Opinion
5:01-CV-343-2 (DF)
March 19, 2002
O R D E R
Plaintiffs have been sued by Canadyne-Georgia Corporation in two other cases pending before the Court, Canadyne-Georgia Corp. v. Bank of Am ., No. 5:96-CV-114-1 (DF) (M.D.Ga. filed Mar. 22, 1996), and Canadyne-Georgia Corp. v. Mathes , No. 5:99-CV-251-2 (DF) (M.D.Ga. filed July 2, 1999) (the "underlying cases"). In this case, Plaintiffs are seeking, among other things, to establish Defendants' duty to defend them in the underlying cases. Before the Court are (1) Plaintiffs' Motion for Partial Summary Judgment on the Duty to Defend on Behalf of Limited Partner Insureds, General Partner Insureds and Shareholder Insureds Against Defendant Continental Insurance Company (tab #31); and (2) Continental Insurance Company's Motion for Summary Judgment or, in the Alternative, Rule 56(f) Motion to Allow Discovery (tab #49). The Court heard oral argument on both motions on January 18, 2002.
Canadyne has not sued Virgil H. Young, Jr., in the underlying cases, but he "is named as a Plaintiff in this lawsuit because he is named as an insured on one or more of the insurance policies at issue and because he was a limited partner in one of the defendants in the 1996 lawsuit and the 1999 lawsuit." Am. Compl. ¶ 32.
Plaintiffs in this case are the Limited Partner Insureds, General Partner Insureds, Shareholder Insureds, Representative Insureds, Woolfolk Chemical Works, Ltd., and Jacqueline Woolfolk Mathes, individually. Defendants originally were Continental Insurance Company, Security Insurance Company of Hartford, Fireman's Fund Insurance Company, Niagara Fire Insurance Company, and American Home Assurance Company, but Fireman's Fund, American Home, and Security are no longer in the case. The only parties involved in the motions currently before the Court are the Limited Partner Insureds, General Partner Insureds, Shareholder Insureds, and Continental. Therefore, references in this order to "Plaintiffs" are intended to include the Limited Partner Insureds, General Partner Insureds, and Shareholder Insureds only, and references to "Defendant" are intended to include Continental only.
I. STANDARD OF REVIEW
The Supreme Court has observed, "One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose." Celotex Corp. v. Catrett , 477 U.S. 317, 323-24 (1986). Under Rule 56, summary judgment must be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp ., 477 U.S. at 322. In reviewing a motion for summary judgment, the court must view the evidence and all justifiable inferences in the light most favorable to the non-moving party, but the court may not make credibility determinations or weigh the evidence. See Anderson v. Liberty Lobby, Inc ., 477 U.S. 242, 249 (1986).
II. FACTUAL BACKGROUND
Approximately eighty years ago, John W. Woolfolk founded a sole proprietorship that operated a pesticide manufacturing facility in Fort Valley, Georgia. The J.W. Woolfolk Company, Inc., was formed in 1925, and it operated the facility until its dissolution in 1941. A limited partnership, Woolfolk Chemical Works, Ltd. (the "Partnership"), was then formed to operate the facility, which it did until 1972. By that time, the partners had become concerned about their potential liability for environmental problems. As T.W. Cleveland, Sr., General Manager of the Partnership, explained in an April 25, 1972 memorandum to "all share holders of the limited partnership": "Due to political and public interest in ecology resulting in adverse publicity regarding pesticides in our environment, it was decided at our 1971 meeting that we would seriously explore the feasibility of incorporating as the advantages seem to outweigh the disadvantages under today's trend. . . ." The proposal outlined by Mr. Cleveland in his memorandum provided that "[a]ll partners will receive stock in the new corporation equal to their percentage interest in the partnership." All the partners accepted the proposal, and the business was incorporated under the name of Woolfolk Chemical Works, Inc. (the "Corporation"), in late 1972. Then, on December 1, 1972, Mr. Cleveland, as general partner on behalf of the Partnership, signed a General Bill of Sale and Assignment of Assets, Properties and Business of Woolfolk Chemical Works, Ltd., pursuant to which the Partnership "transfer[red] all of its assets, subject to all of its liabilities, to [the Corporation] in exchange for 2,100,000 shares of the $1.00 par value common stock of [the Corporation]." Specifically, the Partnership assigned to the Corporation "all the businesses, franchises, rights, privileges, properties and assets . . . of every nature and description, tangible and intangible, wherever located," including but not limited to "[a]ll . . . insurance policies" and "[a]ll rights and interests of [the Partnership] in, to and under all contracts and agreements of every nature and description."
Actually, there were three partnerships during this time. WCW, Ltd. I was created in 1941 and existed until Mr. Woolfolk's death in 1945. At that time, the partners created WCW, Ltd. II, which existed from 1945 until 1957. The partners then reorganized as WCW, Ltd. III and existed as such from 1957 until 1972.
About five years later, Reichhold Chemicals, Ltd., and the shareholders of the Corporation entered into a stock purchase agreement, dated July 18, 1977, under which Reichhold purchased all the stock of the Corporation. The Corporation (under Reichhold's ownership) continued to manufacture pesticides at the facility until mid-1984, when it sold that part of its business to another corporation. After that sale, the Corporation was renamed Canadyne-Georgia Corporation.
By mid-1986, Canadyne had become aware of environmental contamination at the facility site. Although Canadyne spent more than $2,300,000 remediating the facility site in late 1986 and early 1987, the United States Environmental Protection Agency advised it in mid-1987 that its efforts were not enough. Between 1990 and 1995, the EPA issued several orders requiring Canadyne to address environmental contamination at the facility site. Specifically, Canadyne was required to relocate residents living near the facility, remove contaminated soil from the area, and purify the groundwater at the facility site. In 1994 and 1995, hundreds of current and former residents of Fort Valley sued Canadyne in state court for personal injuries and property damage that were allegedly caused by contamination at the facility (the "toxic tort litigation"). Canadyne eventually settled those cases. All told, Canadyne spent millions of dollars cleaning up the facility site and settling the toxic tort litigation.
On December 17, 1990, Canadyne sued its liability insurers, including Defendant, alleging that they were obligated to defend Canadyne and indemnify it for the costs associated with cleaning up the facility site. In that case, the district court found that Canadyne was not entitled to coverage because it failed to provide timely notice of the "occurrences" at the facility site, and the Eleventh Circuit affirmed. See Canadyne-Georgia Corp. v. Continental Ins. Co ., No. 1:91-CV-130-GET, 1992 WL 547722 (N.D.Ga. May 1, 1992), aff'd, 999 F.2d 1547 (11th Cir. 1993). Unable to recover its expenses from its liability insurers, Canadyne brought the underlying cases in 1996 and 1999, respectively, seeking contribution from Plaintiffs for the millions of dollars in costs that it has incurred in cleaning up the facility site and settling the toxic tort litigation.
Soon after Canadyne commenced each of the underlying cases, Plaintiffs notified Defendant that they had been sued and demanded that Defendant defend and indemnify them pursuant to the terms of certain identified policies. The policies identified by Plaintiffs include the following:
1. a comprehensive general-automobile liability policy, No. 11 LAZ 4 25 82, issued to the Partnership for the period covering August 23, 1965, to September 1, 1966;
2. a comprehensive general-automobile liability policy, No. 11 LAZ 522 74 87, issued to the Partnership for the period covering September 1, 1966, to September 1, 1967;
3. a liability insurance policy, No. L 076 00 47, issued to the Partnership for the period covering September 1, 1967, to September 1, 1968;
4. a liability insurance policy, No. L 126 09 87, issued to the Partnership for the period covering September 1, 1968, to September 1, 1969;
5. a liability insurance policy, No. L 149 06 59, issued to the Partnership for the period covering September 1, 1969, to September 1, 1970;
6. a liability insurance policy, No. L 150 55 78, issued to the Partnership for the period covering September 1, 1970, to September 1, 1971;
7. a liability insurance policy, No. L 632 05 53, issued to the Partnership for the period covering September 1, 1971, to September 1, 1972; and
8. a liability insurance policy, No. L 429 07 34, issued to the Partnership for the period covering September 1, 1972, to September 1, 1973.
The named insured for each of these policies is the Partnership; however, for general liability coverage, each policy provides that if the named insured is a partnership, then the word "insured" also includes any partner thereof, but only with respect to the partner's liability as a partner. Moreover, each policy contains an endorsement that amends the full name of the insured. The endorsements in the policies issued for the periods covering August 23, 1965, to September 1, 1969 (Nos. 11 LAZ 4 25 82, 11 LAZ 522 74 87, L 076 00 47, and L 126 09 87), provide that the full name of the insured is:
Fulton National Bank and Mrs. Elizabeth W. Moye, Executors U/W of J.W. Woolfolk; W.J. Liipfert and A.B. Young, General Partners; and W.J. Liipfert, III, James C. Liipfert, Mrs. Betty L. Hewes, W.D. Tharpe, John Alden, Mrs. Anita W. Cleveland, Wachovia Bank and Trust Company as Trustee for William H. Taylor, and James F. Taylor, Limited Partners.
The endorsements in the policies issued for the periods covering September 1, 1969, to September 1, 1973 (Nos. L 149 06 59, L 150 55 78, L 632 05 53, and L 429 07 34), provide that the full name of the insured is:
Fulton National Bank and Mrs. Elizabeth W. Moye, Executors U/W of J.W. Woolfolk; W.J. Liipfert and A.B. Young, General Partners; and W.J. Liipfert, III, James C. Liipfert, Mrs. Betty L. Hewes, W.D. Tharpe, John Alden, Mrs. Anita W. Cleveland, Wachovia Bank and Trust Company as Trustee for William H. Taylor, James F. Taylor, Virgil H. Young, Jr., and J.H. Thurman, Limited Partners.
Relying, in part, on the assignment of all insurance policies in the bill of sale, Defendant denied coverage to the Partnership, partners, and other named insureds for the claims asserted by Canadyne in the underlying cases. A couple of years later, Plaintiffs brought this case alleging that the costs they have incurred, and will incur in the future, in defending the underlying cases, as well as the amount of any judgment entered or settlement reached in the underlying cases, are covered by the policies listed above. The complaint consists of four counts: Count I alleges that Defendants breached their contractual obligations to defend Plaintiffs in the underlying cases; Count II seeks a declaratory judgment that Defendants are obligated to reimburse Plaintiffs for all reasonable costs incurred and to be incurred in defending the underlying cases; Count III alleges that Defendants acted in bad faith when they refused to defend Plaintiffs; and Count IV seeks a declaratory judgment that Defendants are obligated to reimburse Plaintiffs for the amount of any reasonable judgment entered or settlement reached in the underlying cases.
This recitation is not quoted directly from any of the endorsements. Instead, the Court has corrected obviously misspelled names and has altered the punctuation for clarity.
Again, this recitation is not quoted directly from any of the endorsements. Instead, the Court has corrected obviously misspelled names and has altered the punctuation for clarity.
After the motions for summary judgment were filed, the Court granted Plaintiffs' motion to amend the complaint to identify six additional policies under which they contend that Defendant is obligated to defend and indemnify them in the underlying cases:
1. a liability insurance policy, No. L 642 56 89, issued to the Corporation for the period covering September 1, 1973, to December 1, 1974;
2. a liability insurance policy, No. L 662 69 55, issued to the Corporation for the period covering December 1, 1974, to December 1, 1975;
3. a liability insurance policy, No. L 354 79 46, issued to the Corporation for the period covering December 1, 1975, to December 1, 1976;
4. a liability insurance policy, No. L 371 04 37, issued to the Corporation for the period covering December 1, 1976, to December 1, 1977;
5. a liability insurance policy, No. L 134 35 31, issued to the Corporation for the period covering December 1, 1977, to December 1, 1978; and
6. a liability insurance policy, No. L 135 70 73, issued to the Corporation for the period covering December 1, 1978, to December 1, 1979.
The named insured for each of these policies is the Corporation; however, for general and personal injury liability coverage, each policy provides that if the named insured is a corporation, then the word "insured" also includes any executive officer, director, and stockholder thereof, but only while acting within the scope of his duties as such. Although these policies were formally identified in the complaint after the motions for summary judgment were filed, the Court will consider them because the parties included them in their briefs and during oral argument.
III. DISCUSSION
The parties are to be commended for the well-reasoned and persuasive arguments that they have presented to the Court. The Court recognizes the importance of this case to the underlying cases and has given careful consideration to the arguments presented both in the briefs and during oral argument. With that said, the Court turns to the parties' arguments. Plaintiffs basically argue that the underlying cases seek to recover for claims covered by the policies and that, therefore, Defendant has a duty to defend them. Defendant argues that Plaintiffs are not entitled to coverage under the policies issued to the Partnership because, among other reasons, they assigned their rights to coverage to the Corporation in the bill of sale. Additionally, Defendant argues that Plaintiffs are not entitled to coverage under the policies issued to the Corporation because, among other reasons, the underlying cases do not seek to hold the Corporation's shareholders liable.
The Court recognizes that, under Georgia law, "an insurer's duty to pay and its duty to defend are separate and independent obligations." Penn-America Ins. Co. v. Disabled Am. Veterans, Inc ., 490 S.E.2d 374, 376 (Ga. 1997). "Although an insurer need not indemnify an insured for a liability the insured incurs outside the terms of the insurance contract, an insurer must provide a defense against any complaint that, if successful, might potentially or arguably fall within the policy's coverage." Elan Pharm. Research Corp. v. Employers Ins. of Wausau , 144 F.3d 1372, 1375 (11th Cir. 1998) (applying Georgia law). To determine whether an insurer is obligated to defend its insured, Georgia law requires courts to compare the terms of the insurance policy to the allegations of the complaint "`to determine whether a liability covered by the policy is asserted.'" Great Am. Ins. Co. v. McKemie , 259 S.E.2d 39, 40-41 (Ga. 1979) (quoting Loftin v. United States Fire Ins. Co ., 127 S.E.2d 53, 58 (Ga.Ct.App. 1962)). Thus, when the insurance policy requires the insurer to defend even groundless claims, as the policies at issue in this case do, "the insurer has a duty to defend even where the complaint against the insured sets forth false factual allegations which would bring the claim within the coverage of the policy." Penn-America Ins. Co ., 490 S.E.2d at 376. However, "a distinction must be drawn between groundless suits and actions which, even if successful would not be within the policy coverage." McKemie , 259 S.E.2d at 40 (internal quotation marks omitted). For example, "[a] claim based on true facts not within coverage is not groundless within the meaning of the policy, but simply one for which liability insurance is not afforded and which the insurer did not undertake to defend (though the insured may be liable)." Id. (internal quotation marks omitted). An obvious example of such a claim is a claim brought against a person who is not an insured under the policy at issue.
Plaintiffs argue that they are insureds under the policies, that there is at least a possibility that the allegations in the underlying cases could result in a covered claim, and that Defendant is therefore obligated to defend them. With respect to the policies issued to the Partnership, the Court agrees that Plaintiffs were at one time insureds under those policies, but Plaintiffs' argument falters on the assumption that they remained so after they executed the bill of sale. In this regard, Defendant argues that the assignment of all insurance policies in the bill of sale divested Plaintiffs of any rights to coverage under those policies. Under Georgia law, "[a]n assignment is an `absolute, unconditional, and completed transfer of all right, title, and interest in the property that is the subject of the assignment . . ., with the concomitant total relinquishment of any control over the property.'" Allianz Life Ins. Co. of N. Am. v. Riedl , 444 S.E.2d 736, 738 (Ga. 1994) (quoting Bank of Cave Spring v. Gold Kist, Inc ., 327 S.E.2d 800, 802 (Ga.Ct.App. 1985)) (emphasis added). Here, because the bill of sale clearly assigned all insurance policies to the Corporation, the Court agrees with Defendant and finds that Plaintiffs have completely relinquished any rights to coverage to which they may have been entitled before they executed the bill of sale in 1972. Essentially, although Plaintiffs were insureds under the policies issued to the Partnership before they executed the bill of sale (by virtue of the endorsements and the definition of "insured"), they are no longer insureds under those policies. Thus, regardless of whether Plaintiffs are ultimately found liable in the underlying cases, they are not entitled to coverage because the complaints in the underlying cases do not assert claims that are even potentially or arguably within the terms of the policies.
Plaintiffs offer three arguments in response, but they are ultimately unpersuasive. First, Plaintiffs argue that the severability of interests clauses in the policies issued to the Partnership created distinct, individual rights in the partners to coverage and that the bill of sale did not purport to assign those non-partnership rights. The severability of interests clauses provide that the insurance afforded applies separately, not collectively, to each insured against whom a claim is brought, except with respect to the limits of the insurer's liability. Georgia law provides that such a clause must be interpreted "as if any number of policies were written covering each of the insureds separately, not necessarily as a group, but because of the payment of premiums the insureds, while separately named, have been covered under one policy." Rowe v. Ga. Cas. Sur. Co ., 279 S.E.2d 318, 322 (Ga.Ct.App. 1981). Granting Plaintiffs the accuracy of this statement as a principle of Georgia law, the Court does not understand how the severability of interests clauses create distinct, individual rights in the partners to coverage under the policies. The fact that the policies may be considered as issued separately to each partner does not affect the capacity in which each partner is insured. The policies unambiguously include partners in the definition of "insured," but only in their capacity as partners; there is nothing in the policies indicating that the partners are insured in their individual capacities. Even construing the severability of interests clauses strictly against Defendant, as the Court must if there is any ambiguity, see Richards v. Hanover Ins. Co ., 299 S.E.2d 561, 563 (Ga. 1983), the policies do not provide individual-capacity coverage because the severability of interests clauses do not purport to create coverage where it does not already exist. To decide otherwise would be to improperly enlarge the policies' coverage beyond that which Defendant contracted to provide. See Shelby Ins. Co. v. Ford , 454 S.E.2d 464, 465-66 (Ga. 1995) ("It was with Cain, as an individual, that appellant contracted to provide insurance coverage, and that contract cannot be enlarged by the court to include as a named insured a wholly distinct legal entity."). Plaintiffs certainly could have obtained insurance for themselves in their individual capacities, but for whatever reason they did not choose that option.
Second, Plaintiffs argue that Defendant is barred from asserting the assignment as a basis for denying them a defense because the extent of the transfer of assets and liabilities in the bill of sale is at issue in the underlying cases. For purposes of this order, the Court accepts Plaintiffs' argument that an insurer is barred from litigating an issue in a coverage case that is involved in the underlying liability case. However, Plaintiff has mischaracterized the issue that is involved in the underlying cases. As the Court's order of September 30, 1999, makes clear, the issue in the underlying cases is whether Plaintiffs transferred their potential environmental liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 to Canadyne when they executed the bill of sale in 1972. See Canadyne-Georgia Corp. v. Cleveland , 72 F. Supp.2d 1373, 1377-81 (M.D.Ga. 1999). The Court did not, as Plaintiffs contend, hold that the bill of sale was unclear as to whether the Partnership's assets and liabilities were assigned to the Corporation; instead, the Court held that the bill of sale was unclear only with respect to whether the Partnership assigned its potential CERCLA liability to the Corporation. See id. at 1380. In fact, the Court repeatedly indicated throughout its order of September 30, 1999, that the bill of sale assigned all assets from the Partnership to the Corporation. The complaints filed in the underlying cases support this conclusion. See 1996 First Am. Compl. ¶ 37; 1999 Compl. ¶¶ 36-37. Thus, because the assignment of all assets, including all insurance policies, in the bill of sale is not an issue in the underlying cases, Defendant is not precluded from raising it in this case.
Finally, Plaintiffs argue that the assignment is invalid because Defendant did not consent to it by written endorsement, as required by the policies. However, because "[p]rovisions which require the consent of the insurer to an assignment of the policy are clearly for the insurer's benefit — such assignments change the risk which the insurer has assumed under the terms of the policy," State Farm Fire Cas. Co. v. Mills Plumbing Co ., 263 S.E.2d 270, 272 (Ga.Ct.App. 1979), the Georgia Supreme Court has held that only the insurer is permitted to challenge an assignment on the ground that it did not consent to the assignment. See Barrett v. Barrett , 160 S.E. 399, 402 (Ga. 1931); Farmers' State Bank v. Kelley , 118 S.E. 197, 199 (Ga. 1923). Thus, Plaintiffs have no right to rely on Defendant's failure to consent to the assignment by written endorsement. Moreover, because an insurer may consent to an assignment by its actions, Defendant's failure to raise this issue may constitute a waiver of the policies' requirement that the consent be in writing. See Mills Plumbing Co ., 263 S.E.2d at 272-74.
With respect to the policies issued to the Corporation, Defendant argues that Plaintiffs are not entitled to coverage because, among other reasons, the underlying cases do not seek to hold the shareholders liable. Defendant is correct, not because the underlying cases do not seek to hold the shareholders liable at all, but rather because the underlying cases do not seek to hold the shareholders liable in their capacity as shareholders. As discussed above, the named insured for each of those policies is the Corporation, but each policy provides that if the named insured is a corporation, then the word "insured" also includes any executive officer, director, and stockholder thereof, but only while acting within the scope of his duties as such. Construing materially similar policy language, the Eleventh Circuit has held that "`the policy language reflects coverage for a stockholder when its status as a stockholder — not its own conduct — makes it liable for conduct of the named insured.'" Elan Pharm. Research Corp ., 144 F.3d at 1383 (quoting Certainteed Corp. v. Fed. Ins. Co ., 913 F. Supp. 351, 357 (E.D.Pa. 1995)). Thus, the policies issued to the Corporation "d[o] not cover claims asserting liability based on the stockholder's conduct, either alone or in concert with the insured." Id. at 1382-83.
Because the definition of "insured" clearly covers shareholders only to the extent of their liability as shareholders, the policies issued by Defendant to the Corporation do not purport to provide individual-capacity coverage to the shareholders. Thus, the Court concludes that the shareholders are not entitled to coverage in their individual capacities under those policies. See Stansell v. St. Paul Fire Marine Ins. Co ., 345 S.E.2d 151, 152 (Ga.Ct.App. 1986).
Following the Eleventh Circuit's reasoning in Elan Pharm. Research Corp ., the Court turns to the allegations of the complaints filed in the underlying cases. As to the complaint filed in the 1996 lawsuit, the only shareholders against whom liability is asserted in their shareholder capacity, and who are Plaintiffs in this case, are Thomas W. Cleveland, Sr., and John H. Thurman. Paragraph 52 of the first amended complaint alleges that Mr. Cleveland, while acting as president of the Corporation from 1972 through 1977, "actively participated in the operations and the management of the Facility." Similarly, paragraph 56 of the first amended complaint alleges that Mr. Thurman, while acting as vice president of the Corporation from 1972 through 1977, "actively participated in the operations and the management of the Facility." Additionally, the first amended complaint generally alleges that the defendants (Plaintiffs here) are liable because they (1) negligently released, discharged, and disposed of, or allowed or contributed to the release, discharge, and disposal of, hazardous substances at the facility site; (2) owned and operated the facility; and (3) negligently created, or failed to remedy, a hazardous condition at the facility site. For example, paragraphs 95-97 of the first amended complaint allege as follows:
Actually, because Mr. Cleveland died before the complaint in this case was filed, his estate is a Plaintiff rather than him personally.
Another shareholder, the J.W. Woolfolk Trust, is also a Plaintiff in this case, but the complaint filed in the 1996 lawsuit contains no allegations regarding its status or conduct as a shareholder.
Mr. Thomas W. Cleveland, though his acts and/or omissions, negligently released or allowed the release of hazardous substances into the environment at the Facility, breaching his duty to exercise reasonable care, prudence and diligence not to pollute, contaminate or degrade the environment, which violation constitutes negligence per se.
Mr. Thomas W. Cleveland, though his acts and/or omissions, negligently caused or failed to remedy a hazardous condition at the Facility.
Mr. Thomas W. Cleveland, through his acts and/or omissions, negligently discharged, disposed or allowed the discharge and/or disposal of hazardous substances into the environment at the Facility, violating his statutory duty not to pollute, contaminate or degrade the environment, which violation constitutes negligence per se.
These allegations do not assert that the shareholders are liable because of their status as shareholders; instead, they assert that the shareholders engaged in conduct that gave rise to Canadyne's environmental liability and for which they should also be liable. Also, considering the totality of the complaint filed in the 1999 lawsuit, the Court doubts that Canadyne is seeking to hold the shareholders liable at all in that case. To the extent that it is, however, the allegations there are also based on the shareholders' conduct rather than their status as shareholders. Moreover, as the Eleventh Circuit pointed out in Elan Pharm. Research Corp ., there is no allegation in either of the complaints filed in the underlying cases that the shareholders are liable because the Corporation existed as an alter ego of themselves. Thus, the Court is forced to conclude that the cost of defending the shareholders in the underlying cases falls outside the coverage of the policies issued to the Corporation.
IV. CONCLUSION
The evidence in this case shows unambiguously that Plaintiffs are not entitled to coverage under the policies issued to the Partnership because the bill of sale divested them of their status as insureds under those policies. In addition, Plaintiffs are not entitled to coverage under the policies issued to the Corporation because the underlying cases do not allege liability based on their status as shareholders. As a result, Defendant is not obligated to provide Plaintiffs with a defense in the underlying cases. Accordingly, Plaintiffs' motion (tab #31) is DENIED, and Defendant's motion (tab #49) is GRANTED.