Federal Ins. Co. v. Sammons Financial Group, Inc.
| Decision Date | 04 February 2009 |
| Docket Number | No. 4:08-cv-00288.,4:08-cv-00288. |
| Citation | 595 F.Supp.2d 962 |
| Parties | FEDERAL INSURANCE COMPANY, Plaintiff, v. SAMMONS FINANCIAL GROUP, INC., Midland National Life Insurance Company, and North American Company for Life and Health Insurance, Defendants. |
| Court | U.S. District Court — Southern District of Iowa |
Karen Y. Bonvalot, Stanley J. Lehman, Sherrard German & Kelly, PC, Pittsburgh, PA, Jeff H. Jeffries, Hopkins & Huebner, Des Moines, IA, for Plaintiff.
Tyrone R. Childress, Amy J. Fink, Tara C. Kowalski, Howrey LLP, Los Angeles, CA, Wade R. Hauser, III, Ahlers & Cooney PC, Des Moines, IA, for Defendants.
ORDER ON DEFENDANTS' MOTION TO DISMISS, STAY, OR TRANSFER
On August 21, 2008, Sammons Financial Group, Inc. ("Sammons"), Midland National Life Insurance Company ("Midland"), and North American Company for Life and Health Insurance ("NACOLAH") (collectively "Defendants") filed a Motion to Dismiss for Failure to State a Claim upon Which Relief Can be Granted or in the Alternative to Stay Action or in the Alternative to Transfer Venue (hereinafter "Motion") in the present action. Clerk's No. 11. Plaintiff, Federal Insurance Company ("Federal"), resisted the Motion on September 8, 2008. Clerk's No. 19. Defendants filed a Reply on September 19, 2008 and requested an oral hearing. Clerk's No. 29. A hearing was held on December 17, 2008. Clerk's No. 35. The matter is fully submitted.
Sammons is a financial services holding company that owns stock in insurance subsidiaries. Horvat Decl. ¶ 3. Sammons itself has no employees, and it is not licensed to and does not conduct insurance business in any jurisdiction. Id. ¶¶ 3-4; Compl. ¶ 2. Sammons is incorporated in Delaware with its principal office and place of business in South Dakota. Horvat Decl. ¶ 3. Sammons' insurance subsidiaries include Midland and NACOLAH. Id. ¶¶ 3-4; Compl. ¶¶ 2-4. Midland and NACOLAH are both corporations organized under the laws of Iowa; Midland's principal place of business is Iowa and NACOLAH's principal place of business is Illinois. Horvat Decl. ¶¶ 3-4.
Federal is a stock insurance company incorporated in New Jersey with its principal place of business is Chicago, Illinois. Compl. ¶ 1. Federal issued an excess insurance policy ("Excess Policy") to Sammons, which supplements a professional liability insurance policy ("Primary Policy") issued by Indian Harbor Insurance Company ("Indian Harbor") to Sammons.1 Id. ¶ 46; Compl. Ex. B.; Defs.' Reply at 4-5. Defendants have filed claims with Federal for coverage under the Excess Policy. Federal filed the present action to clarify its obligations regarding these claims. The parties' dispute over coverage is based on several portions of the Primary and Excess Policies, set forth below.
The terms of the Excess Policy's coverage are largely established by the Primary Policy, incorporated into the Excess Policy by reference. See Compl. Ex B; see also Compl. ¶¶ 34, 40. The Primary Policy provides coverage for "Insured Loss from Claims first made against the Insured during the Policy Period or ... for Wrongful Acts first committed on or after the Retroactive Date." Compl. ¶ 16. "Wrongful Act" includes "any actual or alleged act, error, omission, misstatement, misleading statement, or breach of fiduciary or other duty committed by an Insured in rendering, or failing to render Professional Services," as well as "any actual or alleged act, error, or omission of an Outside Service Provider ... [or] Independent Insurance Agent for which the Insurance Company is alleged to be liable...." Id. ¶ 18. "Loss" is defined, in pertinent part, by Section II(I) of the Primary Policy:
"Loss" means damages, judgments, awards, settlements, and the Defense Expenses which an Insured is legally obligated to pay as a result of a Claim. Loss includes punitive or exemplary damages when insurable under the law pursuant to which this Policy shall be construed.... Loss shall not include:
(1) fines, sanctions, taxes, penalties imposed by law or any multiplied damage award which is in excess of the damages award so multiplied;
(2) matters which are uninsurable under the law pursuant to which this Policy shall be construed;
(3) salaries, wages, fees, or other compensation, overhead, or benefit expense of any insured;
(4) fees, commissions, compensation, or interest charged to or due from clients or customers of the Insurance Company;
(5) the cost of complying with any settlement for, or award of, non-monetary relief; or
(6) any amount due under any contract or policy of insurance or reinsurance underwritten, issued, assumed, or subscribed to by the Insurance Company.
Compl. Ex. B at 6. Thus, both the Primary and Excess Policies provide indemnification for settlements and damages arising from a lawsuit against the Defendants, as well as compensation for reasonable legal fees incurred by Defendants in their defense of such lawsuits. The payment of Defense Expenses may be subject to "a written undertaking ... guaranteeing the repayment ... if it is finally determined that Loss incurred by such Insured would not be covered." Compl. Ex. A at 13. The defense costs alone may exhaust the Limit of Liability, which is $10 million under the Excess Policy. Compl. ¶¶ 21, 25; Compl. Ex. B at 4.
The Excess Policy, by its own terms and by incorporating the terms of the Primary Policy, contains four coverage exclusions relevant to this Declaratory Judgment: (1) the Fraudulent Act exclusion; (2) the Intentional Act exclusion; (3) the Profit or Advantage exclusion; (4) and the Representation of Performance or Value exclusion. Compl. ¶¶ 101-120. The Fraudulent Act, Intentional Act, and Profit or Advantage exclusions, set forth in Section III(A)(1)-(3) of the Primary Policy, as amended by Endorsement Number 7, provide in pertinent part as follows:
The Coverage under this Policy does not apply to any Claim ... brought about or contributed to in fact by:
(1) [Fraudulent Act exclusion—] any dishonest, fraudulent or criminal act or omission by an Insured, Independent Insurance Agent, or Outside Service Provider;
(2) [Intentional Act exclusion—] any willfull [sic] or intentional violation of any statute, rule or law by an Insured, Independent Insurance Agent, or Outside Service Provider; or
(3) [Profit or Advantage exclusion—] the gaining of any profit, remuneration or advantage by an Insured, Independent Insurance Agent, or Outside Service Provider to which the Insured, Independent Insurance Agent, or Outside Service Provider was not legally entitled;
provided, that this EXCLUSION (A) shall not apply to (i) any Claim for fraud and/or bad faith in claims handling or adjusting or (ii) an Insured unless it is established that the Insured participated in or acquiesced in the dishonest, fraudulent or criminal act or omission, the willful or intentional violation, or the gaining of profit, remuneration or advantage as determined by a final adjudication in the underlying action or in a separate action or proceeding.
Compl. Ex. A at 8, 26. The Representation of Performance or Value exclusion, set forth in Section III(J) of the Primary Policy, provides:
The Coverage under this Policy does not apply to any Claim ... based on or directly or indirectly arising out of or resulting from:
(1) any estimate of costs; or
(2) any representation or promise regarding any payment of dividends or the performance of value of any product with any investment component.
In addition to the exclusions described above, the Primary Policy and Excess Policy both contain provisions which limit coverage of claims that are related or substantially similar to previous and pending claims that predate the coverage period, which under the Excess Policy is the two-year period between November 7, 2004 and November 7, 2006. Compl. ¶ 9; Pl.'s Request for Judicial Notice (hereinafter "RJN") Ex. 2 at 4. The Primary Policy Section IV(A)(4) provides: "All Related Claims2 will be treated as a single Claim made when the earliest of such Related Claims was first made or when the earliest of such Related Claims is treated as having been made with [Section IV(A)(2)], whichever is earlier." Compl. Ex. A at 12. Similarly, Section 7 of the Excess Policy provides:
[Federal] shall not be liable under [the Excess Policy] for any loss which is based upon, arises from or is in consequence of any demand, suit or other proceeding pending, or order, decree or judgment entered against any Insured on or prior to the Pending or Prior Date set forth in Item 8 of the Declaration [(November 7, 2004)], or the same or any substantially similar fact, circumstance or situation underlying or alleged therein.
Compl. Ex. B at 7. Finally, Endorsement Number 3 of the Excess Policy provides:
It is understood and agreed that the Company shall not be liable to make any payment for loss in connection with any claim based upon, arising out of, relating to, in consequence of, or in any way involving:
(1) any litigation, arbitration, claims, demands, causes of action, equitable, legal or quasi-legal proceedings, decrees or judgments (collectively referred to as litigation) against any insured occurring prior to or pending as [sic] November 7, 2004, of which the Insured has received notice or otherwise had knowledge as of such date; or
(2) any subsequent litigation arising from, or based on substantially the same matters as alleged in the prior or pending litigation included in (1) above; or
(3) any Wrongful Act of the insured which gave rise to the prior or pending litigation included in (1) above.
Compl. Ex. B at 14.
Neither the Primary nor the Excess Policy contain a choice of law provision. See RJN Ex. 1. The Primary Policy states that the "policy applies to any Wrongful Act occurring and any Claim made anywhere in the world." Id. at 60. However, the Primary and...
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