Lloyds of London Syndicate 2003 v. Fireman's Fund Ins. Co. of Ohio

• Decision Date: 24 March 2016
• Docket Number: Case No. 15-CV-2681-DDC-GLR
• Parties: LLOYDS OF LONDON SYNDICATE 2003, Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY OF OHIO, Defendant.
• Court: U.S. District Court — District of Kansas

LLOYDS OF LONDON SYNDICATE 2003, Plaintiff, v. FIREMAN'S FUND INSURANCECOMPANY OF OHIO, Defendant.

Case No. 15-CV-2681-DDC-GLR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

March 24, 2016

MEMORANDUM AND ORDER

This diversity action is an insurance coverage dispute between two insurers of a mutual insured. Plaintiff asserts that defendant must reimburse it for payments it previously made to the insured and payments that it is obligated to pay to the insured under a judgment in another civil lawsuit. Plaintiff bases its claim on the theory that insurance coverage properly lies with defendant. Plaintiff has filed an Amended Complaint for Declaratory Relief and Damages (Doc. 31), seeking declaratory relief under 28 U.S.C. § 2201(a) and damages in the amount of $1,875,668.84.

This matter comes before the Court on defendant's Motion to Dismiss or, in the Alternative, to Transfer Venue (Doc. 19) and a Renewed Motion to Dismiss or, in the Alternative, to Transfer Venue (Doc. 32). On July 28, 2015, defendant filed its Motion to Dismiss or, in the Alternative, to Transfer Venue (Doc. 19), seeking dismissal of plaintiff's original Complaint (Doc. 1). On November 2, 2015, plaintiff filed an Unopposed Motion for Leave to File an Amended Complaint (Doc. 29). The Court granted that motion (Doc. 30), and plaintiff filed the Amended Complaint on November 10, 2015 (Doc. 31). Thereafter, defendant filed its Renewed Motion to Dismiss or, in the Alternative, to Transfer Venue (Doc. 32), seeking dismissal of the Amended Complaint.

Because plaintiff has filed an Amended Complaint, defendant's motion to dismiss the original Complaint (Doc. 19) is moot. The Court thus denies defendant's Motion to Dismiss or, in the Alternative, to Transfer Venue (Doc. 19) as moot. And, for the reasons explained below, the Court also denies defendant's Renewed Motion to Dismiss or, in the Alternative, to Transfer Venue (Doc. 32).

I. Factual Background

The following facts are taken from plaintiff's Amended Complaint (Doc. 31) and viewed in the light most favorable to plaintiff. ASARCO LLC v. Union Pac. R.R. Co., 755 F.3d 1183, 1188 (10th Cir. 2014) (explaining that, on a Fed. R. Civ. P. 12(b)(6) motion to dismiss, the court must "accept as true all well-pleaded factual allegations in the complaint and view them in the light most favorable to the [plaintiff]." (citation and internal quotation marks omitted)).

The Parties

Plaintiff Lloyds of London Syndicate 2003 (hereinafter "plaintiff" or "Lloyds") is incorporated under the laws of the United Kingdom, and its principal place of business is in London, England. Defendant Fireman's Fund Insurance Company of Ohio (hereinafter "defendant" or "Fireman's Fund") is an Ohio corporation located in Columbus, Ohio.¹ Plaintiff and defendant issued separate insurance policies to a non-party Brecek & Young Advisors, Inc.("BYA"). BYA is a California company with its principal place of business in Folsom, California.

Defendant's Insurance Policy

Defendant issued a claims made policy providing "securities brokers/dealers" errors and omission liability, with a policy period running from December 1, 2005, to December 1, 2016 ("defendant's policy"). Defendant's policy limits liability to $2,000,000 per claim and $10,000,000 in the aggregate. Under defendant's policy, defendant promised to pay on behalf of BYA all sums which BYA becomes legally obligated to pay as defense costs and damages because of any act, error, or omission of BYA, or of any person for whose acts BYA is legally liable, in rendering or failing to render professional services for others in the conduct of BYA's professional operations, including those of a broker/dealer.

Defendant's policy, under a provision called "INSURING AGREEMENT, Section III. TERRITORY AND CLAIMS MADE PROVISIONS," provides in pertinent part as follows:

This Policy applies to acts, errors, omissions, or PERSONAL INJURIES which occur anywhere in the world provided that claim is made or suit is brought against the INSURED in the United States of America, its territories or possessions, and provided further, that such acts, errors, omissions or PERSONAL INJURIES occurred:

A. During the POLICY PERIOD, and then only if claim is first made against the INSURED during the POLICY PERIOD and is reported to the Company in writing during the POLICY PERIOD, or the Extended Reporting Period (if applicable) . . . .

Another part of defendant's policy called "INSURING AGREEMENT, Section V. LIMIT OF LIABILITY, SUPPLEMENTARY PAYMENTS, AND DEDUCTIBLE AMOUNT, Subsection G" provides:

. . . .Two or more claims arising out of a single act, error, omission or PERSONAL INJURY or a series of related acts, errors, omissions or PERSONAL INJURIES shall be treated as a single claim.

All such claims, whenever made, shall be considered first made during the POLICY PERIOD or Extended Reporting Period in which the earliest claim arising out of such acts, errors, omissions or PERSONAL INJURIES was first made and reported to the Company in writing and all such claims shall be subject to the same Limit of Liability.

Plaintiff's Insurance Policy

Plaintiff issued to BYA a claims-made "Broker/Dealer and Registered Representatives Professional Liability Policy" effective December 1, 2006, through December 1, 2007 ("plaintiff's policy"). Plaintiff's policy had limits of $2 million "Each Claim" and in the aggregate, with a $50,000 "Each Claim" Retention for Broker/Dealer insureds.

Plaintiff's policy includes a provision addressing "Interrelated Wrongful Acts." It provides:

All Claims based upon or arising out of the same Wrongful Act or Interrelated Wrongful Acts shall be considered a single Claim and each such single Claim shall be deemed to have been made on the earlier of the following:

A. when the earliest Claim arising out of such Wrongful Act or Interrelated Wrongful Acts was first made; or

B. when notice was provided to the Insurer . . . concerning a Wrongful Act giving rise to such Claim.

Plaintiff's policy also addresses "Interrelated Wrongful Acts" under the exclusions section. And, plaintiff's policy contains at least two provisions providing that plaintiff is not responsible for indemnifying or defending BYA for claims made during the policy period which are interrelated with claims made before the policy period.

The Claims

On September 22, 2005, Michael Knotts filed a lawsuit in the Court of Common Pleas for Summit County, Ohio, styled Michael P. Knotts v. B & G Financial Network, Inc., et al. On December 19, 2006, the National Association of Securities Dealers, Inc. ("NASD") notified BYA that Knotts had named it as a respondent in an arbitration proceeding. Knotts alleged that certain individuals, named as respondents in the arbitration proceeding, had fraudulently induced him to retire early, churned his investment accounts, and failed to advise him properly about issues affecting his financial portfolio ("the Knotts clam"). BYA tendered defense of the Knotts claim to defendant under defendant's policy.

On June 13, 2006, attorneys for Pauline and Donald Colaner notified BYA that the Colaners intended to bring an NASD arbitration proceeding against it and several individual respondents. The Colaners alleged that BYA negligently had failed to supervise the individual respondents, who provided unsuitable investment advice and made fraudulent misrepresentations about investments ("the Colaner claim"). BYA also tendered defense of the Colaner claim to defendant under defendant's policy.

In May 2007, Paul and Marie Wahl served BYA with a statement of claim they had filed with the NASD Department of Arbitration. About two months later, the Wahls amended their complaint to add 25 more claimants. The Wahls and the other complainants alleged, among other things, that they were sold unsuitable investment products and that BYA and others had engaged in flipping and churning of annuities ("the Wahl claims"). On June 22, 2007, Leia Farmer, chief compliance officer for BYA, tendered the Wahl claims to defendant under defendant's policy by sending a letter todefendant's claims adjuster, Lancer Claims. This letter asserted, "I would like to submit a claim under [defendant's policy]."

After BYA had tendered the Wahl claims to defendant, plaintiff also received the Wahl claims "for consideration of defense and indemnification under [plaintiff's] policy." Doc. 31 at ¶ 18. It does not appear, however, that BYA ever formally tendered the Wahl claims to plaintiff. Nevertheless, on August 9, 2007, Lancer Claims asserted that plaintiff had agreed to defend the Wahl claims subject to a reservation of rights of no coverage. BYA asked plaintiff to assign the defense of the Wahl claims to Jeffrey Jamieson of Blackwell Sanders, L.L.P. because he already was representing BYA in the Knotts and Colaner claims and was familiar with BYA's business practices. Plaintiff approved the request and assigned Mr. Jamieson to defend the Wahl claims on behalf of BYA under plaintiff's policy.

Plaintiff and BYA's Dispute Over the Wahl Claims

While the Wahl claims were still pending, a dispute arose between BYA and plaintiff about the number of "Each Claim" $50,000 retentions applicable to the Wahl claims. Plaintiff asserted that the 26 Wahl claimants were distinct and unrelated to one another, and, therefore, each of the 26 claims had separate $50,000 retentions. Conversely, BYA contended that the 26 Wahl claimants were interrelated by common facts and, therefore, they were subject to a single $50,000 retention.

Mr. Jamieson defended and ultimately settled the Knotts, Colaner, and Wahl claims on BYA's behalf. For the Wahl claims specifically, BYA entered into a Mutual Release and Settlement with the Wahl claimants on March 3, 2009. BYA paid its portion of the settlement, $669,092.21, on March 27, 2009. BYA paid an additional $312,767.38for fees and expenses related to the defense of the Wahl claims. Plaintiff prorated the defense costs (attributing the...