Grigg v. Aarrowcast, Inc.

• Citation: 909 N.W.2d 183,2018 WI App 17,380 Wis.2d 464
• Decision Date: 27 February 2018
• Docket Number: Appeal No. 2016AP1521
• Parties: Paula M. GRIGG, as Special Administrator of the Estate of Raymond B. Grigg, Plaintiff-Appellant, v. AARROWCAST, INC., Axis Insurance Company and IOP Cast Iron Holdings, LLC, Defendants, Hudson Specialty Insurance Company and Hudson Insurance Company, Defendants-Respondents.
• Court: Court of Appeals of Wisconsin

380 Wis.2d 464

909 N.W.2d 183

2018 WI App 17

Paula M. GRIGG, as Special Administrator of the Estate of Raymond B. Grigg, Plaintiff-Appellant,

v. AARROWCAST, INC., Axis Insurance Company and IOP Cast Iron Holdings, LLC, Defendants,Hudson Specialty Insurance Company and Hudson Insurance Company,^† Defendants-Respondents.

Appeal No. 2016AP1521

Court of Appeals of Wisconsin.

Submitted on Briefs June 14, 2017

Filed February 27, 2018

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of David H. Weber of Law Firm of Conway, Olejniczak & Jerry, S.C., Green Bay.

On behalf of the defendants-respondents, the cause was submitted on the brief of Michael J. Duffy of Wilson Elser Moskowitz Edelman & Dicker LLP, Chicago.

Before Stark, P.J., Hruz and Seidl, JJ.

HRUZ, J.

¶ 1 Paula Grigg, as special administrator of the Estate of Raymond Grigg ("Grigg"),¹ appeals an order granting various dispositive motions in favor of Hudson Insurance Company ("Hudson Insurance") and Hudson Specialty Insurance Company ("Hudson Specialty").² Grigg, a business executive and shareholder until his company was sold, brought this declaratory judgment action to establish his rights under a liability policy Hudson had issued to his former company. The policy included coverage for directors and officers ("D & O") liability, which insured against loss caused by "wrongful acts" committed by a person acting in his or her capacity as a director or officer of the business. Grigg challenges the circuit court's determination that Hudson had no duty to defend him in a lawsuit filed in New York.

¶ 2 Specifically, Grigg argues the circuit court improperly granted summary judgment to Hudson because the factual allegations forming the basis for the claims in the New York lawsuit, including his alleged failure to disclose certain information during the sale of his former company, plainly fault Grigg's conduct as an executive of his former company. Hudson's primary argument is that it had no duty to defend Grigg because the legal claims advanced in the New York lawsuit were expressly directed at Grigg's alleged conduct as an individual shareholder and seller of his own stock, not as a company executive.

¶ 3 Based upon our comparison of the relevant policy language with the allegations contained within the New York complaint, we conclude Hudson has failed to demonstrate it had no duty to defend Grigg. The duty-to-defend analysis turns on the facts pled, not the plaintiff's theory of liability. The factual allegations forming the basis for the claims in the New York lawsuit plainly fault Grigg's conduct as an executive of his former company (even while also faulting his conduct as a shareholder), which appears to us sufficient to trigger Hudson's duty to defend. We reach no further conclusion regarding the duty to defend because Grigg has explicitly abandoned his argument that he is entitled to a judgment as a matter of law on the duty to defend and breach issues.

¶ 4 As a corollary, we hold that a third-party complaint does not eliminate a defendant's liability insurance coverage by purportedly limiting its legal claims to acts or omissions the defendant-insured made in a non-covered capacity, when those same alleged acts or omissions were also made in a covered capacity. In such "concurrent capacity" cases, the insured is entitled to a defense from the insurer if the alleged facts supplying the basis for the claims arguably involve acts or omissions falling within the scope of coverage.

¶ 5 We also reject several other arguments Hudson advances in support of the circuit court's decision. First, we conclude that, given the state of the record, Hudson Insurance was not properly dismissed as a party. Second, we conclude that, even assuming Grigg failed to provide Hudson with a timely notice of claim, he has satisfied his burden of showing Hudson was not prejudiced by the delay. Third, we reject Hudson's argument that issue preclusion bars Grigg from pursuing the present appeal against Hudson. Hudson provides no applicable legal authority for its assertion that Grigg cannot appeal the circuit court's determination as to Hudson without also maintaining an appeal against other defendants concerning Grigg's claims for indemnification and insurance coverage from those entities.

¶ 6 In all, we conclude Hudson has failed to demonstrate it was entitled to summary judgment as a matter of law. We therefore reverse the grant of summary judgment and remand this matter to the circuit court for a determination of whether Hudson had a duty to defend Grigg and other further proceedings. If, as it appears to us, Hudson did have such a duty and breached that duty, the circuit court must hold further proceedings to determine any damages that may have resulted from that breach.

BACKGROUND

¶ 7 This case arises from a complex business transaction and various, subsequent litigation. In 2010, J.H. Whitney Capital Partners, LLC ("J.H. Whitney"), a Connecticut private equity firm, acquired Aarrowcast, Inc. ("Aarrowcast"). Aarrowcast is a foundry business located in Shawano, Wisconsin; it manufactures gray and ductile iron castings for government, defense, agricultural and manufacturing purposes. J.H. Whitney owned the vast majority of Aarrowcast's authorized and outstanding shares of stock through its subsidiary holding companies, JHW ACast, LLC ("JHW") and Aarrowcast Holdings, LLC ("Aarrowcast Holdings").³ The remaining shares were owned by members of Aarrowcast's management team and board of directors.

¶ 8 IOP Cast Iron Holdings, LLC ("IOP") purchased Aarrowcast on August 14, 2014, from Aarrowcast Holdings and Aarrowcast's other shareholders, including Grigg.⁴ At the time of the sale, in addition to being a shareholder, Grigg was Aarrowcast's chief executive officer and a member of the company's board of directors. IOP's purchase of Aarrowcast was memorialized by a stock purchase agreement dated August 4, 2012. Grigg was a signatory to this agreement under the heading "Rollover Seller." It is undisputed Grigg did not sign the stock purchase agreement on Aarrowcast's behalf, but rather as a seller of his own stock.

¶ 9 Subsequent to its acquisition of Aarrowcast, IOP discovered information that caused it to suspect it had been misled about the company's sales projections during the negotiations leading to the purchase. On December 2, 2013, IOP sent a demand letter to Aarrowcast Holdings, in care of J.H. Whitney, requesting indemnification for alleged damages attributable to false or inaccurate representations and warranties in the stock purchase agreement. Specifically, the demand letter accused Aarrowcast, Aarrowcast Holdings, and the other selling shareholders of failing to disclose that Aarrowcast's largest customer planned to substantially reduce its orders.

¶ 10 Grigg and other members of Aarrowcast's management team responded to IOP's demand letter with their own letter to Aarrowcast and Aarrowcast Holdings on January 21, 2014. The management team asserted they were, at all times during IOP's acquisition, acting within the scope of their employment. They also asserted that Aarrowcast maintained insurance policies containing D & O coverage that could potentially apply to IOP's claims. Accordingly, the management team requested that Aarrowcast immediately notify its D & O insurers of IOP's claims "[t]o avoid any prejudicial delay with respect to the insurer(s)' right to prompt notice of facts and circumstances relating to any claim."⁵ It is undisputed that either Hudson Insurance or Hudson Specialty had issued to Aarrowcast an insurance policy that included D & O coverage.⁶

¶ 11 In late 2014, IOP filed an amended complaint in the United States District Court for the Southern District of New York. That action had been filed against J.H. Whitney, JHW, and Aarrowcast Holdings. The amended complaint asserted those defendants had, during the purchase negotiations, sold IOP on a "growth story," when in fact Aarrowcast knew prior to closing that key customers were planning to significantly reduce their orders. Although Grigg was not named as a defendant in that lawsuit, IOP specifically alleged he knew prior to the transaction's closing that orders from Aarrowcast's largest customer would significantly diminish. IOP asserted the defendants' failures to disclose the adverse sales information breached the stock purchase agreement and constituted common law fraud.

¶ 12 The parties to the Southern District of New York litigation subsequently settled that lawsuit. On September 21, 2015, they entered into a joint stipulation for dismissal with prejudice that released J.H. Whitney, JHW, and Aarrowcast Holdings from any liability for the claims alleged. Grigg was not included in the release, and IOP remained free to pursue its claims against him.

¶ 13 Believing he was intentionally "cut ... out of the release" contained within the joint stipulation, Grigg preemptively filed the present lawsuit in Shawano County, Wisconsin, on October 12, 2015. The complaint initially named IOP, Aarrowcast, Hudson Specialty, and Axis Insurance Company ("Axis") as defendants. Grigg alleged that although Aarrowcast had notified its insurance carriers—Hudson Specialty and Axis—of Grigg's demand for coverage, neither insurer had accepted coverage, tendered a defense, or reimbursed Grigg for any defense costs. Grigg therefore asserted Hudson Specialty and Axis had breached their contractual duties under the relevant insurance policies to defend him.⁷

¶ 14 Shortly after Grigg filed the present action, IOP commenced a new state-court action against Grigg in New York (the "New York state litigation"). The factual allegations in the New York state litigation were generally the same as those that had been asserted in the Southern District of New York litigation. That is, IOP alleged Grigg made false representations and warranties regarding Aarrowcast's sales information in connection with Aarrowcast's sale to IOP. IOP's...