United States District Court, W.D. Kentucky, Paducah Division
C.A. JONES MANAGEMENT GROUP, LLC, GLOBAL BOOK RESELLERS, LLC, TECHNOLOGY ASSOCIATES, INC., CHARLES A. JONES and SARAH C. JONES, Plaintiffs,
SCOTTSDALE INDEMNITY COMPANY, Defendant.
MEMORANDUM OPINION AND ORDER
THOMAS B. RUSSELL, Senior District Judge.
This matter comes before the Court upon the motion for reconsideration filed by Scottsdale Indemnity Company, (Docket No. 30), to which Plaintiffs C.A. Jones Management Group, LLC, Global Book Resellers, LLC, Technology Associates, Inc., Charles A. Jones, and Sarah C. Jones responded, (Docket No. 35), and Scottsdale replied, (Docket No. 42). Fully briefed, this matter stands ripe for adjudication. Because the Court's Memorandum Opinion failed to address the arguments set forth in Scottsdale's surreply, it will do so now. For the reasons set forth below, the Court will GRANT Scottsdale's motion for reconsideration, (Docket No. 30).
The Court will briefly revisit the issues raised in this insurance coverage dispute. Plaintiffs allege that Scottsdale breached an insurance contract by failing to provide coverage in defense of two federal court actions: David Griffin v. Charles A. Jones, Sarah C. Jones, C.A. Jones Management Group, LLC, Global Book Resellers, LLC, Technology Associates, Inc., and John Doe Entities 1-10, Civil Action No. 5:12-cv-00163-TBR, and Robert H. Waldschmidt, Trustee v. C.A. Jones Management Group, LLC, Charles A. Jones, and Scott Wright, USBC MDTN, Adv. Proc. No. 3:13-ap-90101. After Scottsdale denied their claim, Plaintiffs filed a preliminary injunction requesting an order requiring Scottsdale to provide legal representation and coverage for these actions.
At issue was the Business and Management Indemnity Policy that Scottsdale issued to C.A. Jones Management Group, LLC ("C.A. Jones") and several of its affiliates. The Policy provided coverage for the benefit of the entities' directors and officers ("D&O coverage") and included payment for:
Loss of the Directors and Officers for which the Directors and Officers have become legally obligated to pay by reason of a Claim first made against the Directors and Officers during the Policy Period... and reported to the Insurer pursuant to Section E.1 herein, for any Wrongful Act taking place prior to the end of the Policy Period.
This Policy initially ran from July 1, 2011, to July 1, 2012 ("the 7/1/11 Policy"). A second Policy was issued to C.A. Jones on July 1, 2012 ("the 7/1/12 Policy"). Both the 7/1/11 and the 7/1/12 Policies are "claims-made" policies; that is, in order to be covered, a claim must be made and reported during the applicable Policy Period for any alleged wrongful act that occurred prior to the end of the Policy Period. The Notification section requires the Insureds to notify the Insurer of any claim no later than sixty days after the end of the Policy Period. See Docket No. 17-1 at 28.)
The claim at issue concerns a series of lawsuits that arose from the soured business relationship of David Griffin and Charles Jones. On February 28, 2012, Griffin first sued C.A. Jones Management, Charles Jones, Sarah Jones, and affiliated companies for securities fraud, breach of fiduciary duty, fraud, misappropriation, breach of contract, and unjust enrichment. ( See Case No. 5:12-cv-00033-TBR, hereinafter "Griffin I.") Griffin then filed a second lawsuit against Plaintiffs on November 2, 2012, alleging securities fraud, fraud, breach of fiduciary duties, misappropriation, and unjust enrichment. ( See :12-cv-00163-TBR, hereinafter "Griffin II.") A third lawsuit, filed March 3, 2013, arises from similar facts to those alleged in Griffin II. ( See Robert H. Waldschmidt, Trustee v. C.A. Jones Management Group, LLC, Charles A. Jones, and Scott Wright, UBSC MDTN, Adv. Proc. No. 3:13-ap-90101, hereinafter "the CBR Trustee case").
The initial question before the Court concerned whether coverage existed. Scottsdale contended that the Policy did not cover Plaintiffs' claims based on Griffin I, Griffin II, or the CBR Trustee case, as these claims were not reported during the Policy Period when they were first made. The Court concluded that Griffin I, Griffin II, and the CBR Trustee cases constituted a single claim, as the cases shared a common nexus of facts, circumstances, situations, events, transactions, and causes and thus constituted an interrelated wrongful act. This claim was required to be reported to Scottsdale during the Policy Period when first alleged. ( See Docket No. 17-1 at 27-8, D&O Policy, ¶ D.3(a).) The claim-that is, the civil proceeding against the insureds-was deemed to have been first made on February 28, 2012, when the Griffin I complaint was filed. ( See Docket No. 17-1, Endorsement No. 15; Docket No. 17-2, Endorsement No. 16 ("A Claim shall be deemed to have been first made against the Insureds on the date an Insured who is an executive officer, director or general counsel becomes aware of such Claim.").) Because the claim arose prior to the commencement of the 7/1/2012 Policy, any coverage would necessarily arise under the 7/1/2011 Policy.
As the Court explained in its prior Memorandum Opinion, the Policy unequivocally requires Insureds to comply with the sixty-day notification period "as a condition precedent to the rights to payment." (Docket No. 17-1 at 28, D&O Coverage Section, ¶ E.1.) Accordingly, the Policy required Plaintiffs to have made these claims within sixty days after the end of the 2011 Policy Period. Although documentary evidence details each communication from Plaintiffs notifying, reporting, or advising Scottsdale of potential claims related to this litigation, none reflects that Plaintiffs timely reported the Griffin I claim. ( See Docket No. 17-5 at 5-6.) Rather, Scottsdale was notified of the claim on September 25, 2012, more than sixty days after the end of the Policy Period and after the case's dismissal. ( See Docket No. 19-1 at 32.) This date was neither as soon as practicable nor within the sixty-day window following the 2011 Policy Period.
a. The reasoning of Trek and of Tussey
In its previously entered Memorandum Opinion, the Court denied Plaintiffs' motion for preliminary injunction. The Court determined that various Policy exclusions and limitations likely precluded coverage of the claims, leaving Plaintiffs unable to demonstrate the likelihood of success on the merits requisite to a preliminary injunction. As the prevailing party, Scottsdale offers no criticism of the ultimate denial of the Plaintiffs' motion. However, the Company takes issue with the Court's threshold determination that the Claims were covered at all-an initial question that must be resolved before considering any limitations or exclusions.
The discussion hinged upon the distinction between an occurrence-based policy and a claimsmade policy. Scottsdale's claims-made policy provided coverage for any claim made against the insureds during a certain period, regardless of when the incident giving rise to the claim actually occurred. "Claims-made... policy are essentially reporting policies. If the claim is reported to the insurer during the policy period, then the carrier is legally obligated to pay; if the claim is not reported during the policy period, no liability attaches." Trek Bicycle Corp. v. Mitsui Sumitomo Ins. Co., Ltd., 2006 WL 1642298, at *2 (W.D. Ky. June 7, 2006). Such a ...