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Prepared Insurance Co. v. Zags, Inc.

United States District Court, D. Minnesota

March 3, 2017

Prepared Insurance Company, a Florida Corporation, Plaintiff,
v.
Zags, Inc., a Delaware Corporation, Defendant.

          Anne T. Regan, Esq., Joseph P. Beckman, Esq., and Raymond R. Bonnabeau, Esq., Hellmuth & Johnson, PLLC counsel for Plaintiff.

          Kurt J. Niederluecke, Esq., Ted C. Koshiol, Esq., and Timothy M. O'Shea, Esq., Fredrikson & Byron, P.A., counsel for Defendant.

          MEMORANDUM OPINION AND ORDER

          Donovan W. Frank United States District Judge

         INTRODUCTION

         This matter is before the Court on a Motion to Dismiss brought by Defendant Zags, Inc. (“Zags”). (Doc. No. 14.) For the reasons set forth below, the Court grants in part and denies in part the motion.

         BACKGROUND

         Plaintiff Prepared Insurance Company (“Prepared”) sells property and casualty insurance products to individual homeowners and real property owners throughout the state of Florida. (Doc. No. 1, Compl. ¶ 7.) Zags[1] designs and develops insurance software and solutions. (Id. ¶ 8.) Zags marketed its software as having broad functionality in multiple facets of the insurance industry, such as “product design . . . sales and marketing . . . underwriting, policy administration, billing, claims, and more.” (Id.)

         In September 2013, Zags pitched its products and services to Prepared and, in particular, offered a “comprehensive software solution” that would support all lines of Prepared's business operations. (Id. ¶ 12.) Zags indicated that it would use an existing product as a foundation for the software, thus requiring minimal customization or modification to meet requirements specific to Prepared. (Id. ¶ 13.) The parties met again in February 2014 and Zags represented that it was capable of delivering a “three layered” comprehensive, customized software program. (Id. ¶¶ 14-15.) The layers were to consist of: (1) a “Core Layer” that would span “all geographies”; (2) a “US Layer” containing “functionality common to the US”; and (3) a “Prepared Layer” (later the “Florida Layer”) that would be customized to Prepared and would be Prepared's intellectual property. (Id. ¶ 15.)

         Prepared alleges that Representatives of Zags' made the following representations: (1) Zags was capable of transitioning Prepared to the software package for approximately $1.6 million; (2) Zags had already developed the “US Layer, ” so that portion of the software required only limited supplementation to meet Prepared's geographic needs; (3) Zags was capable of providing software functionality equal to, or greater than, that which Prepared used as of February 2014, at least by December 2015; (4) Zags was capable of completing Prepared's transition to Zags' comprehensive software by December 2015; and (5) Zags was capable of completing Prepared's transition to Zags' comprehensive software through just over 2, 200 employee/contractor days of total labor. (Id. ¶ 16(a)-(e).)

         Prepared further alleges that all of above representations made by Zags were false. (Id. ¶ 17(a)-(f).) Specifically, Prepared alleges that: (1) Zags was not capable of transitioning Prepared to the promised comprehensive software package at or near the cost of $1.6 million; (2) the software offered by Zags did not substantially exist in any form usable by Prepared in the “Core Layer” form and no usable version of the “Core Layer” has been delivered; (3) Zags had not already developed and maintained a usable “US Layer” in any form usable by Prepared and no usable version has been delivered; (4) Zags has not, at any time since February 2014, been capable of providing software functionality equal to or greater than that which Prepared already employed and has not delivered any such functioning software; (5) Zags was not capable, at any time since February 2014, of completing Prepared's transition to Zags' software by December 2015; and (6) Zags was not capable of completing Prepared's transition to Zags' software through over 2, 200 days of total labor. (Id.)

         On or about June 27, 2014, Prepared and Zags entered into a License and Services Agreement (the “Agreement”). (Id. ¶ 19; Doc. No. 17 (“O'Shea Decl.”) ¶ 2, Ex. A (“Agreement”).)[2] Plaintiff alleges that the Agreement required Zags to provide a customized, functional software product. (Compl. ¶ 20.) The Agreement also provided three conditions to be met in order for the software to be deemed accepted by Prepared:

         The Software . . . will be deemed accepted by the Client when the earliest of the following occurs:

[] the Client has completed the User Acceptance Testing and delivered to [Zags] written notice of acceptance; or
[] the Software has been installed and is used by the Client for live or commercial use; or
[] a version of the Software has been installed and been available to the Client for User Acceptance Testing for a period of sixty (60) days and there are no Serious Errors (having been notified to [Zags]) outstanding for correction by [Zags] and [Zags] offers to make the Software available for live or commercial use.

(Agreement §§ 9.5.1-9.5.3.)

         In exchange, Prepared was obligated to pay for services, including software development, maintenance, hosting, and licensing. (Agreement § 3.) The software development services to be provided by Zags are described in a Statement of Work (“SOW”) attached to the Agreement. (Id. § 3.3, Schedule 4 (“SOW”).) Under the Agreement, Prepared agreed that fees would be charged on a “Time and Materials Basis.” (Agreement § 3.4.1; SOW § 2.) The SOW also provides that Zags “shall provide the following Project Services Prepared Requirements Phase A [], delivered as per Prepared Project Plan 11Mar2014 under this [SOW].” (SOW § 1.)[3] The Project Plan provided a “go live” date of January 12, 2015. (Doc. No. 22 (“Regan Decl.”) ¶ 3, Ex. 1.) The SOW further outlined fees and implementation days needed to develop the software “based on the information available to [Zags] at the time.” (SOW §§ 2, 2.1.) The SOW also states that:

All fee estimates or quotations and timescales given by [Zags] in relation to the Project Services are given in good faith based on the information available to [Zags] at the time; however they are intended to be estimates only and are not guarantees of the cost or timescales of the Project Services.

(Id. § 2.1.) Similarly, the Agreement expressly states:

If [Zags] provides [Prepared] with an estimate of the cost or time to be taken for any Services to be provided by [Zags], the estimate will be made in good faith based on the information known to [Zags]. However, [Zags] does not promise that estimates will be accurate and estimates are not intended and shall not be treated as price or performance guarantees. Time ...

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