Telligen, Inc. v. Atl. Specialty Ins. Co.

• Decision Date: 02 August 2019
• Docket Number: No. 4:18-cv-00261-RGE-SBJ,4:18-cv-00261-RGE-SBJ
• Citation: 413 F.Supp.3d 842
• Parties: TELLIGEN, INC., Plaintiff, v. ATLANTIC SPECIALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

413 F.Supp.3d 842

TELLIGEN, INC., Plaintiff,

v.ATLANTIC SPECIALTY INSURANCE COMPANY, Defendant.

No. 4:18-cv-00261-RGE-SBJ

United States District Court, S.D. Iowa, Central Division.

Signed August 2, 2019

John F. Lorentzen, Matthew A. McGuire, Nyemaster Goode PC, Des Moines, IA, for Plaintiff.

Sean M. OBrien, Catherine Marie Lucas, Bradshaw Fowler Proctor & Fairgrave, P.C., Des Moines, IA, Lisa Sopata Brogan, Pro Hac Vice, Baker & Mckenzie LLP, Chicago, IL, for Defendant.

ORDER RE: CROSS MOTIONS FOR SUMMARY JUDGMENT

Rebecca Goodgame Ebinger, United States District Judge

I. INTRODUCTION

Defendant Atlantic Specialty Insurance Company (ASIC) issued claims-made insurance policies with fiduciary liability coverage to Plaintiff Telligen, Inc. In 2015, Telligen received a letter from the U.S. Department of Labor requiring Telligen to make documents related to its Employee Stock Ownership Plan available for inspection. In 2016, a former Telligen employee filed a lawsuit related to Telligen's Employee Stock Ownership Plan. In 2017, the Department of Labor sent Telligen a letter alleging violations of Telligen's fiduciary duties related to the Employee Stock Ownership Plan. Telligen sought coverage from ASIC for expenses related to the former employee's lawsuit. ASIC denied coverage, contending that the 2015 Department of Labor letter was a fiduciary claim Telligen failed to report to ASIC and that the lawsuit was related to the unreported fiduciary claim. Subsequently, Telligen brought this action, seeking, among other relief, a declaration that it is entitled to coverage for expenses related to the lawsuit. ASIC and Telligen have filed cross motions for summary judgment.

The 2015 Department of Labor letter was not a fiduciary claim under the policies. The letter did not allege Telligen committed a wrongful act, it did not identify any specific bad acts or actors, and at the time Telligen received the letter, Telligen did not have the information required to report a fiduciary claim to ASIC under the terms of the policies. Therefore, and for the reasons addressed below, ASIC's motion for summary judgment is denied. Telligen's cross motion for partial summary judgment is granted to the extent it seeks a declaration that the 2015 Department of Labor letter was not a fiduciary claim under the policies. Because the parties represented the status of the 2015 letter to be a threshold issue, and because the parties have not fully briefed ASIC's coverage obligations related to the lawsuit and the 2017 letter, the Court does not address issues of coverage beyond this limited holding.

II. BACKGROUND

The following facts are undisputed. See Pl.'s Resp. Def.'s Statement Material Facts Supp. Def.'s Mot. Summ. J., ECF No. 26-5; Def.'s Resp. Pl.'s Statement Material Facts Supp. Pl.'s Mot. Partial Summ. J., ECF No. 29; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

A. The Policies

As relevant here, ASIC issued two insurance policies to Telligen: one in effect from December 31, 2014, to January 1, 2016, and one in effect from January 1, 2016, to January 1, 2017. ECF No. 26-5 ¶¶ 1–2. The two policies were substantially the same. See id. ¶¶ 3–14. The policies included coverage for fiduciary claims made against Telligen or against "any person for whose Wrongful Acts [Telligen is] legally responsible." Id. ¶4; see id. ¶ 3–5.¹

The policies were claims-made policies, meaning that under the policies, ASIC agreed to "pay, on behalf of [Telligen], Loss from any Fiduciary Claim first made against [Telligen] during the Policy Period or applicable Extended Reporting Period, ... provided, that such Fiduciary Claim is reported to [ASIC] in accordance with" the policies' reporting provision. Id. ¶ 4.

As relevant here, Telligen was required to report to ASIC any Fiduciary Claim against Telligen, which the policies defined to include "a written notice of commencement of a fact-finding investigation by the U.S. Department of Labor ... against an Insured for a Wrongful Act ." Id. ¶ 5. The policies defined Wrongful Act as, with respect to Telligen's Employee Stock Ownership Plan:

(1) any breach of the responsibilities, duties or obligations imposed by ERISA upon fiduciaries of the Sponsored Plan committed or allegedly committed by an Insured in the Insured's capacity as such;

(2) any negligent act, error or omission in the Administration of any Plan committed or allegedly committed by an Insured in the Insured's capacity as such; or

(3) any other matter claimed against an Insured solely by reason of the Insured's service as a fiduciary of any Sponsored Plan .

Id. ¶ 6.

Under the policies, Telligen was obligated, "as a condition precedent to any right to coverage," to report claims, including any Fiduciary Claim, made against Telligen to ASIC. Id. ¶ 14. The policies required:

Such notice shall give full particulars of the Claim , including, but not limited to: a description of the Claim and Wrongful Act ; the identity of all potential claimants and any Insureds involved; a description of the injury or damages that resulted from such Wrongful Act ; information on the time, place and nature of the Wrongful Act ; and the manner in which the Insureds first became aware of such Wrongful Act .

Id.

B. Factual Background

Telligen is a privately held for-profit corporation headquartered in West Des Moines, Iowa. ECF No. 29 ¶ 35. On December 31, 2013, all shares of Telligen were sold to the Telligen, Inc. Employee Stock Ownership Plan (the Plan). Id. ¶ 36. The Plan provides retirement benefits to Telligen employees and is governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 – 1461. Id. ¶¶ 38–39. Bankers Trust Company of South Dakota served as the original trustee of the Plan. Id. ¶ 37.

On March 19, 2015, Telligen received a letter from the Department of Labor. Id. ¶ 40; see also Def.'s Ex. 10, Def.'s App. Supp. Def.'s Mot. Summ. J., ECF No. 24 at 323–24. The two-page letter stated the U.S. Department of Labor, Employee Benefits Security Administration, "has responsibility for administration and enforcement of Title I" of ERISA and that "Title I establishes standards governing the operation of employee benefit plans such as the Telligen, Inc. Employee Stock Ownership Plan." ECF No. 24 at 323. The letter went on to describe the Secretary of Labor's investigative authority:

Investigative authority is vested in the Secretory of Labor by Section 504 of ERISA, 29 U.S.C. 1134, which states in part: "The Secretary shall have the power, in order to determine whether any person has violated or is about to violate any provision of this title or any regulation or order thereunder to make an investigation, and in connection therewith to require the submission of reports, books, and records."

Id. The 2015 letter notified Telligen that the Department of Labor intended to conduct an on-site examination. Id. Finally, the letter requested Telligen make available for inspection documents related to the Plan's formation, finances, and administration and requested a Plan or corporate official be available for an "initial background interview." Id. at 324; ECF No. 29 ¶ 40. Telligen produced the documents requested by the Department of Labor, and after the on-site examination, Telligen had "a few brief communications later in 2015" with the Department of Labor. ECF No. 29 ¶ 45; see id. ¶ 44. Telligen did not notify ASIC of the 2015 letter in 2015 or 2016. See ECF No. 26-5 ¶ 29.

On December 27, 2016, Deborah Innis, a former Telligen employee, brought a lawsuit against Bankers Trust on behalf of the Plan and on behalf of similarly situated Plan participants. Id. ¶ 15; see Compl., Innis v. Bankers Trust Co. S. Dakota , No. 4:16-cv-00650-RGE-SBJ (S.D. Iowa Dec. 27, 2016), ECF No. 1. Innis alleged claims under ERISA related to the December 31, 2013 sale of shares of Telligen to the Plan. ECF No. 26-5 ¶ 17; Compl. ¶¶ 5–8, 14–25, 26–37, No. 4:16-cv-00650, ECF No. 1. Telligen notified ASIC of the Innis lawsuit on December 29, 2016. ECF No. 26-5 ¶ 26.

Telligen alleges it is obligated to defend and indemnify Bankers Trust under the terms of the Telligen, Inc. Employee Stock Ownership Trust, which Telligen and Bankers Trust entered into in connection with the December 31, 2013 sale. Id. ¶ 18. Telligen alleges it has paid, in accordance with the terms of the Trust, defense costs incurred by Bankers Trust in the Innis lawsuit. Id. ¶ 19.

On October 6, 2017, Telligen received a letter from the Department of Labor reporting the conclusion of the Department of Labor's investigation and Telligen's possible breach of fiduciary obligations to the Plan and violation of ERISA. ECF No. 26-5 ¶ 28; see also Def.'s Ex. 8, ECF No. 24 at 315–21. Telligen notified ASIC of the 2017 letter on October 9, 2017. ECF No. 26-5 ¶ 28. On October 25, 2017, Telligen notified ASIC of the 2015 letter. See id. ¶ 29.

In December 2017, ASIC denied Telligen coverage for the Innis lawsuit and the 2017 letter. Id. ¶ 30; see also Def.'s Ex. 11, ECF No. 24 at 325–43. ASIC reaffirmed its denial of coverage in February 2018. ECF No. 26-5 ¶ 32; see also Def.'s Ex. 13, ECF No. 24 at 347–49.

C. Procedural Background

Telligen brought this action alleging claims of breach of contract and bad faith and seeking, among other relief, "a declaratory judgment that [ASIC] is obligated to provide Fiduciary Liability Coverage for amounts Telligen is legally obligated to pay as defense expenses of Bankers Trust of South Dakota in the [Innis lawsuit] ... and for all other legal or equitable relief that is just." Am. Compl. ¶¶ 30–32, ECF No. 14. ASIC moves for summary judgment on all of Telligen's claims. ECF No. 23; see also Def.'s Br. Supp. Def.'s Mot. Summ. J., ECF No. 23-1. Telligen resists ASIC's motion and moves for partial summary judgment, seeking a declaration that Telligen "is entitled to coverage under the Policy for expenses paid to Bankers Trust arising from the ...