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Ace Capital Limited, A Corporate Capital Provider Subscribing To v. Morgan Waldon Insurance Management

November 28, 2011

ACE CAPITAL LIMITED, A CORPORATE CAPITAL PROVIDER SUBSCRIBING TO POLICY NO. ME10147, ISSUED AT LLOYD‟S, LONDON, PLAINTIFF,
v.
MORGAN WALDON INSURANCE MANAGEMENT, LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Robert C. Mitchell United States Magistrate Judge

MEMORANDUM OPINION

Plaintiff, ACE Capital Limited, a Corporate Capital Provider at Lloyd‟s, London, subscribing to Policy No. ME10147 ("ACE"), brings this action seeking a declaratory judgment that it owes no duty to provide a defense or indemnification with respect to two lawsuits that have been filed against the Defendants in federal courts in Ohio. The Defendants are Morgan Waldron Insurance Management, LLC ("MWIM"), Beverly Morgan, James Waldron, American Workers Master Benefit Plan, Inc. (the "Plan Sponsor"), American Workers Master Benefit Trust-UWUA Local 270 (the "Trust"), American Workers Master Benefit Plan for Employees of FirstEnergy Corporation represented by Local 270 of UWUA (the "Local 270 Plan"), PNC Investments, LLC ("PNC Investments") and the PNC Financial Services Group, Inc. ("PNC Financial"). ACE notes that it has provided a defense to Defendants in those actions pursuant to a reservation of rights.

Currently pending before the Court for disposition are cross-motions for summary judgment. For the reasons that follow, Plaintiff‟s motion will be granted and Defendants‟ motion will be denied. Because Plaintiff is not required to provide a defense to Defendants in the underlying suits, it also owes them no duty of indemnification. Therefore, judgment will be entered in Plaintiff‟s favor and against Defendants.

Facts

MWIM is an insurance agency that establishes and administers employee health benefit plans. (Policy Application at TPA Supplement.)*fn1 Beverly Morgan is the President and one of the founding members of MWIM, and James Waldron is the Chief Executive Officer and another of the founding members of MWIM. (Am. Compl. ¶¶ 3-4; Answer ¶¶ 3-4.)*fn2 MWIM contracted with several unions, including UWUA Local 270 and IBEW Local 245, whose membership consists of workers at FirstEnergy in Ohio, to solicit, negotiate, establish and administer certain union members‟ employee health benefit plans, which included medical, surgical, prescription drug, and hospital benefits. (ECF No. 34 Ex. 4 at 4-5.)

In 2010, MWIM sought to procure Insurance Professionals Errors and Omissions ("E&O") coverage from an agent of Lloyd‟s of London. (Am. Compl. ¶ 48; Answer ¶ 48; Policy Application at TPA Supplement.) The Policy Application identifies Defendants MWIM, Morgan and Waldron, but contains no mention of the Plan Sponsor, the Trust, the Plan or the PNC entities.

MWIM completed an application for coverage and submitted it on March 2, 2010. (Am. Compl. ¶¶ 48, 50, 51 & Ex. K.) Policy No. ME10147 (the "Policy") was issued to MWIM as the Named Insured with an effective date of March 10, 2010. (Am. Compl. ¶¶ 34, 35; Answer ¶¶ 34, 35; Policy at Declarations Page.*fn3 ) ACE is a lead corporate capital provider and an underwriter of Policy No. ME10147, issued by Lloyd‟s, London, which conducts the business of underwriting insurance policies out of offices located in London, England. It has standing to bring this suit as the lead corporate capital provider and underwriter of the Policy. (Am. Compl. ¶ 2; Answer ¶ 2.)

The Policy provides professional liability insurance for claims arising out of any "Wrongful Act of the Insured in the performance of or failure to perform Professional Services." Coverage extends to MWIM as the "Named Insured" and to other persons or entities which meet its definition of "Insureds" on a claims-made-and-reported basis during an initial policy period of March 10, 2010 through March 10, 2011, and a retroactive date of March 10, 2006, and during extensions through March 26, 2012. (Am. Compl. ¶¶ 34-35; Policy §§ I.1.A, III.).

The Policy defines "Insureds," in relevant part, as

1. The Named Insured designated in Item 1. of the Declarations or by endorsement to this Policy;

2. Any person who is, was or hereinafter becomes a partner, principal, officer, director, or member of the Named Insured, but solely with respect to Professional Services rendered on behalf of the Named Insured;

3. Any Subsidiary which meets the following condition[:]

If during the Policy Period the Named Insured acquires or creates a Subsidiary, other than a joint venture, the Subsidiary shall be considered an Insured under this Policy but only for Wrongful Acts and Employment Practices Wrongful Acts committed after the date of acquisition or creation. The Named Insured shall give written notice to us of its acquisition or creation of the Subsidiary as soon as practicable but in no event more than sixty (60) days after the effective date of such acquisition or creation, together with such information that we may require.

Upon receipt of such notice, we may at our sole option agree to appropriately endorse this Policy subject to any additional premium and/or changed terms and conditions. If the Named Insured fails to provide such notice and/or requested information to us, coverage otherwise afforded under this provision to such newly acquired or created Subsidiary shall terminate sixty (60) days after the effective date of such acquisition or creation. (Am. Compl. ¶ 38; Answer ¶ 38; Policy §§ III.A.1, A.2, A.3.) The Policy further defines "Subsidiary" as "any entity in which the Insured owns either directly or indirectly 50% or more of the outstanding voting stock." (Policy § VII.M)

The Policy states that:

We will not defend any Claim or pay any Damages or Claim Expenses based upon, arising out of, directly or indirectly relating to or in any way involving:

1. A dispute concerning the payment of fees, commissions or other remuneration to an Insured.

3. Insolvency, bankruptcy, liquidation, receivership, rehabilitation or financial inability of the following, including but not limited to the failure, inability or unwillingness to pay Claims, losses or benefits due to the insolvency, liquidation or bankruptcy of:

a. Any insurance company; or

b. Any reinsurer; or

c. Employee benefit plan; or

d. Any self-insured program; or

e. Any trust; or

f. Any risk retention group; or

g. Any risk purchasing group.

8. Theft, conversion, misappropriation, commingling, embezzlement, or defalcation of funds or other property.

9. Gaining in fact of any personal profit or advantage to which the Insured is not legally entitled.

14. Any liability the Insured assumes under any contract or agreement or the breach of any contract, warranty, guarantee or promise unless such liability would have been attached to the Insured even in the absence of such contract, agreement, warranty, guarantee or promise. (Am. Compl. ¶ 43; Answer ¶ 43; Policy §§ II.A.1, A.3, A.8, A.9, A.14.)

The Policy sets the parameters for recoverable Damages as follows:

Damages means any amount that the Insured shall be legally required to pay because of judgments rendered against the Insured, or for settlements negotiated with our written consent. Damages will include the five percent (5%) civil penalties imposed on an Insured as a fiduciary under Section 502(i) of the Employee Retirement Income Security Act of 1974 (more commonly referred to as "ERISA") or its amendments for violations of section 406 of the Act, or the twenty percent (20%) penalty imposed on an Insured as a fiduciary under Section 502(i) of ERISA as amended, but only if the violations are the result of a Wrongful Act as defined in the Policy and committed solely in the conduct of Professional Services as stated on the Declarations Page and in the Policy. (Am. Compl. ¶ 42; Answer ¶ 42; Policy § VII.E, via Endorsement dated 1/08.)

The Policy specifically provides that "Damages do not include" various forms of remuneration, including, in relevant part:

a. Restitution, sanctions, taxes or multiplied damages; ***

d. Monies paid to the Insured as fees or expenses for Professional Services rendered which are to be reimbursed or discharged as part of a judgment or settlement;

g. Medical benefits, whether in the form of direct payments of medical costs or payment of insurance premiums to maintain medical coverage, or contributions to any medical insurance of any type.

i. Any other damages, awards, payments of sums which may be deemed uninsurable under the law pursuant to which this Policy shall be construed. (Am. Compl. ¶ 42; Answer ¶ 42; Policy § VII.E, via Endorsement dated 1/08.)

Section II.B. 5 of the Policy provides that the insurer "will not defend any Claim or pay any Damages or Claim Expenses based upon, arising out of, directly or indirectly relating to or in any way involving . [a]ny suit or action seeking non-pecuniary relief or any suit or action seeking relief or redress in any form other than money Damages." (Am. Compl. ¶ 42; Answer ¶ 42; Policy § II.B.5.)

The Policy has limits of $1,000,000 per Claim and a $3,000,000 General Aggregate Limit with a deductible of $10,000 for each Claim. (Am. Compl. ¶ 36; Answer ¶ 36; Policy at Declarations Page.) The Policy defines a "claim" as "an oral or written demand received by the Insured for money.." (Am. Compl. ¶ 40; Answer ¶ 40; Policy § VII.B.)

The Policy defines "Professional Services," in relevant part, as follows: Professional Services means the marketing, sale or servicing of insurance products, provided they are performed as part of and in conjunction with services the Insured performs for others in their capacity as a licensed agent or broker, general agent, managing general agent or underwriter, program administrator, including a wholesale broker or excess and surplus lines broker for property/casualty, life/health and surety products. Professional Services also includes:

1. Insurance consulting;

3. Employee benefits counseling;

9. All other operations as designated in Item 7. of the Declarations Page. (Am. Compl. ¶ 39; Answer ¶ 39; Policy § VII.K.) Item 7 of the Declarations Page of the Policy specifies that the Professional Services rendered by MWIM are "Insurance Agent/Broker" and "Third Party ...


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