INTERN. SURPLUS LINES v. Univ. of Wyo. Res. Corp., 92-CV-0310-B.
| Court | United States District Courts. 10th Circuit. District of Wyoming |
| Writing for the Court | BRIMMER |
| Citation | 850 F. Supp. 1509 |
| Parties | INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois corporation, Plaintiff, v. UNIVERSITY OF WYOMING RESEARCH CORPORATION, a Wyoming not-for-profit corporation; Wyoming Coal Refining Systems, Inc., a Wyoming corporation; and Char Fuels Associates, Ltd., a Wyoming limited partnership, Defendants. |
| Docket Number | No. 92-CV-0310-B.,92-CV-0310-B. |
| Decision Date | 25 April 1994 |
850 F. Supp. 1509
INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois corporation, Plaintiff,
v.
UNIVERSITY OF WYOMING RESEARCH CORPORATION, a Wyoming not-for-profit corporation; Wyoming Coal Refining Systems, Inc., a Wyoming corporation; and Char Fuels Associates, Ltd., a Wyoming limited partnership, Defendants.
No. 92-CV-0310-B.
United States District Court, D. Wyoming.
April 25, 1994.
Raymond B. Hunkins, Wheatland, WY, John E. Stanfield, Bruce B. Waters, Smith, Stanfield & Scott, Laramie, WY, for defendants.
ORDER DENYING DEFENDANTS' MOTIONS FOR PARTIAL SUMMARY JUDGMENT AND GRANTING PLAINTIFF'S CROSS-MOTIONS FOR SUMMARY JUDGMENT
BRIMMER, District Judge.
The above-entitled matter having come before the Court on the Defendants' Motions for Partial Summary Judgment, and the Plaintiff's Oppositions thereto; and the Plaintiff's Cross-Motions for Summary Judgment, and the Defendants' Oppositions thereto; and the Court, having reviewed the materials on file herein both in support of and in opposition to, having heard oral argument, and being fully advised in the premises, hereby FINDS and ORDERS as follows:
Factual Background
This is a declaratory judgment action in regards to the terms of a comprehensive liability insurance policy issued by the plaintiff-insurer, International Surplus Lines Insurance Company ("ISLIC") to the defendant-insured University of Wyoming Research Corporation, d/b/a Wyoming Research Institute ("WRI").
WRI, along with defendant Wyoming Coal Refining Systems, Inc. ("WCRS"), filed motions for partial summary judgment seeking declarations that the liability policy at issue in this case was valid and in force at all relevant times; that the underlying claims for which coverage is sought were covered by that policy; and that ISLIC received timely notice of the underlying claims.1 ISLIC opposed these motions and, in addition, filed cross-motions for partial summary judgment on the issue of coverage and on the defendants' claims of bad faith. The defendants opposed these motions and the plaintiff filed reply briefs on these issues. All of these motions for summary judgment are presently before this Court.
A. The Agreement Between CFA and WRI
The facts leading up to this suit are somewhat complex, but generally are not disputed. On June 15, 1988, Char Fuels Associates, Ltd. ("CFA"), the predecessor corporation to WCRS, entered into a technical services agreement with WRI (the "agreement"). The terms of the agreement required WRI to perform testing of a process for coal liquification developed by CFA.2 Almost immediately after WRI began the testing, however, CFA disputed whether WRI was properly performing its contractual obligations under the agreement. WRI claimed that it was having problems perfecting the reactor heating process phase of the testing, which, in addition to creating additional delay, ultimately required CFA to invest additional funds in the process.
In June 1991, WRI claimed that it had substantially completed the testing required by the agreement, and concluded that the liquification process did not work as CFA claimed. As noted above, CFA was not convinced that WRI properly performed contractual obligations, and moreover, the parties had disputes regarding CFA's refusal to pay certain invoices.
In the same month, WRI began negotiating with WCRS3 regarding the possibility of an out-of-court settlement of the latter's potential claims against WRI for its alleged improper performance of its obligations under the agreement. WCRS wanted monies that it had paid to WRI returned along with an audit of WRI's records. On August 29, 1991, WCRS issued a stop-work order to WRI under the agreement. The next day, August 30, 1991, WRI submitted an application for a "Non-Profit Organization Liability Insurance Policy" to ISLIC.
B. The Application and the Policy
Two specific questions contained in the application are of particular importance to this case. Question 15 asked:
Has any claim been made, or is any now pending, against the organization, or any person proposed for insurance in the capacity of either Director, Trustee, Officer, or Employee? (If yes, give details).
This question was designed to elicit an answer in regards to both past and present claims against the applicant. In response to this question, WRI disclosed an existing claim that had been asserted against it by Southville Corporation. Question 17 then stated:
No person proposed for insurance is cognizant of any fact, circumstance or situation which said person has reason to suppose might afford valid grounds for any future claim against said person and/or the organization. (If answer is none, state that).
This question, which was related to question 15, was designed to elicit whether the applicant possessed knowledge of any "fact, circumstance or situation" relative to the possibility of any future claims against it. WRI answered this question "None." Immediately after question 17, the application declares that the applicant "agrees that if such facts, circumstances or situations exist any claim or action arising therefrom is excluded from the proposed coverage."
Based on WRI's answers to all of the questions in the application,4 a policy was eventually issued by ISLIC to WRI, No. 524-144849-4, effective as of August 30, 1991. Various provisions of the policy are at issue and will be discussed in greater detail.
Section I of the policy discussed the nature and extent of coverage. Subsection (A) provided:
the Company will pay on behalf of the Insureds all Loss which the Insureds shall be legally obligated to pay for any civil claim or claims first made against them because of a Wrongful Act, provided that the claim is first made during the policy period and written notice of said claim is received by the Company during the policy period.
Section III is the definitional section, and it defined the salient terms used in section I as follows. The term "Insured" in subsection (A) included WRI itself as well as any director, officer, trustee, employee, volunteer or staff member, as well as any executive, board member and committee member. Subsection (D) defined the words "Wrongful Act" as "any actual or alleged error or misstatement or misleading statement or act or omission or neglect or breach of duty by one or more of the individual Insureds while acting in their capacity as an authorized representative of the Entity." Finally, subsection (E) defined the term "Loss" as "any amount which the Insureds are legally obligated to pay ... for Wrongful Acts ..."
Section VIII contained what is generally known as a "notice of potential claims" provision, which provided that under certain circumstances, short of the filing of an actual civil claim, the insured was required to give "written notice" to the insurer "as soon as practicable." The policy provided:
if during the policy period ...
(a) The Entity or any Insureds shall receive written or oral notice from any party that it is the intention of such party to hold one or more Insureds responsible for the results of any specified Wrongful Act done or alleged to have been done by the Insureds while acting in the capacity aforementioned; or
(b) The Entity or any one of the individual Insureds shall become aware of any occurrence which may subsequently give rise to a claim being made against an Insured in respect of any such alleged Wrongful Act.
Section IX provided "in the event of a claim, the Insureds shall take reasonable measures to protect their interests. If defense of a suit shall be required then the
Section IV contains various exclusions from coverage, including, inter alia, claims "brought about or contributed to by the dishonesty of the Insureds," subsection 3; and "claims, demands or actions seeking relief, or redress, in any form other than money damages," subsection 4(a).
Finally, section X provides that no action shall lie against the insurer unless, "as a condition precedent thereto, there shall have been full compliance with all of the terms of this Policy, and until the amount of the Insureds' obligation to pay shall have been finally determined ..."
C. State Court Litigation Between WCRS and WRI
The negotiations between WRI and WCRS did not resolve the parties' differences, and as a result, WCRS filed a complaint against WRI in the District Court for the Second Judicial District, County of Albany, State of Wyoming on December 19, 1991, almost three months after the policy took effect. The complaint sought solely equitable relief, primarily in the form of an audit in light of the disputes regarding the payment of outstanding invoices, and did not contain a claim for money damages.
Over the next seven months, WRI never specifically advised ISLIC of the initiation of this suit. Sometime in the middle of the summer of 1992, WRI received a preliminary audit report from its auditor who advised WRI to contact its insurance carrier. It was not until July 30, 1992, when WRI filed a request asking ISLIC to defend it in this suit, that ISLIC claims it first received notice of this litigation.
On August 12, 1992, ISLIC orally advised WRI that the policy only created a duty of indemnification and that it did not contain a duty to defend provision. Furthermore, ISLIC advised WRI that the policy affirmatively required WRI to retain counsel and prepare its own defense, which was subject to indemnification by ISLIC in accordance with the policy.
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