Abercrombie & Fitch Co. v. Federal Insurance Company

370 F. App'x 563
Court of Appeals for the Sixth Circuit·Decided March 11, 2010·No. 09-3096·Unpublished·Cited by 10 cases

Opinions

RALPH B. GUY, JR., Circuit Judge.

This is a diversity breach of contract action in which plaintiff Abercrombie & Fitch Co. claims defendant Federal Insurance Company improperly refused to pay legal defense costs under an executive protection insurance policy. On summary judgment, the district court ruled in favor of Abercrombie, interpreting the contract to require coverage of its defense costs. Finding no error in the district court’s interpretation, we affirm.

I.

Plaintiff Abercrombie & Fitch (Aber-crombie) contests defendant Federal Insurance Company’s (Federal) refusal to pay defense costs. of securities class actions, shareholder derivative suits, and SEC investigation initiated against Aber-crombie beginning in 2005.1 Abercrombie had $10 million in coverage for such claims under a Federal policy, with an effective period covering the dates the claims against Abercrombie were filed. After Federal refused to pay Abercrombie’s insurance claim, Abercrombie filed a five-count federal diversity action in 2006, seeking a declaration of Federal’s obligation to pay certain defense costs under the Federal Policy, and damages for its breach of contract.2 Federal’s answer to the complaint included a third-party complaint against National Union Fire Insur-anee Co., issuer of a separate insurance policy to Abercrombie, and a counterclaim against Abercrombie. In the counterclaim, Federal asserted Abercrombie’s breach of the Federal Policy, and sought declaratory judgment that it was not obligated to provide coverage for the Ross claims and SEC investigation. In February 2008, Federal filed a motion for summary judgment, which was denied by the district court in September 2008.3

Neither party contests the facts and sequence of events set out in the district court’s Opinion and Order denying Federal’s motion for summary judgment, repeated below:

Federal issued Executive Protection Portfolio Policy No. 8159-6218 (the “Federal Policy”) to Abercrombie for the Policy Period of September 1, 2004 to September 1, 2005. The Federal Policy includes an Executive Liability and Entity Securities Liability Coverage Section, which provides up to $10 million of coverage for Abercrombie, its officers and directors, for “loss ... on account of any Claim first made ... against [an insured] during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted or allegedly committed or attempted by [an insured] before or during the Policy Period.” As the end of the Federal Policy Period approached, Abercrombie purchased a new claims-made policy from National Union [565] Fire Insurance Company of Pittsburgh (“National Union”), with coverage effective from September 1, 2005 to September 1, 2006.
On September 2, 2005, one day after the expiration of the Federal Policy, Abercrombie was sued, along with several of its officers and directors, in a class action complaint alleging violations of federal securities laws. Certain Abercrombie shareholders subsequently filed several derivative suits, and the Securities and Exchange Commission commenced a formal investigation on November 30, 2005.
The Federal Policy permitted Aber-crombie to purchase a one-year extended reporting period (the “ERP”) that would cover claims arising after the end of the initial Policy Period, but involving conduct that occurred during the Policy Period. Abercrombie exercised the option to purchase the ERP and paid the $820,000 premium [4] on September 30, 2005, within the 30-day window provided by the Federal Policy. Abercrombie formally notified Federal of the Ross Claims by letter dated October 5, 2005.
There is no dispute that after the Ross claims were filed, and before purchasing the ERP, Abercrombie renegotiated the National Union Policy, providing that the new coverage would be excess to Federal’s primary coverage under the ERP. The agreement between National Union and Abercrombie was later memorialized in an Endorsement to the National Union Policy.[5] Endorsement No. 17 reads as follows:
In the event a Claim is made against an Insured under the policy and also under Policy No. 8159-6213 issued by Federal Insurance Company (hereinafter “Federal Policy”), alleging any Wrongful Act committed or allegedly committed prior to 9/01/2005, then such insurance as is provided by this policy shall apply only as excess over any Loss paid under such Federal Policy.
The parties agree that, had Aber-crombie purchased the ERP and not written the National Union Policy to be excess, the National Union and Federal policies would both be primary. Federal maintains that, by shifting the burden of primary coverage to Federal, Aber-crombie prejudiced Federal’s right to recover from National Union, and that such conduct constitutes a material breach of the insurance contract and a bar to coverage. Specifically, Federal claims that Abercrombie breached Section 16(d) of the Policy, which states:
The Insureds agree to provide the Company [Federal] with all information, assistance and cooperation which the Company may reasonably require and agree that in the event of a Claim the Insureds will do nothing that could prejudice the Company’s position or its potential or actual rights of recovery.
Abercrombie contends that the Federal Policy expressly permitted Abercrom-bie to structure additional or subsequent coverage as excess to Federal’s primary coverage. Specifically, the Federal Policy states, in Section 18:
If any Loss under this coverage section is insured under any other valid [566] insurance policy(ies), then this coverage section shall cover such Loss, subject to its limitations, conditions, provisions and other terms, only to the extent that the amount of such Loss is in excess of the applicable retention (or deductible) and limit of liability under such other insurance, whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the Limits of Liability provided in this coverage section [the Executive Liability and Entity Securities Liability Coverage section],
(Federal Policy, Doc. # 85-2).
The parties differ over the meaning of this provision. Federal maintains that the provision applies only to coverage that is exclusively excess; Abercrombie contends that this section gives it the right to purchase primary coverage that would be excess only as to the Federal ERP.

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Abercrombie & Fitch Co. v. Federal Insurance Company, 370 F. App'x 563 (6th Cir. 2010).

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