United States District Court, W.D. Kentucky, Louisville Division
MEMORANDUM OPINION AND ORDER
University of Louisville Foundation, Inc. filed a Third-Party
Complaint against R.H. Clarkson Insurance Group on August 27,
2018, in this declaratory judgment action. (DN 13). Plaintiff
Navigators Insurance Company has now filed a Motion to Strike
Defendant's Third-Party Complaint. (DN 23). Defendant has
responded in opposition (DN 28), and Plaintiff has replied
(DN 35). This matter is ripe for adjudication.
August of 2016, Plaintiff Navigators Insurance Company
(“Navigators”) negotiated and issued a
Not-For-Profit InNAVation Policy, which included Directors
and Officers coverage, to Defendant University of Louisville
Foundation, Inc. (“the Foundation”). (DN 1, at
¶¶ 11-12). The Policy was to provide coverage from
September 1, 2016 to September 1, 2017. (Id.). While
underwriting the Policy, Navigators required the Foundation
to complete and sign an “Application for Not-For-Profit
Directors and Officers Liability Insurance and Fiduciary
Liability Insurance.” (Id. at ¶ 13).
Jason Tomlinson (“Tomlinson”), the Assistant
Treasurer of the Foundation, signed and submitted the
Application on behalf of the Foundation and other Insureds on
August 29, 2016. (Id. at ¶ 14). Question 7.c.
of the Application asked whether any director or officer had
any knowledge of “any act, error, omission, fact,
incident, situation, unresolved dispute or any other
circumstance that is or could be the basis for a claim under
the proposed insurance policy?” (Id. At ¶
15). This Question further cautioned applicants to:
REPORT KNOWLEDGE OF SUCH INCIDENTS TO YOUR CURRENT INSURER
PRIOR TO YOUR CURRENT POLICY EXPIRATION. IT IS UNDERSTOOD AND
AGREED THAT ANY CLAIM ARISING OUT OF ANY SITUATION THAT IS OR
SHOULD HAVE BEEN REPORTED IN [7.c.] ABOVE IS EXCLUDED FROM
THE PROPOSED INSURANCE [(the “Knowledge
(Id.). Tomlinson answered “no” to this
question. (Id. at ¶ 15).
State Court Lawsuit
April of 2018, the Foundation and the University of
Louisville filed a lawsuit against: (1) Tomlinson, former
Assistant Treasurer of the Foundation; (2) James Ramsey,
former President of the University and of the Foundation; (3)
Kathleen Smith, former Assistant Secretary of the Foundation
and Chief of Staff for the University President; (4) Burt
Deutsch, former member of the Foundation's Board of
Directors; (5) Michael Curtin, former Assistant Treasurer of
the Foundation; and (6) Stites & Harbison, PLLC, former
counsel for the University and the Foundation. (Id. at
¶¶ 17-18). The lawsuit alleges that the Individual
Defendants knowingly caused the Foundation to spend endowment
funds at “an excessive and unsustainable rate, while
simultaneously authorizing the payment of excessive
compensation to Ramsey, Smith, and others associated with the
Foundation.” (Id. at ¶ 19).
offered to represent Defendants Tomlinson, Ramsey, Smith,
Deutsch, and Curtin in the lawsuit, while reserving both the
right to deny coverage for the claims in the lawsuit and to
seek rescission of the Policy. (Id. at ¶ 27).
The Individual Defendants are seeking advancement of
indemnification for their costs, expenses, and damages in
that lawsuit from the Foundation. (Id. at ¶
28). If the Foundation pays advancement or indemnification
for any or all of these Individual Defendants, it will seek
reimbursement from Navigators under the Policy. (Id.
at ¶ 29).
result of the underlying lawsuit, Navigators initiated this
action on July 6, 2018, against the Foundation, Tomlinson,
Ramsey, Smith, Deutsch, and Curtin, seeking a declaratory
judgment that its Policy with the Foundation is void and
rescinded or, alternatively, that it has no duty to defend
the Individual Defendants under the Policy. (See Id.
at ¶¶ 33-87). If the Court determines Navigators
had no duty to defend then Navigators seeks reimbursement for
costs already incurred in defending the Individual Defendants
in the underlying lawsuit. (Id. at ¶¶
88-92). Navigators does not assert any claim for monetary
damages against the Foundation.
bases its claims on alleged “material
misrepresentations” made in the Application for
Insurance submitted by Tomlinson on August 29, 2016.
(Id.at ¶¶ 35-36, 59). Navigators alleges
that the Foundation and its Officers, at the time the
Application was signed, had knowledge of facts and
circumstances that could form the basis of a claim under the
Policy, violating the “Knowledge Exclusion” from
Question 7.c. (Id. at ¶¶ 50-52).
Alternatively, Navigators argues that no duty to defend or
indemnify the Individual Defendants exists in the underlying
lawsuit based on various exclusions from the Policy.
(Id. at ¶¶ 70-75).
Foundation timely filed its Answer (DN 9) and shortly
thereafter filed a Third-Party Complaint against its
insurance broker, R.H. Clarkson Insurance Group
(“Clarkson”). (DN 13). The Foundation's
Third-Party Complaint alleges that Clarkson, an insurance
brokerage firm, is an agent for Navigators and that Richard
P. Lewis (“Lewis”), an insurance agent for
Clarkson, worked with Defendant Tomlinson on the
Foundation's Application for the policy issued on behalf
of Navigators. (Id. at ¶¶ 4-6). The
Third-Party Complaint states that from August 15 to August
29, 2016, Lewis “guided Tomlinson through the
application process for Navigators” and drafted two
warranty and representation statements for the Foundation to
execute as part of the Application. (Id. at ¶
Foundation further claims that in September of 2016,
Tomlinson became concerned that “an Auditor's
Report and the potential implications associated with
it” might threaten claims under its Policy with
Navigators and asked Lewis how the Auditor's Report would
affect coverage under the Policy. (Id. at
¶¶ 14-15). Lewis allegedly responded to Tomlinson
that such threatened claims from the Auditor's Report
were made public after the date of the Foundation's
warranty and representations letter and that no updated or
revised letter would be necessary. (Id. at ¶
17). The Third-Party Complaint alleges that Tomlinson relied
on Lewis' response and representations in not revising
the letter and in not providing Navigators with additional
notice of potential claims related to the Auditor's
Report. (Id. at ¶ 13). Since the Foundation
believes Navigators' allegations in this ...