Comerica Inc. v. Zurich American Ins. Co.

• Decision Date: 27 July 2007
• Docket Number: No. 06-10353.,06-10353.
• Parties: COMERICA INC., Plaintiff, v. ZURICH AMERICAN INSURANCE CO. and Houston Casualty Co., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

498 F.Supp.2d 1019

COMERICA INC., Plaintiff, v. ZURICH AMERICAN INSURANCE CO. and Houston Casualty Co., Defendants.

No. 06-10353.

United States District Court, E.D. Michigan, Southern Division.

July 27, 2007.

Robert G. Brower, Bodman, Detroit, MI, for Plaintiff.

Steven M. Wolock, Maddin, Hauser, Southfield, MI, for Defendants.

OPINION AND ORDER DENYING PLAINTIFF'S MOTIONS FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

LAWSON, District Judge.

Plaintiff Comerica, Inc., a financial services corporation (i.e., bank), entered into a settlement of five securities fraud class action lawsuits (which had been consolidated into two actions) for $21 million. Comerica's primary insurance carrier, Federal Insurance Company — which disputed coverage on at least some of the claims on various grounds and whose policy carried a $20-million limit of liability — ultimately agreed to pay $14 million toward the settlement, leaving Comerica to pay the other $7 million, which it did. Defendant Zurich American Insurance Company wrote a following form excess insurance policy that was triggered "after all such `Underlying Insurance' has been reduced or exhausted by payments for losses." Comerica sought $1 million plus costs of defense ($2.6 million) from defendant Zurich under the excess policy in connection with the class action settlements. Zurich refused to pay on the grounds that the primary coverage had not been exhausted, and it did not believe that damages paid pursuant to section 11 of the Securities Act of 1933 were covered by the primary policy or the excess policy. Comerica brought suit against Zurich for payment under the excess policy, and the matter is presently before the Court on cross motions for summary judgment. Zurich seek dismissal of the case in its motion on the ground that coverage has not been triggered by exhaustion of the liability limits on the Federal policy. Comerica disputes that argument, and it moves for partial summary judgment in its original and amended motions seeking a determination that section 11 damages are covered. The Court heard the parties' arguments in open court on January 8, 2007 and now finds that the plain language of the excess policy issued by Zurich requires exhaustion of the primary insurance's liability limits by actual payment of losses by the primary insurer before the excess policy is triggered. Since Federal's $20 million liability limit was not exhausted by payment of $14 million on the claim by Federal, Zurich has no obligation to Comerica under the excess policy. Therefore, the defendant's motion for summary judgment will be granted and the plaintiffs motions for partial summary judgment will be denied.

I.

In 2002, Comerica was named as a defendant in five class action lawsuits alleging that the company made false and misleading statements as to its financial condition that resulted in economic loss to purchasers of its stock and persons who received Comerica stock as part of a merger. The nature of the claims is discussed in more detail below, but Comerica turned to its insurers when it came time to defend and attempt to settle the litigation.

Federal Insurance Company was Comerica's primary insurance carrier. It had issued a claims made policy with a "Policy Period" of January 1, 2002 to January 1, 2003 and a liability limit of $20 million. The policy provided coverage for executive liability and indemnification "for a Wrongful Act committed, attempted, or allegedly committed or attempted by such Insured Person before or during the Policy Period," Def.'s Mot. Summ. J. Ex. 2, Federal Policy at Insuring Clause 1 & 2, and for organizational liability on account of "a Wrongful Act committed, attempted, or allegedly committed or attempted by an Insured Person or the Organization before or during the Policy Period." Def.'s Mot. Summ. J. Ex. 2, Federal Policy at Endorsement 6 (insuring clause 3). The policy defines "Wrongful Act" to mean:

a. For purposes of coverage under Insuring Clauses 1 or 2, any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted, by an Insured Person, individually or otherwise, in his Insured Capacity, or any matter claimed against him solely by reason of his serving in such Insured Capacity;

b. For purposes of coverage under Insuring Clause 3, any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted, by an Insured Person or the Organization based upon, arising from, or in consequence of a Securities Transaction.

Def.'s Mot. Summ. J. Ex. 2, Federal Policy at Endorsement 6.

The policy also contained a provision that allocated defense and indemnity expenses in the event that both covered and non-covered losses arose from a securities transaction, as follows:

If a Claim based on, arising from or in consequence of a Securities Transaction covered, in whole or in part, under Insuring Clauses 2 or 3 results in both Loss covered by this Policy and loss not covered by this Policy, because such Claim includes both covered and uncovered matters or is made against both covered and uncovered parties, the Insured Persons, Organization and the Company shall allocate such amount to Loss as follows:

i. 100% of such amount constituting defense costs shall be allocated to covered Loss; and

ii. 100% of such amount other than defense costs shall be allocated to covered Loss.

Def.'s Mot. Summ. J. Ex. 2, Federal Policy at Endorsement 6. "Securities transaction" is defined in the policy as "the purchase or sale of, or offer to purchase or sell, any securities issued by the Organization." Ibid. The Federal policy also contained a "Defense and Settlement" provision that required Comerica to cooperate with Federal, entitled Federal to participate in the defense, and prohibited Comerica from settling a case without Federal's written consent.

Defendant Zurich was Comerica's excess insurance carrier under a following form policy with a policy period of January 1, 2002 through January 1, 2003 and a liability limit of $20 million. As a following form policy, coverage under the Zurich policy was no broader than the Federal policy, except of course for the liability limits. It contained the following provisions:

I. INSURING AGREEMENT

The "Insurer" shall provide the "Insured(s)" with excess insurance coverage over the "Underlying Insurance" as set forth in Item 3. of the Declarations during the "Policy Period" set forth in Item 4. of the Declarations. Coverage hereunder shall attach only after all such "Underlying Insurance" has been reduced or exhausted by payments for losses and shall then apply in conformance with the same provisions, limitations, conditions and warranties of the "Primary Policy" at inception, except for premium limit of liability and as otherwise specifically set forth in the provisions of this Policy. In no event shall coverage under this Policy be broader than coverage under any "Underlying Insurance."

. . . . .

V. DEPLETION OF UNDERLYING LIMIT(S)

In the event of the depletion of the limit(s) of liability of the "Underlying Insurance" solely as a result of actual payment of loss thereunder by the applicable insurers, this Policy shall ... continue to apply to loss as excess over the amount of insurance remaining. ... In the event of the exhaustion of the limit(s) of liability of such "Underlying Insurance" solely as a result of payment of loss thereunder, the remaining limits available under this Policy shall ... continue for subsequent loss as primary insurance ...

This Policy only provides coverage excess of the "Underlying Insurance." This policy does not provide coverage for any loss not covered by the "Underlying Insurance" except and to the extent that such loss is not paid under the "Underlying Insurance" solely by reason of the reduction or exhaustion of the available "Underlying Insurance" through payments of loss thereunder

. . .

Def.'s Mot. Summ. J. Ex. 3, Zurich Policy at 2-3.

The Zurich policy required Comerica to maintain the underlying Federal insurance during the policy period:

III. MAINTENANCE OF "UNDERLYING INSURANCE"

All of the "Underlying Insurance" scheduled in Item 3. of the Declarations shall be maintained during the "Policy Period" in full effect, except for any reduction of the aggregate limit(s) of liability available under the "Underlying Insurance" solely by reason of payment of loss thereunder. Failure to comply with the foregoing shall not invalidate this Policy but the "Insurer" shall not be liable to a greater extent than if this condition had been complied with.

Def.'s Mot. Summ. J. Ex. 3, Zurich Policy at 2. It also required Zurich's consent before settlement and provided Zurich with a right to participate in the defense of a claim even if the underlying policy had not been exhausted:

VI. CLAIM PARTICIPATION

The "Insured(s)" shall not admit liability, consent to arty judgment, or agree to any settlement which is reasonably likely to involve the Limit of Liability of this Policy without the "Insurer's" consent, such consent not to be unreasonably withheld.

Def.'s Mot. Summ. J. Ex. 3, Zurich Policy

Comerica's troubles began when it issued a press release on July 17, 2002 announcing its financial results for the 2002 second quarter. Apparently the results were quite good, and a number of people bought Comerica stock after the announcement. The results were also incorrect. On October 2, 2002, Comerica announced a $213 million after-tax charge to earnings based on credit losses and good will impairment. The Securities and Exchange Commission then began investigating Comerica. Shortly thereafter, five securities class action lawsuits were filed against Comerica by classes of shareholders that purchased Comerica shares outright and those who had received Comerica shares when Comerica...