United States Liab. Ins. Co. v. Krawatsky

• Decision Date: 24 March 2022
• Docket Number: CIVIL JKB-21-0538
• Parties: UNITED STATES LIABILITY INSURANCE COMPANY, Plaintiff, v. STEVEN KRAWATSKY, et al, Defendants.
• Court: U.S. District Court — District of Maryland

UNITED STATES LIABILITY INSURANCE COMPANY, Plaintiff,
v.
STEVEN KRAWATSKY, et al, Defendants.

CIVIL No. JKB-21-0538

United States District Court, D. Maryland

March 24, 2022

MEMORANDUM

James K. Bredar Chief Judge

In this matter, Plaintiff United States Liability Insurance Company ("USLIC") seeks a declaratory judgment as to whether it is required to defend and indemnify Defendants Steven Krawatsky, David Finkelstein, and Shoresh, Inc. (collectively with Finkelstein, the "Shoresh Defendants"), in relation to related tort lawsuits presently being litigated in Maryland state court (the "Underlying Lawsuits"). USLIC also seeks to clarify the relationship of those duties, if any, to the duties owed by Defendant Markel Insurance Company ("Markel") who provides parallel insurance coverage to the Shoresh Defendants. Presently pending before the Court are a number of Motions seeking various dispositions of this action. USLIC has filed a Motion for Summary Judgment (ECF No. 32) seeking judgment in its favor on all counts and the issuance of a declaratory judgment that it has no duty to defend or indemnify Krawatsky, Finkelstein, or Shoresh; or, in the alternative, that Markel owes such duties to Finkelstein and Shoresh and that USLIC's insurance policies are excess of those provided by Markel. (See ECF No. 32-1 at 1-2.) Krawatsky has filed two dispositive Motions which collectively seek to dismiss or stay this matter

1

pending the disposition of the Underlying Lawsuits', or to have this Court declare that USLIC has a duty to defend and indemnify Krawatsky. (ECF Nos. 12, 54.) The Shoresh Defendants have filed a Motion to Dismiss or Alternative Motion to Stay, seeking substantive dismissal of the Amended Complaint or, alternatively, a stay pending disposition of the Underlying Lawsuits. (See ECF No. 27.) In addition to his independent dispositive Motions, Krawatsky has also filed a Motion to Incorporate that seeks to adopt the arguments raised by the Shoresh Defendants in favor of dismissal or a stay. (ECF No. 44.) Last, though it has not filed any affirmative motions, Markel opposes the entry of summary judgment against it. (ECF No. 51.)

Collectively, these Motions raise five substantive issues: (1) whether this Court retains jurisdiction over this matter given the pendency of the Underlying Lawsuits; (2) whether this matter should be stayed pending resolution of the Underlying Lawsuits; (3) whether USLIC owes a duty to defend Krawatsky or the Shoresh Defendants in the Underlying Lawsuits; (4) whether USLIC owes a duty to indemnify Krawatsky or the Shoresh Defendants; and (5) whether USLIC owes those duties in conjunction with or in excess to the same duties owed by Markel. After consideration of the pending Motions, the Court concludes: (1) that it shall retain jurisdiction over this matter; (2) that resolution of USLIC's duty to indemnify and whether that duty is in excess of Market's shall be stayed pending resolution of the Underlying Lawsuits; that (3) USLIC does not owe Krawatsky a duty to defend the Underlying Lawsuits; (4) USLIC owes the Shoresh Defendants a duty to defend in the Underlying Lawsuits; and (5) USLIC's duty to defend the Shoresh Defendants is excess of Markel's duty to defend the Shoresh Defendants in the Underlying Lawsuits.

In line with these conclusions, a separate Order shall issue granting in part Krawatsky's Motion to Dismiss or Stay (ECF No. 12); granting in part the Shoresh Defendant's Motion to

2

Dismiss or Stay (ECF No. 27); granting in part USLIC's Motion for Summary Judgment (ECF No. 32); granting in part Krawatsky's Motion to Incorporate (ECF No. 44); and denying Krawatsky's Motion for Summary Judgment (ECF No. 54).

I. Background

The pertinent facts at this stage are largely undisputed, though many are unproven. allegations made in the Underlying Lawsuits that are assumed true for purposes of the pending motions.^[1] Finkelstein, through Shoresh Inc., owns and operates Camp Shoresh, which provides "year-round Jewish education programming for children, teens, college students, and adults." (Am. Compl. ¶ 10, ECF No. 17.) Among these programs was a summer day camp available for children ages three through sixteen. (Id.) Through at least 2015, Krawatsky was a counselor at Camp Shoresh. (Id.; see also Underlying Countercompl. ¶ 9, ECF No. 32-6.)

A. The Underlying Lawsuit

In the years following 2015, Krawatsky was accused of sexually abusing three children, S.B., B.A., and O.B., during the time that they attended Camp Shoresh. (Underlying Countercompl. ¶¶ 38-173.) Investigations by Maryland Child Protective Services ("CPS") ultimately concluded that these allegations were "unsubstantiated." (Id. ¶¶ 222, 226, 293.) On October 16, 2018, Krawatsky filed a complaint against the parents of S.B. and B.A. in the Circuit Court for Montgomery County, Maryland alleging defamation arising out the sexual abuse allegations. (See ECF No. 33 at 2 n.l.) The Complaint also named as a defendant Chaim Levin, a blogger who had documented the allegations made against Krawatsky and the associated CPS investigations. (See Underlying Countercompl. ¶¶ 296-313.)

3

In February of 2019, the defendants in the Montgomery County lawsuit filed a countercomplaint against Krawatsky and the Shoresh Defendants (see ECF No. 32-3), which was subsequently dismissed. (ECF No. 33 ¶¶ 6-7.) Following dismissal of their countercomplaint, the parents of S.B. and B.A. filed a separate lawsuit against Krawatsky and the Shoresh Defendants on behalf of both themselves and their children. (ECF No. 32-4.) This lawsuit, along with a lawsuit brought by the parents of O.B., were consolidated with the case originally filed by Krawatsky. (See ECF No. 33 ¶¶ 7, 11; see also ECF No. 32-5 (O.B. Complaint).) As part of consolidation, the parents of S.B., B.A., and O.B., along with Chaim Levin, filed an Amended Counter Complaint/Complaint (the "Underlying Countercomplaint"), which the Montgomery County Court ordered "entered as the operative pleading for the claims of these parties." (See ECF No. 33 ¶ 14; see also Underlying Countercompl.) The allegations in the Underlying Countercomplaint encompass the universe of the allegations made in the Underlying Lawsuits. (See ECF No. 27 at 1-2 ("The current operative pleading for the purposes of this matter is the [Underlying Countercomplaint]."); ECF No. 33 ¶¶ 14-15.)^[2]

The Underlying Countercomplaint brings claims against Krawatsky for Assault, Battery, False Imprisonment, and Invasion of Privacy. (Underlying Countercompl. ¶¶ 356-380, 483-508.) It further brings claims against the Shoresh Defendants for Negligence, Invasion of Privacy, and Intentional Infliction of Emotional Distress. (Underlying Countercompl. ¶¶ 399-482, 493-508.) These lawsuits were tendered to USLIC, who agreed to provide a defense under reservation of rights to all three Defendants. (Am. Compl. ¶¶ 42, 43.) The defense with respect to the Shoresh

4

Defendants has been provided on a pro-rata basis with Markel, who has agreed to provide a defense under a General Commercial Liability Policy (the "GCL Policy"). (See ECF No. 32-8 (letter confirming Markel's intention to defend the Shoresh Defendants).) USLIC has represented that its provision of a defense to Krawatsky and the Shoresh Defendants is contingent on this declaratory judgment action. (Am. Compl. ¶¶ 42-43.)

B. The USLIC Insurance Policy

The central policy in this declaratory judgment action is a USLIC Non-Profit Directors and Officers Liability Policy (the "Policy") held by Shoresh, Inc. (See Policy, ECF No. 32-7.) Shoresh Inc. is referred to in the Policy as the Organization. (See Policy at 8.)^[3] The Policy contains two pertinent and independent coverage parts: Coverage Part A. Non Profit Directors and Officers Liability (the "D&O Section"); and Coverage Part B. Employment Practices Liability (the "EPL Section"). For purposes of the pending Motions, the most relevant portions of the D&O and EPL Sections are the following.

1. The D&O Section

Under the D&O Section of the Policy, USLIC:

[W]ill pay on behalf of the Insured Loss in excess of the RETENTION, not exceeding the Limit of Liability for which this Coverage Part applies, that, the Insured shall become legally obligated to pay because of Claims first made against the Insured during the Policy Period or during the Extended Reporting Period, if applicable, for Wrongful Act arising solely out of an Insured's duties on behalf of the Organization.

(Policy at 6.) By its plain terms, the D&O Section only provides coverage for certain Wrongful Acts, which include:

[A]ny actual or alleged act, error, omission, misstatement, misleading statement, neglect or breach of duties, or Personal Injury Act committed or allegedly committed;

5

(1) by the Organization; or

(2) by the Individual Insureds arising solely from duties conducted on behalf of the Organization or asserted against an Individual Insured because of (1) above

(Policy at 9.) The D&O Section further elucidates these definitions, providing that Individual Insureds include "directors, trustees, officers, Employees, or committee members of the Organization," that Employees are "any natural person whose labor or service is engaged by and directed by the Organization while performing duties related to the conduct of the Organization's business" and that Personal Injury Acts are acts of "actual or alleged malicious prosecution, invasion of privacy, wrongful entry or eviction, libel, slander or defamation." (Policy at 7-8.)

Coverage for Wrongful Acts is limited by several Exclusions, which outline circumstances under which USLIC "shall not be liable to make payment for Loss or Defense Costs in connection with any Claim made against the Insured." (Policy at 9.) Relevant here are Exclusions A, B, and H. Exclusion A, which is modified by a Personal Injury Exclusion Endorsement, excludes coverage...