Office Depot, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa.
Decision Date | 27 October 2010 |
Docket Number | Case No. 09-80554-CIV |
Citation | Office Depot, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 734 F.Supp.2d 1304 (S.D. Fla. 2010) |
Parties | OFFICE DEPOT, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendant, American Casualty Insurance Company of Reading, PA., Intervenor Defendant. |
Court | U.S. District Court — Southern District of Florida |
Edmund M. Kneisel, Brent W. Brougher, Kilpatrick Stockton, Atlanta, GA, Joanne M. O'Connor, Sidney Alton Stubbs, Jr., Jones Foster Johnston & Stubbs, West Palm Beach, FL, for Plaintiff.
Kevin P. McCoy, Sylvia H. Walbolt, Carlton Fields, Tampa, FL, Steven Jeffrey Brodie, Carlton & Fields PA, Miami, FL, for Defendant.
Gwynne Alice Young, Carlton Fields, Tampa, FL.
In this diversity case, Office Depot, Inc.("Office Depot") sues National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") and American Casualty Insurance Company of Reading, Pa. ("American Casualty")(cumulatively "the carriers") for declaratory judgment and breach of contract.The plaintiff and the defendants have cross-moved for summary judgment under Fed.R.Civ.P. 56[DE 87, 101, 102].
The competing motions present the question of whether a corporation can recover under an organization and executive liability insurance policy for costs incurred in voluntarily responding to a Securities and Exchange Commission("SEC") investigation that did not culminate in filing of a judicial or administrative complaint by the SEC against the company or any of its officers or directors, or for costs incurredin conducting an internal investigation and audit triggered by a whistleblower complaint over alleged accounting improprieties.For reasons which follow, the court has determined that the disputed investigatory costs do not fall within the subject policy's definition of loss "arising from" a covered "Securities Claim" made against Office Depot, or a covered "Claim" made against one of its officers, directors or employees, and shall accordingly enter final summary judgment on coverage in favor of the carriers.
National Union issued a "claims made" Executive and Organization Liability Policy to Office Depot ("Policy" or "Primary Policy") providing coverage for claims made during the policy period of November 30, 2006 to November 30, 2007.1The Policy provides three types of coverage: executive liability insurance (Coverage A), organization insurance (Coverage B) and outside entity executive liability insurance (Coverage C).The Policy carries an aggregate limit of liability of $25 million, subject to a $2.5 million retention (similar to a deductible), and a 20% coinsurance provision.
American Casualty issued an Excess Insurance Policy to Office Depot ("Excess Policy") for the same period providing $15 million in coverage that applies in excess of the $25 million limits of liability provided under the National Union policy.The Excess Policy "follows form," i.e. it provides coverage in conformance with the same terms, conditions and exclusions as those set forth in the National Union Policy.
At issue here, under the National Union Policy "Insuring Agreements"[Policy, Section 1], is the "Organization Insurance" extended under Coverage B. Coverage B provides two types of insurance relevant to the current claims.First, Coverage B(i) insures Office Depot for certain "Securities Claims" made directly against it for any "Wrongful Act" as an "Organization," and second, Coverage B(ii) extends executive indemnity insurance, providing reimbursement to Office Depot to the extent it indemnifies its individual officers, directors and employees for damages that they would otherwise be obligated to pay for "Claims" made against them for any "Wrongful Act" performed in their capacity as directors, officers and employees of the company.
The Policy at Section 1, "Coverage B" provides:
At Section 8, captioned "Defense Costs, Settlements, Judgments," the Policy reiteratesthis dichotomy in B(i) and B(ii) coverages, providing in pertinent part:
An Organization is covered, subject to the policy's terms, conditions and limitations only with respect to: (1) its indemnification of its Insured Persons under Coverage B(ii) as respects a Claim against such Insured Persons; and (2) under Coverage B(i) for a Securities Claim.Accordingly, the Insurer has no obligation under this policy for covered Defense Costs incurred by, judgments against or settlements by an Organization arising out of a Claim made against an Organization other than a covered Securities Claim, or any obligation to pay Loss arising out of any legal liability that an Organization has to a claimant, except as respects a covered Securities Claim against such Organization.
(Emphasis supplied)
A "Wrongful Act" is defined at Section 2(aa)(2), with respect to Office Depot as the "Organization," as "any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by such Organization, but solely in regard to a Securities Claim."With respect to any "Executive" or "Employee"2 of the Organization, a "Wrongful Act" is defined at Section 2(aa)(1) in pertinent part to mean "any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act or any actual or alleged Employment Practices Violation, in regard to either a Securities Claim or other Claim."
In turn, the Policy defines a "Securities Claim," at Section 2(y) as follows:
(Emphasis supplied).
At Section 2(b), the Policy defines a "Claim" to mean:
(Emphasis supplied)
Section 2(p) of the Policy defines "Loss" to include "Defense Costs"(in addition to "damages, settlement, judgments")."Defense Costs," in turn, are defined in pertinent part at Section 2(f) as "reasonable and necessary fees, costs and expenses consented to by the Insurer ... resulting solely from the investigation, adjustment, defense and /or appeal of a Claim against an Insured."
Section 2(n) defines "Insured" to mean any "Insured Person," or "the Organization, but only with respect to a Securities Claim."
Section 2(t) defines "Organization" to mean Office Depot and its subsidiaries.Section 2( o ) defines "Insured Person" to include any "Executive" or "Employee" of Office Depot or its subsidiaries.
On June 29, 2007, a "Dow Jones Newswire"article reported that Office Depot may have improperly disclosed material information regarding projected profits and sales to certain financial analysts, potentially implicating SEC Regulation FD (Fair Disclosure) which precludes issuers of securities from selectively disclosing material nonpublic information.On July 11, 2007, Office Depot forwarded a copy of this article, denominated as a "Notice of Circumstances," by email to National Union and American Casualty.
On July 17, 2007, the SEC issued a letter to Office Depot advising that it was "conducting an inquiry into Office Depot, Inc....to determine whether there have been any violations of the federal securities laws."The inquiry letter requested "certain information from Office Depot on a voluntary basis," including various documents relating to Office Depot's contacts and communications with financial analysts during 2007.It concluded with a caveat that the inquiry ...
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