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KitBar Enterprises LLC v. Liberty Insurance Underwriters, Inc.

United States District Court, E.D. Virginia, Alexandria Division

February 22, 2018

KITBAR ENTERPRISES, LLC, et al., Plaintiffs,



         In this diversity insurance coverage dispute, plaintiff Kitbar Enterprises, LLC (“KitBar”) alleges a breach of contract claim against defendant Liberty Insurance Underwrites, Inc. (“Liberty”), asserting that Liberty's denial of coverage for a lawsuit against KitBar and its members constitutes a breach of the insurance policy Liberty issued to KitBar. In response, Liberty argues that coverage was properly denied on the basis of KitBar's misrepresentations on its application for a policy which was submitted after KitBar discovered that it was likely to be sued. Liberty also contends that it is entitled to void the Policy based on Virginia law because KitBar made misrepresentations that induced Liberty to provide coverage. KitBar argues not only that the lawsuit is covered by the insurance policy, but also that Liberty has waived these objections to coverage. Finally, Liberty argues KitBar's request for the retention of jurisdiction to pursue a claim of bad faith be denied because there has been no breach of the Policy. At issue, therefore, on cross-motions for summary judgment, are the following four questions:

(i) whether KitBar's knowing failure to disclose a possible lawsuit in its application for an insurance Policy caused that lawsuit to fall within the Policy's exclusion for undisclosed suits giving rise to coverage;
(ii) whether KitBar's misrepresentations in its insurance application void the Policy;
(iii) whether Liberty waived these arguments by failing to reserve its rights or by defending the suit; and
(iv) whether jurisdiction should be retained to allow KitBar to pursue a claim of bad faith denial of coverage.
The matter has been fully briefed and argued and is now ripe for disposition.


         The entry of summary judgment is appropriate only where there are no genuine disputes of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). That is the situation here. That following statement of undisputed material facts is based on the parties' statements of undisputed material facts and their respective responses.[1] The remainder of the record and the parties' statements of additional facts were also scoured for facts that might be viewed as in conflict with the facts stated here.

         • Plaintiff, KitBar Enterprises, LLC, is a Virginia limited liability company with its principal place of business in Fairfax County, Virginia. William Bessette and Benjamin Stone formed the business, and during the time period relevant to this lawsuit, Bessette served as KitBar's president and chief operating officer.

         • Defendant, Liberty Insurance Underwriters, Inc., is an insurance company organized under Illinois law with its principal place of business in Boston, Massachusetts.

         • At the time KitBar was formed, Stone and Bessette were officers of an entity known as 5Stones Holdings, LLC (“5Stones”). 5Stones was involved in the management of restaurants employing the so-called “KitBar concept, ” a design which placed a bar around an exposed kitchen and bar area, which allowed the restaurant to combine the roles of bartenders and cooks.

         • Stone and Bessette co-owned 5Stones with an individual named Jack Barry. Stone and Bessette had a number of conflicts with Barry and KitBar was formed in large part to push Barry out of the management of the restaurant concept. Barry was ultimately removed as a member of 5Stones and Stone and Bessette transferred 5Stones' assets to KitBar.

         • On June 22, 2015, Stone and Bessette received from Barry a copy of a draft complaint and demand letter that asserted claims against KitBar, Stone, and Bessette, and sought money damages.

         • Stone and Bessette discussed Barry's draft complaint and demand letter with their counsel on June 22, 2015.

         • Bessette admitted in his deposition that he knew that Barry's complaint might give rise to claims under an insurance policy.[2]

         • At 5:29 a.m. on the morning of June 23, 2015, after reviewing the Barry complaint, Bessette sent an email with the subject line “DO Insurance” asking “is the policy active? For Kitbar Enterprises?” Def. Ex. 34. When Bessette was told that the application had not been completed, Bessette signed the application and backdated his signature to June 13, 2015.

         • Bessette, acting on behalf of KitBar, applied for insurance from Liberty on June 23, 2015 by submitting an Application with his signature to KitBar's insurance agent. Bessette dated his signature June 13, 2015, seeking an effective coverage start date of June 13, 2015.

         • The Application posed a number of questions to KitBar to assess the risk of insuring KitBar, including:

o “Are there any claims made or now pending against any insured individual or insured entity proposed for coverage?”
o “Does any insured individual or insured entity have any knowledge or information of any facts or circumstances which could reasonably be expected to give rise to a claim under the proposed policy?

Def. Ex. 36 at 9.

         • The application also provided that “any loss arising from a matter disclosed or which should have been disclosed under this section 11 of this application [the portion of the application requiring disclosure of possible claims] is excluded from coverage under the policy, all without limiting any other remedy available to Liberty International Underwriters for non-disclosure.” Id.

         • KitBar responded “no” to both of these questions and did not disclose the Barry complaint or the facts and circumstances at issue in connection with the Barry complaint in response to any of the questions posed in the insurance application, even though KitBar had knowledge of the Barry complaint. Id. In signing the application on behalf of KitBar, Bessette declared that ...

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