Opinion
C.A. No.: N14C-10-019 EMD
11-30-2015
AMERITRANS CAPITAL CORPORATION, Plaintiff/Counterclaim Defendant, v. XL SPECIALTY INSURANCE COMPANY, Defendant/Counterclaim Plaintiff.
Edward M. McNally, Esquire, Meghan A. Adams, Esquire, Morris James LLP, Wilmington, Delaware, Attorneys for Plaintiff/Counterclaim Defendant Ameritrans Capital Corporation. Carmella P. Keener, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware and Stacey L. McGraw, Esquire, Brandon D. Almond, Esquire, Troutman Sanders LLP, Washington, District of Columbia, Attorneys for Defendant XL Specialty Insurance Company.
TRIAL BY JURY OF TEWLVE DEMANDED Upon Consideration of the Plaintiff/Counterclaim Defendant Ameritrans Capital Corporation's Motion for Judgment on the Pleadings
GRANTED
XL Specialty Insurance Company's Cross-Motion for Judgment on the Pleadings
DENIED Edward M. McNally, Esquire, Meghan A. Adams, Esquire, Morris James LLP, Wilmington, Delaware, Attorneys for Plaintiff/Counterclaim Defendant Ameritrans Capital Corporation. Carmella P. Keener, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware and Stacey L. McGraw, Esquire, Brandon D. Almond, Esquire, Troutman Sanders LLP, Washington, District of Columbia, Attorneys for Defendant XL Specialty Insurance Company. DAVIS, J.
INTRODUCTION
This is a civil action concerning whether a corporation's insurance policy provides coverage for costs associated with shareholder derivative demands. Specifically, Plaintiff and Counterclaim Defendant Ameritrans Capital Corporation ("Ameritrans") seeks to recover costs of investigation under an insurance policy issued by Defendant and Counterclaim Plaintiff XL Specialty Insurance Company ("XL") related to two shareholder derivative demands made by Robert Ammerman in November 2012 and December 2013 (respectively, the "November 2012 Demand" and the "December 2013 Demand"). Mr. Ammerman made the November 2012 Demand when he was just a preferred stockholder. When Mr. Ammerman made the December 2013 Demand, however, Mr. Ammerman was both a director and an officer of Ameritrans, in addition to being a preferred stockholder.
XL insures Ameritrans under Management Liability and Company Reimbursement Insurance Policy No. ELU 123910-11 (the "XL Policy"). Ameritrans and XL disagree about whether the XL Policy provides coverage for the investigation costs associated with the November 2012 Demand and the December 2013 Demand.
On October 2, 2014, Ameritrans filed its complaint (the "Complaint") against XL. Through the Complaint, Ameritrans asserts a claim for breach of contract and requests a declaration that the XL Policy covers the November 2012 Demand and the December 2013 Demand. XL filed an answer and counterclaim (the "Counterclaim") on December 8, 2014. In the Counterclaim, XL seeks a declaration that the XL Policy does not cover the December 2013 Demand and, in the alternative, that any obligation XL owes to Ameritrans is subject to a fair and appropriate allocation.
Both Ameritrans and XL filed motions for judgment on the pleadings under Rule 12(c) of the Superior Court Rules of Civil Procedure ("Civil Rule 12(c)") on February 5, 2015. In Plaintiff/Counterclaim Defendant Ameritrans Capital Corporation's Motion for Judgment on the Pleadings and Plaintiff/Counterclaim Ameritrans Capital Corporation's Opening Brief in Support of Its Motion for Judgment on the Pleadings (collectively, the "Ameritrans Motion"), Ameritrans argues that, under the XL Policy, XL must pay for the Investigation Costs arising from the November 2012 Demand and the December 2013 Demand. In XL Specialty Insurance Company's Cross-Motion for Judgment on the Pleadings and XL Specialty Insurance Company's Opening Brief in Support of Cross-Motion for Judgment on the Pleadings (collectively, the "XL Motion"), XL seeks a declaration that it has no obligation to reimburse Ameritrans for any defense expenses or investigation costs related to the December Demand because the XL Policy's Insured verses Insured Exclusion bars coverage.
For the reasons set forth below, the Court will GRANT the Ameritrans Motion and will DENY the XL Motion.
RELEVANT FACTS
Unless otherwise indicated, the following are the Relevant Facts of this action as the facts were alleged in the Amended Complaint and the Counterclaim. When considering a motion under Civil Rule 12(c), the Court must assume the truthfulness of all well-pled allegations of fact in the complaint and draw all reasonable inferences in favor of the plaintiff. See, e.g., McMillan v. Intercargo Corp., 768 A.2d 492, 500 (Del. Ch. 2000). The Court must, therefore, accord parties opposing a Rule 12(c) motion the same benefits as a party defending a motion under Civil Rule 12(b)(6). Id.
Ameritrans is a Delaware corporation with its principal place of business in New York. Ameritrans is a closed-end investment company that makes loans to small businesses through a wholly-owned subsidiary. XL is a Delaware corporation with its principal place of business in Connecticut.
A. THE SHAREHOLDER DERIVATIVE DEMANDS AND ACTIONS UNDERLYING THIS CASE
1. The Election of Directors and the Amended Bylaws
Ameritrans has two classes of stock: "Common Stock" and "Preferred Stock." Common and Preferred Stockholders each have one vote per share. The Preferred Stockholders initially voted as a class to elect two of the Ameritrans directors to the Board of Directors (the "Board"). The Common and Preferred Stockholders elected the rest of the directors together. Under the Certificate of Incorporation, if the Board did not declare or pay dividends for at least two years, then Ameritrans would increase the number of directors from five to eleven. The Preferred Stockholders would elect the six new directors, which meant that the Preferred Stockholders would elect the majority of the Board.
Ameritrans had its Annual Stockholder Meeting (the "Meeting") on September 28, 2012. At the meeting, Ameritrans nominated seven persons for election to the Board. Ameritrans refused to nominate or have submitted for election four additional persons for the Preferred Stockholders to elect. The then-existing board (the "2012 Board Members") also did not appoint new directors outside of the Meeting, which, at the time, was permitted under the Ameritrans By-Laws.
After the Meeting, the 2012 Board Members amended the By-Laws so that two-thirds of the stockholders must approve By-law amendments (the "By-law Amendment"). According to Ameritrans, the effect of the By-law Amendment was that "even if the Preferred Stockholders were able to nominate and elect four of the seven directors of Ameritrans, those directors would not be able to take any action without the consent of the directors elected by the Common Stockholders."
Compl. ¶ 13.
2. Shareholder Derivative Demands and Actions in the Court of Chancery
On November 2, 2012, Mr. Ammerman, as a Preferred Stockholder, issued the November 2012 Demand upon the 2012 Board Members. Mr. Ammerman demanded that Ameritrans call a new stockholders' meeting so eleven directors could be nominated under the terms of the Certificate of Incorporation and that the 2012 Board Members rescind the invalid By-Laws. Mr. Ammerman also alleged that the 2012 Board Members were acting wrongfully to entrench themselves. Specifically, the November 2012 Demand stated:
Ameritrans must comply with the terms of its Certificate of Incorporation. That means it must call a new stockholders' meeting where eleven directors will be nominated and six of the eleven directors are to be elected by the Preferred
stockholders. It also must rescind its recently amended By-Laws where they are invalid. Unless Ameritrans confirms that it will take such actions, Mr. Ammerman intends to file the Complaint attached to this letter.
Defendant XL Specialty Insurance Company's Answer and Affirmative Defenses to Plaintiff's Complaint and Counterclaim for Declaratory Relief, Ex. 2, Letter, dated November 2, 2012, from P. Clarkson Collins, Jr., Esq., to Board of Directors at 5.
In June 2013, Mr. Ammerman and other Preferred stockholders (the "Majority Preferred Stockholders") acquired more than the majority of the outstanding Ameritrans Preferred Stock. The Majority Preferred Stockholders delivered written consent to the Ameritrans' registered office in Delaware removing John R. Laird, Ivan J. Wolport, Steven Etna, and Elliott Singer from the Board. These stockholders also elected Mr. Ammerman, Peter Kagunye, Frank Strohm, and Arthur D. Little (the "New Directors") to replace them.
Mr. Ammerman filed two actions in the Delaware Court of Chancery. On June 26, 2013, Mr. Ammerman filed a Certified Complaint under 8 Del. C. § 225(a) against the four 2012 Board Members that the Majority Preferred Stockholders removed (the "Ammerman I Action"). In the Ammerman I Action, Mr. Ammerman sought a declaration that (i) the Written Consent was valid and effective; (ii) the New Directors were duly elected directors of the Board; (iii) the four 2012 Board Members named in the suit had no right to their seats on the Board; and (iv) the Amendments to the By-Laws were invalid and void. Ameritrans gave XL notice of the Ammerman I Action on June 26, 2013.
Mr. Ammerman filed his second action on July 12, 2013 against all of the 2012 Board Members (the "Ammerman II Action"). In the Ammerman II Action, Mr. Ammerman sought a declaration that the By-law Amendment was invalid and void and that the 2012 Board Members breached their fiduciary duties to Mr. Ammerman and Ameritrans. Ameritrans gave XL notice of the Ammerman II Action on July 17, 2013.
On July 12, 2013, the 2012 Board Members resigned. The New Directors were seated as members of the Board. On July 22, 2013, the Board appointed Mr. Ammerman as Ameritrans' Chief Executive Officer, President, Chief Financial Officer, Treasurer, and Secretary.
On December 17, 2013, Mr. Ammerman, as a "stockholder," issued the December 2013 Demand upon the Board. Mr. Ammerman demanded that Ameritrans bring civil proceedings against the seven 2012 Board Members named in the Ammerman II Action. According to the Demand, the grounds for a civil proceeding were that (1) the 2012 Board Members did not properly supervise the management of Ameritrans and permitted Ameritrans to make improper payments of over $100,000 to director Michael Feinsod or his affiliates and (2) the 2012 Board Members refused to allow the Preferred Stockholders to select six new members of the board and improperly amended Ameritrans' By-Laws. The December Demand goes on to provide:
See Defendant XL Specialty Insurance Company's Answer and Affirmative Defenses to Plaintiff's Complaint and Counterclaim for Declaratory Relief, Ex. 10, Letter, dated December 17, 2013, from Robert C. Ammerman to Board of Directors.
Id. at 1.
The Former Directors' improper opposition to the election of the new directors who would have altered the Company's business to avoid the waste of its assets began in 2012. When the Company failed to pay any dividends on its Preferred Stock by June, 2012, the Preferred Stockholder had a right to elect a majority of its Board of Directors. Four nominees were submitted to be elected, but the Former Directors refused to place those nominees for election at the September, 2012 stockholders meeting. Instead, the Former Directors chose four of themselves to fill the seats that should have been held by the Preferred Stockholder nominees. Having secured the election of their handpicked nominees to the Board, the Former Directors took further action to secure their control over the Company. . . . As a result of these actions, the Former Directors improperly retained control over the Company and kept it on its disastrous course that led to the Company incurring millions of dollars in fees and otherwise wasting its assets.
Id. at 1-2.
Mr. Ammerman dismissed the Ammerman I Action on May 1, 2014. The Court of Chancery stayed the Ammerman II Action on May 6, 2014 per Mr. Ammerman's request.
B. AMERITRANS' RELATIONSHIP WITH XL SPECIALTY INSURANCE COMPANY
1. The XL Policy
XL issued the XL Policy to Ameritrans for the period between November 18, 2011 and November 18, 2012. XL extended the Policy by endorsement through April 24, 2013. XL extended a six-year run-off period on April 24, 2013 when the United States Small Business Administration placed Ameritrans' principal subsidiary, Elk Associates Funding Corporation, into receivership. During the run-off period, there is coverage for any claims for wrongful acts committed before April 24, 2013, subject to the Policy Terms. There is no coverage for any claims for wrongful acts committed after April 24, 2013. XL and Ameritrans agree that the claim at hand was covered by the XL Policy and not the policy from the run-off period.
The XL Policy provides coverage for "costs incurred in investigating and evaluating shareholder derivative demands." Under the XL Policy, XL "shall pay on behalf of the Company all Investigation Costs resulting solely from any Shareholder Derivative Demand first made during the Policy Period . . . for a Wrongful Act committed or attempted, or allegedly committed or attempted, by any Insured Person."
Defendant XL Specialty Insurance Company's Answer and Affirmative Defenses to Plaintiff's Complaint and Counterclaim for Declaratory Relief, Ex. 1, Endorsement No.: 17.
Id., Endorsement No.: 17 § 1.
Investigation Costs are defined as: "reasonable fees and expenses of attorneys and experts retained by the Company, or by its board of directors or any committee thereof, that are incurred by the Company in the Company's investigation or evaluation of a Shareholder Derivative Demand." A Shareholder Derivative Demand is defined as "a written demand, made by one or more of the shareholders of the Company upon the Company's board of directors, for the Company to bring a civil proceeding . . . against an Insured Person." The term "Insured Person" includes any past, present, or future director, officer, or board member of the company.
Id., Endorsement No.: 17 § 2.
Id., Endorsement No.: 17 § 3.
Id., Management Liability and Company Reimbursement Insurance Coverage Form § II(J).
Investigation Costs coverage was subject to an "Insured versus Insured Exclusion" listed in Section III of the XL Policy. Endorsement Number 8 of the XL Policy amended Section III. Section III, as amended, reads:
Id., Endorsement No.: 17 § 5.
Id., Endorsement No.: 8.
The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured Person . . . (G) by, on behalf of, or at the direction of the Company or Insured Person, except and to the extent such Claim . . . (vi) is brought and maintained by an Insured Person:
(a) who has not served as a director, officer, member of the Board of Managers, or employee of the Company for at least Two (2) years prior to the date such Claim is first made; and
(b) who is acting independently of, and without the solicitation, assistance, participation or intervention of an Insured Person or the Company . . . .
Id., Management Liability and Company Reimbursement Insurance Coverage Form § III (emphasis in original).
Under the XL Policy, multiple claims that arise from Interrelated Wrongful Acts may be treated as one claim. The single claim will be treated as if it were made at the time when the first claim was made. The XL Policy defines "Interrelated Wrongful Acts" as wrongful acts that involve "the same or related facts, series of related facts, circumstances, situations, transactions or events." The XL Policy defines "Wrongful Act" as an "actual or alleged act, error, omission, misstatement, misleading statement, neglect, or breach of duty by any Insured Person while acting in his or her capacity as an . . . Insured Person of the Company."
Id., Management Liability and Company Reimbursement Insurance Coverage Form § VI(B).
Id.
Id., Management Liability and Company Reimbursement Insurance Coverage Form § II(K).
Id., Management Liability and Company Reimbursement Insurance Coverage Form § II(S) (emphasis in original).
2. Ameritrans' Requests for Coverage
Ameritrans requested coverage under the XL Policy for the November 2012 Demand on November 9, 2012. In a December 26, 2012 letter, XL reserved its rights and requested Ameritrans send its monthly defense bills to XL. According to XL, Ameritrans never sent any defense bills from the November 2012 Demand. XL sent a similar letter to Ameritrans after the filing of the Ammerman I Action and Ammerman II Action on July 25, 2013.
Ameritrans notified XL of the December 2013 Demand on February 27, 2014. Ameritrans asked XL to advance "reasonable fees and expenses incurred in connection with the Company's investigation and evaluation of the Demand Letter" (the "Investigation Costs"). On May 8, 2014, XL acknowledged Ameritrans' request for coverage of the Investigation Costs from the December 2013 Demand. XL said that the XL Policy excluded coverage because Mr. Ammerman was an Insured Person, as a director and officer, when he made the December 2013 Demand. On September 4, 2014, Ameritrans contested XL's position via letter. On September 15, 2014, XL responded and reiterated its position that there was no coverage for the December 2013 Demand.
3. Superior Court Action
On October 2, 2014, Ameritrans filed suit against XL in this Court, claiming that XL breached the XL Policy by refusing to pay Ameritrans' Investigation Costs. Ameritrans also sought declaratory relief that the XL Policy covered the November 2012 Demand and the December 2013 Demand.
On December 8, 2014, XL filed an Answer and Counterclaim seeking a declaration that the XL Policy does not cover the December 2013 Demand and, in the alternative, that any obligation XL owes to Ameritrans is subject to fair and appropriate allocation.
Both parties filed Motions for Judgment on the Pleadings on February 5, 2015.
LEGAL STANDARD
A party may move for judgment on the pleadings pursuant to Civil Rule 12(c). In determining a motion under Civil Rule 12(c) for judgment on the pleadings, the Court is required to view the facts pleaded and the inferences to be drawn from such facts in a light most favorable to the non-moving party. The Court must take the well-pleaded facts alleged in the complaint as admitted. When considering a motion under Civil Rule 12(c), the Court also assumes the truthfulness of all well-pled allegations of fact in the complaint. The Court must, therefore, accord plaintiffs opposing a Rule 12(c) motion the same benefits as a plaintiff defending a motion under Civil Rule 12(b)(6). The Court may grant a motion for judgment on the pleadings only when no material issue of fact exists and the movant is entitled to judgment as a matter of law.
Civil Rule 12(c) provides:
Motion for judgment on the pleadings. -- After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the Court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.Del. Super. Civ. R. 12(c).
See Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205 (Del. 1993); see also Warner Commc'ns, Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962, 965 (Del. Super.), aff'd without opinion, 567 A.2d 419 (Del. 1989).
See Desert Equities, Inc., 624 A.2d at 1205; Warner Commc'ns, Inc., 583 A.2d at 965.
See McMillan, 768 A.2d at 500.
Id.
See Desert Equities, Inc., 624 A.2d at 1205; Warner Commc'ns, Inc., 583 A.2d at 965.
DISCUSSION
A. CHOICE OF LAW
Ameritrans and XL disagree about what law the Court should apply. To determine choice of law in a contract case, the Court will first look to the choice of law provision, if it exists. The Court will honor the choice of law provision as long as the jurisdiction selected in the provision has some material relationship to the transaction and if a foreign jurisdiction's laws do not go against the public policy of Delaware. When there is no choice of law provision, then the Court conducts a choice of law analysis under the Restatement (Second) Conflict of Laws.
Deuley v. DynCorp Int'l, Inc., 8 A.3d 1156, 1160 (Del. 2010).
Id. at 1161.
Id. at 1160-61.
First, the Court must determine if there is a true conflict of law or a "false conflict." A false conflict occurs when a court's decision would be the same under either choice of law. If there is a false conflict, then a court does not need to conduct a choice of law analysis. If there is a true conflict of law, then a court applies the most significant relationship test as set forth in the Restatement (Second) of Conflict of Laws § 188.
Id. at 1161.
Id.
Id.
Liggett Grp. Inc. v. Affiliated FM Ins. Co., 788 A.2d 134, 137 (Del. Super. 2001) (citations omitted).
The Court must decide what state has the most significant relationship to the contract in light of the following factors:
(1) The place of contracting;The Court may evaluate the factors based on their relative importance in the case. When deciding what jurisdiction has the most significant relationship in an insurance case, the Court should apply "the local law of the state which the parties understood was the principal location of the insured risk during the term of the policy," unless another jurisdiction has a more significant relationship under the factors listed in § 6 of the Restatement. Section 6 provides seven factors for the Court to consider:
(2) The place of negotiation of the contract;
(3) The place of performance;
(4) The location of the subject matter of the contract; and
(5) The domicile, residence, nationality, place of incorporation, and place of business of the parties.
(a) the needs of the interstate and international systems,Where the insured risks are spread throughout two or more states, however, the Court should look to the factors in § 6 and § 188 to decide what state has the most significant relationship.
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Restatement (Second) of Conflict of Laws § 188 (1971).
Liggett Grp. Inc., 899 A.2d at 138.
Restatement (Second) of Conflict of Laws § 193.
Deuley, 8 A.3d at 1161; Restatement (Second) of Conflict of Laws § 6.
Liggett Grp. Inc., 899 A.2d at 137.
Here, the XL Policy does not have a choice-of-law provision, so the Court must decide what law might apply and then analyze whether there is a true conflict. The Court agrees with Ameritrans that there are three states with relationships to this case: Connecticut, Delaware, and New York. Connecticut is XL's principal place of business; Delaware is both XL's and Ameritrans' place of incorporation; and New York is Ameritrans' principal place of business.
Under Connecticut, Delaware, and New York law, insurance policies are contracts, and contract interpretation is a matter of law. A court may interpret an unambiguous contract as a matter of law by giving clear and unambiguous terms their plain and ordinary meaning. An ambiguity exists where a term has more than one interpretation. Once the court finds an ambiguity, the court may apply rules of contract interpretation, like contra proferentem, for example. Under contra proferentem, the court construes an ambiguity against the insurer when the insurer drafts the policy.
Dream Spa, Inc. v. Fireman's Fund Ins., No. 06-CV-13142, 2008 WL 355458, at *4 (S.D.N.Y. Feb. 6, 2008); Conn. Ins. Guar. Ass'n v. Fontaine, 900 A.2d 18, 21-22 (Conn. 2006); O'Brien v. Progressive N. Ins. Co., 785 A.2d 281, 286 (Del. 2001).
Lexington Ins. Co. v. Lexington Healthcare Grp., Inc., 84 A.3d 1167, 1173 (Conn. 2014); O'Brien, 785 A.2d at 288; Seaport Park Condo. v. Greater N.Y. Mut. Ins. Co., 39 A.D.3d 51, 54 (N.Y. App. Div. 2007).
Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270, 275-76 (2d Cir. 2000); O'Brien, 785 A.2d at 288; Lexington, 84 A.3d at 1173.
Morgan Stanley Grp., 225 F.3d at 275-76; Lexington, 84 A.3d at 1173; O'Brien, 785 A.2d at 289.
Morgan Stanley Grp., 225 F.3d at 276; Lexington, 84 A.3d at 1173; O'Brien, 785 A.2d at 289.
The specific issues raised in the Ameritrans Motion and the XL Policy have not been addressed and decided by courts in Delaware, Connecticut or New York. The basic law regarding interpretation of insurance contracts is the same in Delaware, Connecticut and New York. As there is no true conflict among the laws of Connecticut, Delaware, and New York for the interpretation of an insurance policy, this Court does not need to conduct a choice of law analysis to render its decision on the outstanding motions.
B. INSURANCE POLICY INTERPRETATION
The Court holds that the XL Policy provides coverage for both the November 2012 Demand costs and the December 2013 Demand costs. The Court comes to these conclusions through a straight forward application of the unambiguous language of the XL Policy to the facts of this case.
First, the Court finds that the XL Policy is unambiguous. As such, the Court may interpret it as a matter of law. The XL Policy does provide coverage for Investigation Costs, the reasonable fees Ameritrans incurs when investigating a Shareholder Derivative Demand. The November 2012 and December 2013 Demands were Shareholder Derivative Demands because they were written demands that Mr. Ammerman, a stockholder, made to cause Ameritrans to take certain actions or to bring a civil proceeding against board members.
Defendant XL Specialty Insurance Company's Answer and Affirmative Defenses to Plaintiff's Complaint and Counterclaim for Declaratory Relief, Ex. 1, Endorsement No.: 17.
The Court next addresses whether the Insured versus Insured Exclusion from Section III of the XL Policy excludes coverage for the two demands. The amended version of the Exclusion provides that XL does not need to pay for Losses and Investigation Costs associated with a claim "brought and maintained" by an Insured Person against Ameritrans or its Board. The Court notes that there are also exceptions to the exclusions in Section III.
Id., Endorsement No.: 8.
When Mr. Ammerman made the November 2012 Demand, Mr. Ammerman was just a stockholder and not an Insured Person. Therefore, the XL Policy provides coverage with respect to the November 2012 Demand.
At the time of the December 2013 Demand, Mr. Ammerman was a director and an officer of Ameritrans as well as a stockholder of Ameritrans. Therefore, Mr. Ammerman was an Insured Person under the XL Policy's definition. If the analysis stopped there, the Court would hold that the XL Policy does not provide coverage for the December 2013 Claim. However, the Court agrees with Ameritrans' interpretation of the interrelated nature of the November 2012 Demand and the December 2013 Demand.
Ameritrans argues that the November 2012 and December 2013 Demands are sufficiently interrelated for the Court to treat them as one demand under the XL Policy. If that were the case, then the Court would have to treat the December 2013 Demand as if it had been filed in November 2012 when Mr. Ammerman was not an Insured Person.
Plaintiff/Counterclaim Ameritrans Capital Corporation's Opening Brief in Support of Its Motion for Judgment on the Pleadings at 16-20, Ameritrans Capital Corp. v. XL Specialty Ins. Co. (No. N14C-10-019).
The Court accepts this argument. Under the XL Policy, "Interrelated Wrongful Acts" arise out of related facts or circumstances. Here, the November 2012 Demand and the December 2013 Demand overlap, arising out of many of the same facts - the 2012 Board Members' entrenchment on the Board by refusing to abide by Ameritrans' Certificate of Incorporation and By-Laws.
Mr. Ammerman made the November 2012 Demand to cause Ameritrans to hold a new stockholder meeting and to rescind the By-law Amendment. The purported wrongful act was the 2012 Board Members' refusal to abide by Ameritrans' Certificate of Incorporation and By-Laws and, then, the 2012 Board Members' act in "utilizing" the By-Laws to improperly reduce the size of the Board. The December 2013 Demand references the 2012 Board Members' refusal to allow Preferred Shareholders to elect six directors and the allegedly improper By-law Amendment. True, the December 2013 Demand contains claims other than those made in the November 2012 Demand; however, the December 2013 Demand's third and fourth paragraphs connect the purported fiduciary duty breaches with the actions of the 2012 Board Members in refusing to abide by Ameritrans' Certificate of Incorporation and By-Laws.
The XL Policy provides that multiple claims that arise from Interrelated Wrongful Acts may be treated as one claim. The single claim will be treated as if it were made at the time when the first claim was made. The XL Policy defines "Interrelated Wrongful Acts" as wrongful acts that involve "the same or related facts, series of related facts, circumstances, situations, transactions or events." The XL Policy defines "Wrongful Act" as an "actual or alleged act, error, omission, misstatement, misleading statement, neglect, or breach of duty by any Insured Person while acting in his or her capacity as an . . . Insured Person of the Company." The November 2012 Demand and the December 2013 Demand are separate claims but, as these claims arise out of the same or related facts, the Court will treat the two demands as one claim that arose at the time of the November 2012 Demand.
Defendant XL Specialty Insurance Company's Answer and Affirmative Defenses to Plaintiff's Complaint and Counterclaim for Declaratory Relief, Ex. 1, Management Liability and Company Reimbursement Insurance Coverage Form, § VI(B).
Id.
Id., Management Liability and Company Reimbursement Insurance Coverage Form, § II(K).
Id., Management Liability and Company Reimbursement Insurance Coverage Form, § II(S) (emphasis in original).
The issue regarding coverage then turns on Endorsement Number 8 of the XL Policy amended Section III. Section III excludes coverage for a claim brought and maintained against an Insured Person - here the 2012 Board Members - by an Insured Person. On November 2, 2012, Mr. Ammerman was not an "Insured Person" under the XL Policy and, on December 17, 2013, Mr. Ammerman was an "Insured Person" as he was now Ameritrans' Chief Executive Officer, President, Chief Financial Officer, Treasurer and Secretary. As the November 2012 Demand is considered the controlling claim under the XL Policy, the question becomes whether Mr. Ammerman "brought and maintained" the November 2012 Demand. "And" is a conjunctive term, meaning that, for the exclusion to apply, Mr. Ammerman must have both brought the claim as an Insured Person and maintained the claim as an Insured Person. Mr. Ammerman did not bring the November 2012 Demand as an Insured Person. As such, the exclusion to coverage in Section III does not apply.
Id., Endorsement No.: 8.
See, e.g., Silver Lake Office Plaza, LLC v. Lanard & Axilbund, Inc., C.A. No. N13C-03-208-RRC, 2014 WL 595378, at *7-8 (Del. Super. Jan. 17, 2014) ("This Court will not ignore the 'and' in the provision and create a limitation . . . when it is not 'in the plain language of the contract."). --------
XL argues that failing to apply the "Insured versus Insured" exception to coverage here will subvert the purpose of Section III. Truthfully, this is a very unique factual situation. The Court has reviewed the law cited by the parties and done an independent search of authorities that have addressed this type of coverage. The Court has failed to find a situation that is factually similar to the one here. Upon initial review, it appears that the Court is allowing an Insured Person (Mr. Ammerman) to maintain a claim against another Insured Person (the 2012 Board Members). However, the XL Policy's language is clear and unambiguous - for the exception to coverage to apply, the claim must be both brought and maintained by an Insured Person. If XL had wanted to avoid extending coverage in this type of factual situation, the re-drafting of the language in Section III is simple...change "brought and maintained by an Insured Person" to "brought and/or maintained by an Insured Person."
CONCLUSION
For the foregoing reasons Ameritrans' Motion is GRANTED and XL's Motion is DENIED.
IT IS SO ORDERED.
/s/ Eric M. Davis
Eric M. Davis, Judge