legal Standards
Federal Rule of Civil Procedure 12(b)(1) governs jurisdictional challenges to a complaint. "When a motion to dismiss is based on lack of subject matter jurisdiction pursuant to Rule 12(b)(1), as well as other Rule 12(b) defenses, the Court should consider the Rule 12(b)(1) challenge first because, if it must dismiss the complaint for lack of subject matter jurisdiction the accompanying defenses become moot and need not be addressed." Walthour
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v. Herron, 2011 WL 1325981, at *1 (E.D. Pa. Apr. 7, 2011) (citing Tagayun v. Stolzenberg, 239 F. App'x 708, 710 (3d Cir. 2007)). Federal courts may exercise diversity jurisdiction over actions where the amount in controversy exceeds $75,000, and where, inter alia, the parties to the suit are: citizens of different States, citizens of a State and citizens or subjects of a foreign State. 28 U.S.C. § 1332(a)(1), (2). The party invoking diversity citizenship bears the burden of proving that the amount in controversy and diversity of citizenship requirements are satisfied. McCann v. Newman Irrevocable Tr., 458 F.3d 281, 286 (3d Cir. 2006). To determine the correct standard of review under a Rule 12(b)(1) motion to dismiss, the Court must first evaluate whether a defendant is making a facial or a factual challenge. Const. Party of Pa. v. Aichele, 757 F.3d 347, 357 (3d Cir. 2014). "A facial attack contests the sufficiency of the pleadings, whereas a factual attack concerns the actual failure of a plaintiff's claims to comport factually with the jurisdictional prerequisites." Id. at 358 (citation modified). In reviewing a facial challenge under Rule 12(b)(1), the Rule 12(b)(6) standards are applicable. See id. In a factual challenge, the presumption of truthfulness does not attach to the allegations. Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). The court may consider evidence outside the pleadings to resolve factual issues bearing on jurisdiction. Gotha v. United States, 115 F.3d 176, 179 (3d Cir. 1997).
"In deciding a Rule 12(b)(6) motion, a court . . . consider[s] only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010). The court is "required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn from them after
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construing them in the light most favorable to the nonmovant." Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 154 n.1 (3d Cir. 2014) (citation modified).
II. Application A. Rule 12(b)(1) Motion
BCG argues that because Underwriters failed to plead the citizenship of the individual members of the seven Names that comprised Canopius Syndicate 4444, diversity jurisdiction is lacking. Dkt. No. 99 at 6. BCG generally cites cases where courts have held that the citizenship of all of the members of limited partnerships must be alleged and must be diverse. Id. Because BCG's argument focuses on the allegations in the FAC to contest jurisdiction, the Court concludes that BCG has asserted a facial challenge to subject matter jurisdiction. Based on the sufficiency of those allegations, it contends that because syndicates are unincorporated associations, "the named entities must plead the citizenship of each member to establish diversity jurisdiction." Id. at 6-7. BCG is incorrect. Courts that have dealt with this issue first explain the unusual structure of Underwriters, including the terminology of "Names" and "Syndicates," in analyzing whether a complaint alleges diversity jurisdiction. For example, in Beazley Underwriting, Ltd. v. Max & Mia Realty, LLC, 792 F. Supp. 3d 543 (M.D. Pa. 2025), the court observed:
Federal courts have struggled to determine issues of subject matter jurisdiction in cases involving Lloyd's insurance policies, due to the unique structure of the Lloyd's business model. See CNX Gas Co., L.L.C. v. Lloyd's of London, 410 F. Supp. 3d 746, 748 (W.D. Pa. 2019). Lloyd's acts merely as a forum for potentially thousands of underwriters to buy shares of risks, which "makes it difficult to execute the citizenship analysis required to determine diversity jurisdiction." Id. Id. at 549. As further explained in Those Certain Underwriters at Lloyd's London v. Sophisticated Invs. Inc., No. 20-cv-3592, 2022 WL 507437 (E.D. Pa. Feb. 18, 2022):
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"[P]olicies are underwritten at Lloyd's . . . not by Lloyd's." Id. (emphases added). Instead, at Lloyd's, insurance contracts are underwritten by "Names," individuals and corporations who finance the policies and ultimately insure the risks. Lowsley-Williams v. N. River Ins. Co., 884 F. Supp. 166, 167-68 (D.N.J. 1995). "For any given contract, each Name is liable only for the percentage of the risk which that Name has agreed to underwrite." Id. at 168.
To increase efficiency and minimize risk, Names may form groups called
"Syndicates." Id. Some Syndicates may be composed of one Name, while others may be composed of 30,000 Names. Id. Regardless of the size, "[t]here is no contractual relationship among members of a syndicate, between syndicates, or between the policyholder and a syndicate." Id. Syndicates are not legal entities:
they do not underwrite insurance policies, they do not assume liability, and they cannot sue or be sued to enforce an insurance contract. Id.; CNX Gas Co., L.L.C. v. Lloyd's of London, 410 F. Supp. 3d 746, 749 (W.D. Pa. 2019). "[O]nly Names comprising a syndicate can be sued for breach of an insurance policy." CNX Gas Co., 410 F. Supp. at 749.
Id. at *2; see also Beazley, 792 F. Supp. 3d at 549-51 (citing cases from inside and outside this Circuit holding that when a Syndicate is sued, the citizenship of every Name comprising the Syndicate is relevant for diversity purposes).
Here, one Syndicate, Canopius 4444, comprised of seven Names (SCOR Underwriting Ltd, Canopius Capital Four Ltd, Canopius Capital Five Ltd, Canopius Capital Seven Ltd, Canopius Capital Nine Ltd, Canopius Capital Ten Ltd and Flectat, Ltd,), subscribed to 100% of the risk on the relevant Policy and sued BCG. Dkt. No. 89 ¶ 2. The FAC alleged that "[a]ll of the Names identified herein are incorporated under the laws of England and Wales with their principal places of business in London, England." Id. Each Name is a corporate Name, and the FAC alleges the place of incorporation and principal place of business for each one. This properly alleges the citizenship of Underwriters. Given that the citizenship of BCG was alleged to be Puerto Rico, the FAC alleges complete diversity, and diversity jurisdiction was properly established. Grand Union Supermarkets of the V.I. v. H.E. Lockhart Mgmt., 316 F.3d
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408, 410 (3d Cir. 2003) (citing 28 U.S.C. §1332(c)). The Court therefore recommends that the Motion to Dismiss pursuant to Rule 12(b)(1), Dkt. No. 98, be denied.
B. Rule 12(b)(6) Motion
1. Preliminary Matter
In reviewing BCG's reply brief, BCG went beyond responding to arguments that Underwriters raised in their opposition and asserted new arguments to support its position that Counts I and II should be dismissed for failure to state a claim. The arguments related to the V.I. Compulsory Automobile Liability Insurance Act, 22 V.I.C. § 703, are new arguments that Underwriters did not have an opportunity to counter. There is no apparent reason why these arguments could not have been raised in BCG's opening brief. In Mamouzette v. Jerome, No. 13-cv-0117, 2024 WL 3015539 (D.V.I. June 13, 2024), the Court held:
"A party cannot raise issues for the first time in a reply brief." Live Oak Banking Co. v. Princess Mill Props., LLC, 2021 U.S. Dist. LEXIS 163658, at *31, 2021 WL 3889412 (D.V.I. Aug. 30, 2021) (quoting Stern v. Halligan, 158 F.3d 729, 731 n.3 (3d Cir. 1998)); see also Banner v. Fletcher, 834 F. App'x. 766, 769 (3d Cir. 2020).
"A reply is intended only to provide an opportunity to respond to the arguments raised in the response brief; it is not intended as a forum to raise new issues." Live Oak Banking Co., 2021 U.S. Dist. LEXIS 163658 at *31, 2021 WL 3889412 (internal citation and quotation omitted). Accordingly, the Court does not consider arguments raised for the first time in a reply brief.
Id. at *3 (citing United States v. Limetree Bay Terminals, LLC, 2023 U.S. Dist. LEXIS 5473, at *12 n.3, 2023 WL 172757 (D.V.I. Jan. 12, 2021), which in turn cited United States v. Cruz, 757 F.3d 372, 387-88 (3d Cir. 2014) ("[B]ecause Cruz raises this argument for the first time in the Reply Brief, we will not consider it. Instead, we will deem it, like the other arguments that were raised for the first time in the Reply Brief, to be waived."), and Lett v. Se. Pennsylvania Transportation Auth., No. 19-cv-3170, 2020 WL 12702548, at *2 (E.D. Pa. June 11, 2020)). Accordingly, in the instant matter, the Court will not consider the new arguments.
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2. Count I
The dispositive issue regarding Count I is whether BCG had an insurable interest in the van when it was scheduled on the Policy (February 28, 2012, when it was registered and titled in Ameritech's name) and on the date of the loss (July 3, 2012). Dkt. No. 89 at 9. Underwriters contends the van was not a covered "auto" under the Policy, and therefore it had no duty to defend or indemnify BCG in the Underlying Action. Id. at 10. In its opening brief, BCG focuses on Designation No. 7, arguing that that designation does not contemplate an insured's ownership or leasehold interest as a prerequisite for coverage: the vehicle need only be listed in the Declarations Page and the premium be paid. Dkt. No. 99 at 9-11. A panel of the Third Circuit, addressing a New Jersey insurance dispute, clarified the distinction between an "insurable interest" (going to whether a policy actually insured the particular property) and coverage (going to whether that interest was insurable):
The presence (or absence) of an insurable interest goes to the validity of an insurance contract, not to the existence of coverage for a particular item of property. Thus, it is said that "[a]n insurable interest is necessary to the validity of an insurance contract, whatever the subject matter of the policy," and that "[i]f there is no insurable interest the contract is void, and unenforceable." 44 Am. Jur. 2d Insurance § 933 (2012). "The justification for this rule," as the New Jersey Supreme Court observed, "is the discouragement of illicit uses of insurance, such as wagering, and the destruction of insured property." Miller v. N.J. Ins. Underwriting Ass'n, 82 N.J. 594, 414 A.2d 1322, 1324 (1980).
In light of this purpose, it is unsurprising that the insurable interest doctrine is generally raised by insurers as a defense against coverage. See id. at 1326 (holding that the insureds, former record owners of real property damaged in a fire, retained insurable interests and could recover under their policies "[t]o the extent that [they] can establish that their interests have a pecuniary value"). Tucci v. Hartford Fin. Servs. Grp., 507 F. App'x 211, 217-18 (3d Cir. 2012); see also 3 Couch on Insurance, Nature and necessity of insurable interest, § 41:1 ("3 Couch § 41:1") ("The requirement of an insurable interest is central to the purpose of insurance generally, which
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is to indemnify the insured against their own pecuniary loss. An insurable interest is a keystone of the concept of insurance, safeguarding the insurer against the risk that arises if one who will receive the monetary benefit from the loss of the insured property, or a life in the case of life insurance, has no interest in the property not being destroyed."). In other words, an insurable interest in particular property (the van)—dictating whether the insurance policy itself is valid or void—is a precursor to whether coverage for the property exists; if there is no insurable interest, the contract is void and the property is not covered. See Policy, II(A), providing that Underwriters will pay all sums an insured must pay because of bodily injury or property damage "to which this insurance applies," and has no duty to defend "to which this insurance does not apply." Dkt. No. 89 at 3; Dkt. No. 89-1 at 11. The Virgin Islands sets forth by statute the necessity of an insurable interest for insurance contracts on property and defines that term:
(a) No contract of insurance on property or of any interest therein or arising therefrom shall be enforceable except for the benefit of persons having an insurable interest in the things insured.
(b) 'Insurable interest' as used in this section means any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage.
22 V.I.C. § 804(a), (b); see 3 Couch § 41:1 ("An 'insurable interest' may be defined as any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage.").
Unfortunately, few Virgin Islands cases address an "insurable interest" in property. In B A Props., Inc. v. Aetna Cas. & Sur. Co., 273 F. Supp. 2d 673 (D.V.I. 2003), the Court quoted § 804, compared it to similarly-worded statutes in other states, and held that such statutes
"not only require that the insured have an insurable interest at the time of loss, but also
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consider that the right and amount of recovery is fixed at the time of loss." Id. at 681-82 (citing, inter alia, 12 Couch on Ins. § 178:66 ("The rights of the parties to the insurance contract are determined as of the time or moment the loss is sustained.")). In that context, the Court interpreted 22 V.I.C. § 804 "as meaning that an insurance contract arising from an interest in property is unenforceable unless the insured had an insurable interest at the time of loss, that the rights of the parties are determined as of the time of loss, and that any change in the insurable interest after the time of loss does not affect the amount that the insured can recover under the applicable insurance policy." Id. at 683. In London & Lancashire Ins. Co. ex rel. Kean v. Am. Caribbean Corp., No. 11-cv-1950, 1951 WL 90584 (D.V.I. June 25, 1951), the Court had gone a step further in holding that, with property insurance, "an insurable interest must exist both at the time of making of the contract and at the time of loss," and because the company did not have an insurable interest at the time the contract was issued, there was no valid contract and "no risk for which the company could have been held liable." Id. at *3. Both cases are still good law.
Given this context, the reason for Underwriters agreeing that ownership in the van, per se, was not required to establish an insurable interest, becomes clear. Section 804 notes that the insured must have a "lawful and substantial economic interest" in the property, a broader term than title or ownership. 22 V.I.C. § 804(b). A treatise, 7 Am. Jur. 2d Automobile Insurance § 18, notes that an insurable interest might be in the nature of a security interest or a mechanic's lien, which would constitute a "lawful and substantial economic interest."
Here, the FAC alleges that, on February 28, 2012, when the van was added to the Policy (on the representation that BCG had already purchased it and title was to be transferred to it), title resided in Ameritech and it was registered in Ameritech's name. Dkt.
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No. 89 ¶¶ 12-13. In October 2012, months after the July 2012 accident, BCG provided an unsigned Bill of Sale showing a February 15, 2012 sale date, id. ¶19; the van was first registered to BCG in November 2012, id. ¶ 21. These allegations state a claim that BCG had no insurable interest—no lawful and substantial economic interest—in the van both when it was added to the Policy and on the date of the loss. Thus, Underwriters did not owe a duty to defend or indemnify BCG in the Underlying Action. See 3 Couch § 41:1 ("Today, it is universally held, either by force of statute or upon public policy grounds, that an insurable interest is necessary to the validity of a policy no matter what the subject matter. In the absence of an insurable interest, an insurance contract is regarded as a void and unenforceable wagering contract.") (citation modified).
BCG's arguments to the contrary have no merit. They are directed solely to coverage, and then conflate insurable interest with coverage by asserting that since ownership was not required for coverage under standard condition 7 and it paid the premium, Count I must be dismissed for failure to state a claim. But BCG never stated in its opening brief what its insurable interest in the van actually was, either when it was added to the Policy or on the date of the accident, to show that the Policy was valid ab initio and thus the van was covered. In its reply, it asserted that it had a "reasonable expectation of benefit from the preservation of property" (citing Pennsylvania law), as constituting an insurable interest because it caused the van to be registered (showing possession and assumption of responsibility). But BCG does not argue how a mere possessory interest suffices for "a lawful and substantial economic interest" under Virgin Islands law. Moreover, possession and assumption of responsibility over the van says nothing about an insurable interest on the date the van was added to the Policy or the date of the accident, particularly when it is alleged that Ameritech
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had possession and responsibility over the van. And as indicated above, the Court will not consider BCG's arguments, raised for the first time in its reply brief, that (1) some state statutes provide that insurable interest does not apply to contracts of liability insurance (particularly since 22 V.I.C. § 804 does not exempt such contracts from showing an insurable interest), and (2) the V.I. Compulsory Automobile Liability Insurance Act supersedes the insurable interest clause of the Policy (although that statute appears to apply to uninsured or underinsured individuals). The Court concludes that Underwriters has stated a claim on Count I and recommends that the Motion to Dismiss Count I be denied.
3. Count II
Count II alleges that the van would not have been scheduled on the Policy but for intentional concealments and/or misrepresentations by BCG and Mr. Marceno (who was described by BCG's President, Paul Olsofsky, as his "partner," Dkt. No. 89 ¶ 11) concerning BCG's insurable interest in the van. In particular, Underwriters allege that BCG fraudulently submitted (in October 2012) a bill of sale dated February 15, 2012(created in September 2012) showing the sale of the van to BCG to deceive Underwriters that the bill of sale existed in February 2012 and showing that BCG had an insurable interest in the van at that time. Id. ¶ 40. In addition, the van would not have been scheduled on the Policy without Mr. Marceno's misrepresentations. Id. ¶¶ 41-42. The Policy, at Condition IV(B)(2) provides that coverage is void if the insured intentionally concealed or misrepresented a material fact concerning, inter alia, the covered auto or the insured's interest in the covered auto. Dkt. No. 89-1 at 17. Under Virgin Islands law, a claim for intentional misrepresentation requires the plaintiff to prove that (1) defendant made a misrepresentation of fact, opinion, intention, or law; (2) defendant knew or had reason to know that the representation was false; (3) the misrepresentation was made for the purpose of inducing the plaintiff to act or refrain from acting on the representation; (4) the
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plaintiff reasonably relied on the representation; and (5) the plaintiff sustained damages due to his justifiable reliance on the representation. Hatter v. Guardian Ins. Co., No. 18-cv-0041, 2024 WL 2864379, at *8 (D.V.I. June 6, 2024), citing, inter alia, Williams v. Inter-Ocean Ins. Agency, Inc., No. SX-18-cv-27, 2020 WL 8020082, at *7 (V.I. Super. Oct. 23, 2020) (elements necessary to state an intentional misrepresentation claim against insurance company relating to coverage).1In Wilkinson v. Wilkinson, 70 V.I. 901, 2019 WL 1421187 (V.I. Mar. 26, 2019), the Supreme Court of the Virgin Islands defined misrepresentation as "an assertion that is not in accord with the facts." Id. at * 8 (citation modified).
The Court concludes that Underwriters has stated a claim for intentional concealment/misrepresentation. The alleged misrepresentations were that: Mr. Marceno was Mr. Osofsky's "partner"2; that Mr. Marceno represented that BCG had purchased the van in February 2012; and that title was to be transferred to BCG. Dkt. No. 89, ¶¶ 11, 12. BCG had reason to know those representations were false because it did not produce the purported
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Bill of Sale at the time the van was placed on the Policy, despite Mr. Marceno's statement that BCG had purchased the van earlier that month, the van was still titled in Ameritech's name, BCG did not produce the bill of sale until October 2012, and title to the van was not actually transferred to BCG until November 2012. The misrepresentations were made for the purpose of scheduling Ameritech's van on BCG's policy and went to the heart of whether BCG had an insurable interest in the van (a material fact): if, at the time that the van was scheduled, it had already been purchased by BCG such that BCG had an insurable interest in it and title transfer would follow, Underwriters through M&S reasonably relied on those representations to schedule the van on the Policy. Further, the FAC alleges that BCG sought to conceal the lack of insurable interest by producing a fraudulent bill of sale (unsigned and without information usually found on a bill of sale such as an odometer reading, Dkt. No. 89 ¶ 19) purporting to show the sale of the van from Ameritech to BCG in February 2012. This further supports the misrepresentation allegations. Finally, Underwriters suffered damages in defending the Underlying Action.
BCG's arguments seeking dismissal of Count II have no merit. It essentially repackaged its arguments on Count I, asserting that because ownership was not required under the Policy and BCG made no material misrepresentations regarding ownership, Underwriters did not state a claim for Count II. Id. at 13-14. The Court dispensed with BCG's ownership argument, supra, Accordingly, the Court recommends that BCG's Motion to Dismiss Count II for failure to state a claim be denied.
CONCLUSION
Based on the analysis above, the Court RECOMMENDS that the part of the Motion to Dismiss, seeking dismissal of the FAC under Rule 12(b)(1) for lack of subject matter
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jurisdiction, Dkt. No. 98, be DENIED. The Court further RECOMMENDS that the part of the Motion to Dismiss that seeks dismissal of Counts I and II of the FAC under Rule 12(b)(6) for failure to state a claim, be DENIED. The Court RECOMMENDS that the Motion to Dismiss that seeks dismissal of Count IV be GRANTED based on the agreement of the parties. Any objections to this Report and Recommendation must be filed in writing within fourteen (14) days of receipt of this notice, 28 U.S.C. § 636(b)(1), and must "specifically identify the portions of the proposed findings, recommendations or report to which objection is made and the basis of such objection." LRCi 72.3. Failure to file objections within the specified time shall bar the aggrieved party from attacking such Report and Recommendation before the assigned District Court Judge. See, e.g., Thomas v. Arn, 474 U.S.
140 (1985).
ENTER:
Dated: June 16, 2026 /s/ Emile A. Henderson III
EMILE A. HENDERSON III
U.S. MAGISTRATE JUDGE