Westchester Fire Ins. Co. v. Wallerich
| Decision Date | 24 April 2009 |
| Docket Number | No. 07-3624.,No. 07-3625.,07-3624.,07-3625. |
| Parties | WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation, Appellant/Cross-Appellee, v. Douglas WALLERICH, Patrick Lowther; Sharon O'Reilly, Appellee/Cross-Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Jeffrey M. Thompson, argued, William M. Hart and Jenneane L. Jansen, on the brief, Minneapolis MN, for appellant/cross-appellee.
Paula Duggan Vraa, argued, St. Paul, MN, for appellee/cross-appellant.
Before BYE, JOHN R. GIBSON, and SMITH, Circuit Judges.
In this insurance coverage dispute, Westchester Fire Insurance Company ("Westchester") filed a declaratory judgment action against Douglas Wallerich, Patrick Lowther, and Sharon O'Reilly (collectively "Insureds"), seeking a determination whether it must provide coverage to the Insureds in defending an underlying lawsuit. Additionally, Westchester sought reimbursement of its expenses paid thus far in defending the underlying lawsuit. In response, the Insureds counterclaimed for coverage fees for Westchester's initial denial of coverage and for attorneys' fees in defending the declaratory judgment action. Westchester moved for summary judgment, and the district court granted the motion in part, holding that Westchester had no duty to defend the Insureds in the underlying lawsuit but that Westchester was not entitled to reimbursement of its defense costs in the underlying litigation. Additionally, the district court sua sponte granted summary judgment to the Insureds in the amount of $6,335.33 for coverage fees resulting from Westchester's initial denial of coverage.1 Both parties appeal from the district court's judgment. For the reasons outlined below, we affirm in part and reverse in part.
The Insureds formed the partnership Jewel of the Mississippi, LLP ("Jewel Partnership") with Mark Fayette, Mark's wife, Shayna Fayette, and others, for the purpose of acquiring and developing the Jewel Nursery property in Lake City, Minnesota.
The Jewel Partnership and Hale Irwin Golf Properties, LLC formed the Residences at the Jewel, LLC ("the Residences") to develop the property for commercial and residential use. Mark Fayette and the Insureds, in addition to being investors in the Residences, also held various officer and director positions within the Residences until its dissolution. Shayna Fayette was never an officer, director, or employee of the Residences.
In his capacity as Chief Manager of the Residences, Wallerich filed an application with Westchester for a business and management indemnity insurance policy. Westchester subsequently issued the policy to the Residences. Two sections of the policy are relevant to the issues in the instant case: the "General Terms and Conditions" section and the "Directors, Officers, and Company Indemnity Coverage" ("D & O coverage") section.
According to the policy, the General Terms and Conditions (Boldface in original). The Definitions section of the General Terms and Conditions explains as follows:
Whenever used in this Policy, the terms that appear below in boldface type shall have the meanings set forth in this Definitions subsection of the General Terms and Conditions. However, if a term also appears in boldface type in a particular Coverage Section and is defined in that Coverage Section, that definition shall apply for purposes of that particular Coverage Section. Terms that appear in boldface in the General Terms and Conditions but are not defined in this Definitions subsection and are defined in other Coverage Sections of the Policy shall have the meanings ascribed to them in those Coverage Sections.
(Boldface in original). The General Terms and Conditions section also contains a clause dealing with "spouses," which provides, in relevant part:
The ... spouses ... of natural persons who are Insureds shall be considered Insureds under this Policy; provided, however, coverage is afforded to such ... spouses ... only for a Claim arising solely out of their status as such and, in the case of a spouse ... where the Claim seeks damages from marital community property, jointly held property or property transferred from the natural person who is an Insured to the spouse....
(Boldface in original).
The insuring clause of the D & O coverage section provides:
Insurer shall pay the Loss of the Directors and Officers for which the Directors and Officers are not indemnified by the Company and which the Directors and Officers have become legally obligated to pay by reason of a Claim ... for any Wrongful Act taking place prior to the end of the Policy Period.
"Loss means damages, judgments, settlements, pre-judgment or post-judgment interest awarded by a court, and Costs, Charges and Expenses incurred by the Directors and Officers under the Insuring Clause[ ]...." (Boldface in original). "Cost, Charges, and Expenses means reasonable and necessary legal costs, charges, fees and expenses incurred by any of the Insureds in defending Claims...." (Boldface in original). "Claim means ... a civil proceeding against any Insured seeking monetary damages, or non-monetary or injunctive relief, commenced by the service of a complaint or similar pleading...." (Boldface in original). "Wrongful act means any actual or alleged error, omission, misleading statement, misstatement, neglect, breach of duty or act allegedly committed or attempted by: any of the Directors or Officers while acting in their capacity as such...." (Boldface in original). The D & O section defines "Insureds" as "the Company and the Directors and Officers." (Boldface in original).
The D & O coverage section contains an "insured v. insured" exclusion, which states that:
Insurer shall not be liable for Loss under this Coverage Section on account of any Claim:
* * *
e) brought or maintained by, on behalf of, in the right of, or at the direction of any Insured in any capacity, any Outside Entity or any person or entity that is an owner of or joint venture participant in any Subsidiary in any respect and whether or not collusive, unless such Claim:
(I) is brought derivatively by a securities holder of the Parent Company and is instigated and continued totally independent of, and totally without the solicitation, assistance, active participation of, or intervention of, any Insured[.]
(Boldface in original).
Mark and Shayna Fayette, individually and on behalf of the Residences, filed a lawsuit ("Fayette lawsuit") in Minnesota state court against the Insureds, alleging breach of various fiduciary duties in connection with the management and auction of certain residential and commercial properties held by the Residences. The Insureds timely notified Westchester of the lawsuit and sought coverage for their defense. Westchester denied coverage and refused to defend the Insureds. The Insureds then hired counsel, who urged Westchester to reconsider its position. Thereafter, Westchester changed its position, agreeing to defend the Insureds against the Fayette lawsuit, subject to a full reservation of rights, including: (1) the right to withdraw from the Insureds' defense; (2) the right to deny insurance coverage; (3) the right to file a declaratory judgment action challenging its obligation to defend the Insureds in the Fayette lawsuit; (4) the right to seek reimbursement of defense expenses in the event that a court found that Westchester had no duty to defend the Insureds; and (5) the right to deny any indemnity obligation. Westchester stated in the reservation-of-rights letter that its offer to advance defense expenses was "not an admission of any obligation under the policy." The Insureds objected to Westchester's reservations but accepted its offer to advance defense expenses to them.
Westchester then filed a declaratory judgment action in federal district court, seeking a determination that it owed no coverage to the Insureds. It also asserted that it was entitled to reimbursement for the fees and costs that it incurred in defending the underlying Fayette lawsuit. The Insureds counterclaimed for coverage fees incurred as a result of Westchester's initial denial of coverage and for attorneys' fees in defending this declaratory judgment action. Westchester then moved for summary judgment on the grounds that the "insured v. insured" exclusion in the insurance policy precludes coverage.
The district court granted in part Westchester's motion for summary judgment. Despite finding that Shayna Fayette was not an "Insured" within the meaning of the policy, the district court ultimately concluded that Westchester had no duty to defend or indemnify the Insureds in the Fayette lawsuit. The court determined that the "insured v. insured" exclusion applied because Mark Fayette — an Insured — was a party to the underlying lawsuit. But the court denied Westchester's motion for summary judgment with respect to its reimbursement claim for defense costs expended in the underlying litigation, finding no agreement to reimbursement in the insurance policy. The district court also sua sponte granted summary judgment to the Insureds on their counterclaim for coverage fees, awarding them coverage fees in the amount of $6,335.33.
Both Westchester and the Insureds appeal from the district court's judgment.
On appeal, Westchester challenges the district court's determinations that (1) Shayna Fayette is not an "insured" under the policy; (2) Westchester is not entitled to reimbursement of defense costs; and (3) the Insureds are entitled to coverage-counsel fees.
The Insureds cross-appeal the district court's judgment, arguing that the "insured v. insured" exclusion does not apply and, as a result, Westchester has a duty to...
To continue reading
Request your trial
- Chiquita Brands Int'l, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh PA
- Great West Cas. Co. v. Gen. Cas. Co. of Wis.
- ALPS Prop. & Cas. Ins. Co. v. Bredahl & Assocs., P.C.
-
Harleysville Ins. Co. v. Physical Distribution Servs., Inc.
...and in context with all other relevant provisions and the language of the policy as a whole.’ ” Westchester Fire Ins. Co. v. Wallerich, 563 F.3d 707, 712 (8th Cir.2009) (quoting West Bend Mut. Ins. Co. v. Armstrong, 419 N.W.2d 848, 850 (Minn.Ct.App.1988)); see also Cement, Sand & Gravel Co.......
-
Chapter 9
...Snacks, Inc. v. Federal Insurance Co., 664 F. Supp.2d 944 (W.D. Wis. 2009). Eighth Circuit: Westchester Fire Insurance Co. v. Wallerich, 563 F.3d 707 (8th Cir. 2009); Jerry’s Enterprises, Inc. v. U.S. Specialty Insurance Co., 2015 U.S. Dist. LEXIS 126241 (D. Minn. Sept. 22, 2015); Progressi......
-
Chapter 5
...Mutual Insurance Co. v. Tedford, 658 F. Supp.2d 786 (N.D. Miss. 2009). Eighth Circuit: Westchester Fire Insurance Co. v. Wallerich, 563 F.3d 707 (8th Cir. 2009). Ninth Circuit: Blue Cross of Idaho Health Service, Inc. v. Atlantic Mutual Insurance Co., 734 F. Supp.2d 1107 (D. Idaho 2010); St......