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Navigators Insurance Co. v. Dialogic Inc.

United States District Court, N.D. California, San Jose Division

May 27, 2014

DIALOGIC INC. formerly known as VERAZ NETWORKS INC. and DOES 1-50 Defendants.


RONALD M. WHYTE, District Judge.

Defendant Dialogic Inc. ("Dialogic") moves to dismiss plaintiff Navigators Insurance Company's ("Navigators") complaint for failure to join a necessary party under Federal Rule of Civil Procedure 12(b)(7). Dkt. No. 11. As explained below, Liberty Insurance Underwriters Inc. ("Liberty") and W.R. Berkley Corporation ("Berkley") are necessary parties to this action. Because joining them would destroy diversity and this court's jurisdiction, the court GRANTS the motion to dismiss under Rule 12(b)(7).

I. Background

Navigators filed this declaratory judgment action to determine whether a claim submitted by Dialogic is within the scope of coverage of a 2007 Navigators Excess Insurance Policy. Dkt. No. 1, Compl. at ¶¶ 1, 2.

From April 4, 2007 to April 4, 2008, Liberty was Dialogic's primary insurer ("2007 Liberty Policy"). Id. ¶ 10. The 2007 Liberty Policy covers claims made during the policy period and has a $5 million coverage limit (after satisfaction of a deductible). Id. ¶¶ 10, 11. The 2007 Liberty Policy also covers claims from "Interrelated Wrongful Acts" which are generally acts that have the same common nexus as acts claimed during the policy period. Id. ¶¶ 38, 40.

During same 2007-2008 period, Navigators was Dialogic's excess insurer ("2007 Navigators Excess Policy"). Id. ¶¶ 9-11. The Navigators policy covers certain losses that exceed the coverage limits in the Liberty policy. Id. ¶¶ 10, 11, 34.

From April 4, 2010 to April 4, 2012, Liberty was again Dialogic's primary insurer ("2010 Liberty Policy"), with the same $5 million limit. Id. ¶ 17. During this time, Berkley, rather than Navigators, provided excess insurance ("2010 Berkley Excess Policy"). Dkt. No. 11-1 (Katz Decl.) ¶ 5.

Dialogic has filed two insurance claims with Liberty relevant to this action: the 2008 Claim and the 2011 Claim. The 2008 Claim requested coverage under the 2007 Liberty Policy. Compl. ¶ 12. Liberty provided coverage, and the $5 million limit was not exhausted. Therefore, the 2007 Navigators Excess Policy was not triggered. Katz Decl. ¶ 6. The 2011 Claim requested coverage under the 2010 Liberty Policy, but Liberty determined that the 2011 Claim was interrelated with the 2008 Claim and therefore fell within the 2007 Liberty Policy. Compl. ¶¶ 18, 21. To date, the combined 2008 and 2011 Claims have not exhausted the $5 million limit, but "further amounts may be incurred in connection with the 2011 Claim." Katz Decl. ¶ 7.

One important question that must be resolved is whether the 2011 claim is related to the 2008 claim under Liberty's "Interrelated Wrongful Acts" provision. If the claims are interrelated, then the 2007 Liberty Policy's $5 million coverage limit will apply to both the 2008 and 2011 Claim, and once exhausted Navigators will be obligated to provide excess coverage. If the claims are not interrelated, then the claims will be applied to the separate 2007 and 2010 primary policies and Navigators will not have to provide excess coverage to the 2011 claim. Instead, Berkley will provide excess coverage for the 2011 claim.

II. Analysis

Dialogic moves to dismiss this action under Rule 12(b)(7) for failure to join a necessary or indispensable party under Rule 19.

A Rule 19 motion poses three successive inquiries. First, the court must determine whether a nonparty should be joined under Rule 19(a). That nonparty (or absentee) is now referred to as a person required to be joined if feasible.' If an absentee meets the requirements of Rule 19(a), the second stage is for the court to determine whether it is feasible to order that the absentee be joined. Finally, if joinder is not feasible, the court must determine at the third stage whether the case can proceed without the absentee or whether the action must be dismissed. A nonparty in whose absence an action must be dismissed is one who not only has an interest in the controversy, but has an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good conscience.

E.E.O.C. v. Peabody W. Coal Co., 610 F.3d 1070, 1078 (9th Cir. 2010) (internal quotations ...

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