Westchester Fire Ins. Co. v. Wallerich
| Decision Date | 25 September 2007 |
| Docket Number | Civ. No. 07-2145 (RHK/AJB). |
| Citation | 527 F.Supp.2d 896 |
| Parties | WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation, Plaintiff, v. Douglas WALLERICH, Patrick Lowther, and Sharon O'Reilly, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Jeffrey M. Thompson, Dorothy M. Jaworski Paxton, Meagher & Geer, PLLP, Minneapolis, MN, for Plaintiff.
Paula D. Vraa, Larson King, LLP, St. Paul, MN, for Defendants.
This case involves an insurance-coverage dispute. Plaintiff Westchester Fire Insurance Company ("Westchester") filed this declaratory-judgment action against Defendants Douglas Wallerich, Patrick Lowther, and Sharon O'Reilly, seeking a determination as to whether it must provide coverage to them in defending an underlying lawsuit. Westchester also seeks reimbursement of the expenses it has paid thus far in defense of that lawsuit. Defendants answered and counterclaimed for coverage fees for Westchester's initial denial of coverage and for defending this declaratory-judgment action. Westchester now moves for summary judgment on the grounds that the "Insured v. Insured" exclusion in the insurance policy precludes coverage. For the reasons set forth below, the Court will grant Westchester's Motion in part.
In 1996, Defendants formed the partnership Jewel of the Mississippi, LLP ("Jewel Partnership") with Mark Fayette, Shayna Fayette, and others, for the purpose of acquiring and developing the Jewel Nursery property in Lake City, Minnesota. (Wallerich Aff. ¶ 7.) Mark Fayette and Shayna Fayette each owned 9.3 percent of the partnership. (Id.) Mark Fayette and Shayna Fayette are married, but each had separate voting rights and partnership benefits. (Id.) In addition, each made separate cash contributions and contributed separately to a convertible-debt program. (Id. ¶ 8.)
In July 2002, the Jewel Partnership and Hale Irwin Golf Properties, LLC ("HIGP") formed the Residences at the Jewel, LLC ("the Residences") to develop the property for commercial and residential use. The Jewel Partnership owned an 85% interest in the Residences and HIGP owned the remaining 15%.1 (Id. ¶ 9.) In addition to being investors, Mark Fayette and Defendants held various officer and director positions within the Residences from July 2002 until its dissolution on December 28, 2006. Shayna Fayette, however, was never an officer, director, or employee of the Residences. (Id. Ex. B.)
On September 20, 2006, Wallerich, in his capacity as Chief Manager of the Residences, filed an application with Westchester for a business and management indemnity insurance policy. Westchester issued the Policy to the Residences, with effective dates of October 19, 2006 to October 19, 2007. (Id.) Two sections of the Policy are relevant to the issues in this case: the "General Terms and Conditions" section and the "Directors, Officers, and Company Indemnity Coverage" ("D & O") section. (Bigger Aff. Ex. 1 at 007, 013.)
The General Terms and Conditions (Id. at 007). The Definitions section of the General Terms and Conditions explains that:
Whenever used in this Policy, the terms that appear below in boldface type shall have the meanings set forth in this Definitions subsection of the General Terms and Conditions. However, if a term also appears in boldface type in a particular Coverage Section and is defined in that Coverage Section, that definition shall apply for purposes of that particular Coverage Section. Terms that appear in boldface in the General Terms and Conditions but are not defined in this Definitions subsection and are defined in other Coverage Sections of the Policy shall have the meanings ascribed to them in those Coverage Sections.
(Id. (emphasis added).)
Finally, the General Terms and Conditions section contains a clause dealing with "spouses," which provides in pertinent part:
The ... spouses ... of natural persons who are Insureds shall be considered Insureds under this Policy; provided, however, coverage is afforded to such . . . spouses ... only for a Claim arising solely out of their status as such and, in the case of a spouse ... where the Claim seeks damages from marital community property, jointly held property or property transferred from the natural person who is an Insured to the spouse. . . .
(Id. at 010 (emphases added).)
The insuring clause of the D & O section provides that: "Insurer shall pay the Loss of the Directors and Officers for which the Directors and Officers are not indemnified by the Company and which the Directors and Officers have become legally obligated to pay by reason of a Claim ... for any Wrongful Act taking place prior to the end of the Policy Period." (Bigger Aff. Ex. 1 at 013.)
"Loss means damages, judgments, settlements, pre-judgment or post-judgment interest awarded by a court, and Costs, Charges and Expenses incurred by the Directors and Officers under the Insuring Clause[]...." (Id. at 014.) "Cost, Charges, and Expenses means reasonable and necessary legal costs, charges, fees and expenses incurred by any of the Insureds in defending Claims...." (Id. at 013-014.) Claim is defined in pertinent part as "a civil proceeding against any Insured seeking monetary damages, or non-monetary or injunctive relief, commenced by the service of a complaint or similar pleading." (Id. at 013.) "Wrongful act means any actual or alleged error, omission, misleading statement, misstatement, neglect, breach of duty or act allegedly committed or attempted by: any of the Directors or Officers while acting in their capacity as such...." (Id.)
The D & O section defines "Insureds" as "the Company and the Directors and Officers." (Id. at 014.) Finally, the D & O coverage section contains an "Insured v. Insured" exclusion, which provides:
Insurer shall not be liable for Loss under this Coverage Section on account of any Claim:
* * * *
e) brought or maintained by, on behalf of, in the right of, or at the direction of any Insured in any capacity, any Outside Entity or any person or entity that is an owner of or joint venture participant in any Subsidiary in any respect and whether or not collusive, unless such Claim:
(i) is brought derivatively by a securities holder of the Parent Company and is instigated and continued totally independent of, and totally without the solicitation, assistance, active participation of, or intervention of, any Insured[.]
(Id. at 016.)
On February 1, 2007, Mark Fayette and Shayna Fayette, individually and on behalf of the Residences, filed a lawsuit in Minnesota state court against Defendants alleging breach of various fiduciary duties in connection with the management and auction of certain residential and commercial properties held by the Residences. (Levine Decl. Ex. 1.) Defendants timely notified Westchester of this lawsuit and sought coverage for their defense. (Wallerich Aff. ¶ 1.) In response, Westchester denied coverage and refused to defend Defendants. (Id. ¶¶ 2-3.) Defendants then hired coverage counsel who urged Westchester to reconsider its position. (Id. ¶ 2.) On April 26, 2007, Westchester changed its position; it agreed to defend Defendants against the Fayette lawsuit, subject to a full reservation of rights, including the right to file a declaratory-judgment action, challenging its obligation to defend Defendants in that case. (Id. ¶ 5.)
Thereafter, Westchester filed this declaratory-judgment action, seeking a determination that it owes no coverage to Defendants. Westchester also asserts that it is entitled to reimbursement for the fees and costs it has incurred to date in defending the underlying Fayette action. Defendants have counterclaimed for coverage fees, which they have incurred as a result of Westchester's initial denial of coverage as well as for defending this declaratory-judgment action.
Summary judgment is proper if, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed. Celotex, 477 U.S. at 322, 106 S.Ct. 2548; Mems v. City of St. Paul, Dep't of Fire & Safety Servs., 224 F.3d 735, 738 (8th Cir. 2000). The Court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. Graves v. Ark. Dep't of Fin. & Admin., 229 F.3d 721, 723 (8th Cir.2000); Calvit v. Minneapolis Pub. Schs., 122 F.3d 1112, 1116 (8th Cir.1997). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir.1995).
There is no dispute that Mark Fayette and Defendants are "Insureds" under the Policy, as each held officer and/or director positions within the Residences. There is a dispute, however, as to whether Shayna Fayette is an "Insured" under the Policy (as the spouse of Mark Fayette), and hence, whether the "Insured v. Insured" exclusion is applicable here.
State law governs the interpretation of insurance policies.2 Nat'l Union Fire Ins. Co....
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