Ctr. for Excellence in Higher Educ., Inc. v. Rsui Indem. Co.
| Decision Date | 22 March 2019 |
| Docket Number | Case No. 2:17-cv-01329 |
| Citation | 375 F.Supp.3d 1217 |
| Parties | CENTER FOR EXCELLENCE IN HIGHER EDUCATION, INC., and Carl Barney, Plaintiffs, v. RSUI INDEMNITY COMPANY, Defendant. |
| Court | U.S. District Court — District of Utah |
Stephen E.W. Hale, Laura G. Kennedy, Parr Brown Gee & Loveless, Salt Lake City, UT, for Plaintiffs.
Courtney E. Scott, Tressler LLP, New York, NY, J. Angus Edwards, Jones Waldo Holbrook & McDonough, Salt Lake City, UT, Lindsey D. Dean, Pro Hac Vice, Tressler LLP, Chicago, IL, for Defendant.
ROBERT J. SHELBY, United States Chief District JudgeThis case presents the question whether Defendant RSUI Indemnity Company (RSUI) has a duty to defend Plaintiffs Center for Excellence in Higher Education (CEHE) and Carl Barney in a pending lawsuit. Plaintiffs were insured under a Directors and Officers Liability Policy (the Policy) provided by RSUI. The coverage period ran from December 31, 2012 through December 31, 2015,1 during which Plaintiffs were sued in a qui tam action. RSUI, however, denies it has a duty to defend under the terms of the Policy. Before the court are cross motions for summary judgment.2 Plaintiffs move for partial summary judgment, arguing RSUI wrongfully denied coverage under the Policy. RSUI moves for summary judgment arguing an exclusion in the Policy bars coverage for the Plaintiffs. RSUI also requests summary judgement on Plaintiffs' breach of contract and breach of the covenant of good faith and fair dealing claims. For reasons discussed below, the court grants in part and denies in part Plaintiffs' Motion for Partial Summary Judgment, and grants in part and denies in part RSUI's Motion for Summary Judgment.
Prior to December 31, 2012, Stevens-Henager College, Inc., California College San Diego, Inc., CollegeAmerica Denver, Inc., and CollegeAmerica Arizona, Inc. (the Schools) functioned as separate entities,3 with Barney managing the Schools collectively.4 On or about December 31, 2012, however, the Schools merged into an already existing corporate entity known as CEHE,5 of which Barney is a director.6 Each of the Schools now function separately as dba's of CEHE.7
Before the merger, CEHE and the Schools were insured by carriers other than RSUI.8 As part of the merger, however, CEHE purchased a Directors and Officers Liability Policy from RSUI.9 The Policy initially had an effective date of December 31, 2012, and ended on December 31, 2013 (the 12–13 Policy).10 After the coverage period for the 12–13 Policy ended, CEHE renewed its policy for the periods December 31, 2013 – December 31, 2014 (the 13–14 Policy) and December 31, 2014 – December 31, 2015 (the 14–15 Policy).11
CEHE is the named Insured on the Policy.12 The Policy defines "Insured" as: any "Insured Organization" and/or any "Insured Person."13 CEHE is an Insured Organization and Barney is an Insured Person under the terms of the Policy.14 One of the purposes of the Policy is for RSUI to "defend any Claim against the Insured for which coverage applies."15
In relevant part, a "Claim" is defined as a "written demand for monetary or non-monetary relief" or a "civil ... proceeding for monetary or non-monetary relief which is commenced by: Receipt or service of a complaint or similar proceeding."16 As a condition precedent to coverage under the Policy, CEHE is required to pay a specified Retention amount for "each Claim."17
In order to ensure the Policy did not provide coverage for any alleged wrong committed by the Schools pre-merger, "RSUI and CEHE agreed to include [a] Prior Acts Exclusion" in the Policy.18 As its name suggests, the Prior Acts Exclusion excludes coverage for "any Claim made against any Insured that alleges, arises out of, is based upon or attributable to, directly or indirectly, in whole or in part, any actual or alleged Wrongful Acts which ... occurred prior to December 31, 2012."19 The Policy defines Wrongful Acts as "any actual or alleged act, error, omission, misstatement, misleading statement, neglect or breach of duty ... by: an Insured Person ... or [t]he Insured Organization."20
In January 2013, plaintiff relators Katie Brooks and Nannette Wride filed a qui tam action (the Brooks Action) styled United States of America ex rel. Katie Brooks and Nannette Wride v. Stevens-Henager College, Inc. , Case No. 1:13-cv-00009, in the United States District Court for the District of Idaho.22 The relators were former employees of the Schools prior to the merger. In September 2013, the relators filed a First Amended Complaint naming CEHE, Barney, and the Schools as defendants.23 In April 2014, CEHE and Barney were served with the First Amended Complaint.24 CEHE provided notice of the lawsuit to RSUI on behalf of itself and Barney.25 In a letter dated May 5, 2014, RSUI denied coverage under the Policy's Prior Acts Exclusion.26 On this point, RSUI stated:
[s]ince the relators' allegations arise out of their employment with the Defendants which ended in 2011, the information from the relators was presented to the government in 2011 and 2012, and the First Amended Complaint alleges the wrongful conduct began in 2002; the First Amended Complaint arose out of wrongful acts which first occurred prior to December 31, 2012. As such, there is no coverage for this Complaint under the Policy.27
On May 13, 2014, relators filed a Second Amended Complaint.28 CEHE notified RSUI of the suit on behalf of itself and Barney,29 but RSUI again denied coverage under the Prior Acts Exclusion.30 The Brooks Action was then transferred to the United States District Court for the District of Utah, where relators filed their Third Amended Complaint.31 After being notified of the Third Amended Complaint, RSUI denied coverage on the same basis as before.32 On March 30, 2018, Judge Jill Parrish, who is presiding over the Brooks Action, limited the bases on which the relators could proceed on their claims against CEHE and Barney.33 In response to Judge Parrish's ruling, the relators filed a Fourth Amended Complaint on May 4, 2018.34 RSUI denied coverage as it pertains to the Fourth Amended Complaint.35
The allegations in the Brooks Action, as they now stand, are for penalties under the False Claims Act, 31 U.S.C. §§ 3729 - 3733. Specifically, the relators claim that CEHE, Barney, and the Schools fraudulently induced the federal government into dispensing federal funds by falsifying Program Participation Agreements (PPA's), G5 Certifications, and Required Management Assertions (RMA's).36 The relators maintain the Schools and Barney supplied thousands of falsified PPA's, G5 Certifications, and RMA's to the federal government beginning in 2003, and that CEHE continued the practice after the merger until 2014.37 The relators further maintain that each of the thousands of false claims is "separately actionable under the FCA."38
In response to RSUI's denial of coverage, Plaintiffs filed a Complaint in Utah state court on August 4, 2017, seeking relief under three cause of action. On Count One Plaintiffs seek a declaratory judgment that RSUI has a duty to defend Plaintiffs in the Brooks Action; on Count Two Plaintiffs seek relief for breach of contract; and on Count Three Plaintiffs seek relief for breach of the covenant of good faith and fair dealing.39 On December 29, 2017, RSUI removed CEHE's action to this court.40 Plaintiffs filed their Motion for Summary Judgment on May 31, 2018.41 RSUI filed its Motion for Summary Judgment on July 13, 2018.42 The Motions have been fully briefed, and the court heard argument on the Motions on December 18, 2018.
Summary judgment is appropriate when "there is no genuine dispute as to any material fact" and the moving party is "entitled to judgment as matter of law."43 A fact is material if it "might affect the outcome of the suit under the governing law," and a dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."44 Under this standard, the court will "view the evidence and draw reasonable inferences therefrom in the light most favorable to the nonmoving party."45 "Cross-motions are to be treated separately; the denial of one does not require the grant of another."46
Utah follows the "eight corners" rule to determine whether an insurer's duty to defend is triggered under an insurance policy.47 Under this rule, the court "examines the language of the policy and compare[s] it to the allegations made in the complaint to ascertain" whether an insurer has a duty to defend.48 An insurer's duty to defend is triggered when the "insurer ascertains facts giving rise to potential liability under the policy."49 If it is established that the "insurer has a duty to defend an insured under one claim brought against the insured, the insurer must defend all claims brought at the same time, even if some of the claims are not covered by the policy."50 If, however, the language found within the eight corners "clearly and unambiguously indicate[s] that a duty to defend ... does not exist, the analysis is complete."51 It is the insurance company's burden to "demonstrate that none of the allegations of the underlying claim is potentially covered (or that a policy exclusion conclusively applies to exclude all potential for such coverage)."52
In their Motion for Summary Judgment, Plaintiffs request the court enter judgment declaring:53 (A) RSUI has a duty to defend against the Brooks Action; and (B) RSUI must pay all legal fees CEHE and Barney have incurred since the inception of the Brooks Action.54 In its Motion for Summary Judgment, RSUI argues it has no duty to defend because coverage is excluded under the Policy's Prior Acts Exclusion. RSUI further argues that because it has no duty to defend Plaintiffs, it is entitled to summary judgment on Plaintiffs' breach of...
To continue reading
Request your trial