Benefytt Technologies, Inc. v. Capitol Specialty Insurance Corporation
This text of Benefytt Technologies, Inc. v. Capitol Specialty Insurance Corporation (Benefytt Technologies, Inc. v. Capitol Specialty Insurance Corporation) is published on Counsel Stack Legal Research, covering Superior Court of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
BENEFYTT TECHNOLOGIES, INC. ) (f/k/a Health Insurance Innovations, Inc.), ) ) Plaintiff, ) v. ) C.A. No. N21C-02-143 ) PRW CCLD CAPITOL SPECIALTY INSURANCE ) CORPORATION, MAXUM ) INDEMNITY COMPANY, CERTAIN ) UNDERWRITERS AT LLOYD’S OF ) LONDON, XL SPECIALTY ) INSURANCE COMPANY, ) EXECUTIVE RISK INDEMNITY, INC., ) ARGONAUT INSURANCE COMPANY, ) and ENDURANCE ASSURANCE ) CORPORATION, ) Defendants. )
Submitted: October 8, 2024 Decided: January 2, 2025
Upon Plaintiff ’s Partial Motion for Summary Judgment on the Keippel Action Claim and Lloyd’s Counterclaims, GRANTED.
Upon Plaintiff ’s Partial Motion for Summary Judgment on the Belin Action Claim, DENIED.
Upon Defendant Endurance Assurance Corporation’s Motion for Summary Judgment, GRANTED.
Upon Defendant Executive Risk Indemnity, Inc.’s Motion for Summary Judgment, GRANTED. Upon Defendant Certain Underwriters at Lloyd’s of London’s Motion for Summary Judgment, GRANTED in part, DENIED in part.
MEMORANDUM OPINION AND ORDER
Jennifer C. Wasson, Esquire, and Carla M. Jones, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Joshua Gold, Esquire (argued), Dennis J. Nolan, Esquire, and John Leonard, Esquire, ANDERSON KILL, P.C., New York, New York, Attorneys for Plaintiff Benefytt Technologies, Inc.
David J. Soldo, Esquire, MORRIS JAMES LLP, Wilmington, Delaware; Michael D. Margulies, Esquire (argued), and Charles W. Stotter, Esquire, CARLTON FIELDS, P.A., New York, New York, Attorneys for Defendant Endurance Assurance Corporation.
Robert J. Katzenstein, Esquire, and Julie M. O’Dell, Esquire, SMITH KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Ralph A. Guirgis, Esquire, Sean R. Simpson, Esquire (argued), and Amy Resh, Esquire, CLYDE & CO US LLP, Irvine, California, Attorneys for Defendant Executive Risk Indemnity, Inc.
Timothy Jay Houseal, Esquire, and Jennifer M. Kinkus, Esquire, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Raymond T. DeMeo, Esquire (argued), and Matthew M. Burke, Esquire, ROBINSON & COLE LLP, Boston, Massachusetts, Attorneys for Defendant Certain Underwriters at Lloyd’s of London.
Robert J. Katzenstein, Esquire, and Julie M. O’Dell, Esquire, SMITH KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Matthew W. Beato, Esquire (argued), and Anna Schaffner, Esquire, WILEY REIN LLP, Washington, DC, Attorneys for Defendant XL Specialty Insurance Company.
WALLACE, J. ii In 2018 and 2019, Plaintiff Benefytt Technologies faced seven different
lawsuits or other enforcement actions that alleged securities violations, charges of
racketeering, federal trade violations, and other related wrongdoings. Principally,
two of those—the Keippel action and the Belin action—are at issue here. Benefytt
is before this Court seeking a declaratory judgment against its then-extant insurers
that those two underlying suits were covered by those companies’ policies.
Upon the parties’ cross-motions for summary judgment, the Court finds that
(1) the Keippel action falls within the 2018-2019 policy period and (2) the Belin
action falls outside the 2017-2018 policy period, outside the 2018-2019 policy
periods, and is not interrelated with any other covered claim. With these findings in
mind—and because the Insurers already indemnified for the Keippel action under
the 2018-2019 policy—Certain Underwriters at Lloyd’s of London reimbursement,
recoupment, and unjust enrichment counterclaims are moot.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. THE PARTIES AND INSURANCE COVERAGE
Plaintiff Benefytt is a Delaware corporation with its principal place of
business in Florida.1 Before filing for bankruptcy, Benefytt operated a “health
insurance technology business.”2 In connection therewith, Lloyd’s provided
1 Moving Parties’ Joint Appendix of Exhibits (“JA”) Ex. 1 (“Third Am. Compl.”) ¶ 39, and Ex. 2 (“Lloyd’s Answer”), at 20 (D.I. 239). 2 Benefytt Technologies, Inc. v. Capitol Specialty Insurance Corporation, 2022 WL 16504, at *1 -1- Benefytt $10 million in insurance coverage under both a 2017-2018 primary policy
and a 2018-2019 primary policy.3 Lloyd’s also wrote the Primary Policies’
language.4 The other insurer defendants—Capitol Specialty Insurance Corporation,
Maxum Indemnity Company, XL Specialty Insurance Company, Executive Risk
Indemnity, Inc., Argonaut Insurance Company, and Endurance Assurance
Corporation (collectively, “the Excess Policies”)—each contracted to provide
Benefytt $5 million in excess coverage above the previous insurance layer.5
The Policies provided coverage as follows:6
Policy Number Coverage Period Coverage Amount Tower 1 Lloyd’s B0507N17FT08360 5/8/2017-5/8/2018 $10M XL Specialty ELU149887-17 5/8/2017-5/8/2018 $5M xs $10M Executive Risk 8242-2156 5/8/2017-5/8/2018 $5M xs $15M Endurance DOX10006425402 5/8/2017-5/8/2018 $5M xs $20M Tower 2 Lloyd’s B0621PHEAL003118 6/8/2018-6/8/2019 $10M XL Specialty ELU155940-18 6/8/2018-6/8/2019 $5M xs $10M Argonaut MLX4209146-0 6/8/2018-6/8/2019 $5M xs $15M Endurance DOX10013192200 6/8/2018-6/8/2019 $5M xs $20M
(Del. Super. Ct. Jan. 3, 2022) (“Benefytt I”); see Transcript of Motions Hearing held on Tuesday, September 24, 2024 (“MSJ Tr.”) at 40-45 (noting Benefytt filed for bankruptcy and its effect) (D.I. 327). 3 JA Ex. 17 (“2017-2018 primary policy”), and Ex. 21 (“2018-2019 primary policy” and together with the 2017-2018 primary policy, “the Primary Policies”). 4 The Primary Policies. 5 JA Ex. 18 (“XL 2017-2018 policy”), Ex. 19 (“Executive Risk 2017-2018 policy”), Ex. 20 (“Endurance 2017-2018 policy”), Ex. 22 (“XL 2018-2019 policy”), Ex. 23 (“Argonaut 2018-2019 policy”), Ex. 24 (“Endurance 2018-2019 policy”). In all relevant ways these are identical, so together with the Primary Policies, this collective shall hereinafter be the “Policy” or “Policies.” 6 JA Exs. 17-24.
-2- All of these listed policies are functionally identical;7 the Excess Policies
generally follow the Primary Policies’ operative language.8
B. THE POLICIES’ LANGUAGE
The Policies require Insurers to reimburse Benefytt for any:
Loss which the Company is required or permitted or has agreed to pay as indemnification to any of the Insured Persons resulting from any Claim first made against the Insured Persons during the Policy Period for a Wrongful Act[.]9
“Insured Persons” included “all persons who [] now are . . . directors, officers or risk
managers of the Company[.]”10 The Policies define “Claim” as:
any written demand for monetary damages, non monetary relief, injunctive relief or other relief against any of the Insureds, or any civil, criminal, administrative, regulatory, arbitration or mediation proceeding or other alternative dispute resolution process initiated against any of the Insureds[.]11
7 See the Primary Policies. Because the operative language of the Policies is identical the Court may sometimes cite to them interchangeably. 8 See, e.g., XL 2017-2018 policy at BFT00057043 (“Coverage hereunder will apply in conformance with the terms, conditions, endorsements and warranties of the Primary Policy together with the terms, conditions, endorsements and warranties of any other Underlying Insurance.”). At oral argument, Executive Risk stressed that its policy included a notice-and- consent to settlement provision that is distinct from the Primary Policies and Excess Policies. MSJ Tr. at 35-39; see JA Ex. 19 at ERCF00538 (defining the notice-and-settlement provisions of the Executive Risk 2017-2018 policy).
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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
BENEFYTT TECHNOLOGIES, INC. ) (f/k/a Health Insurance Innovations, Inc.), ) ) Plaintiff, ) v. ) C.A. No. N21C-02-143 ) PRW CCLD CAPITOL SPECIALTY INSURANCE ) CORPORATION, MAXUM ) INDEMNITY COMPANY, CERTAIN ) UNDERWRITERS AT LLOYD’S OF ) LONDON, XL SPECIALTY ) INSURANCE COMPANY, ) EXECUTIVE RISK INDEMNITY, INC., ) ARGONAUT INSURANCE COMPANY, ) and ENDURANCE ASSURANCE ) CORPORATION, ) Defendants. )
Submitted: October 8, 2024 Decided: January 2, 2025
Upon Plaintiff ’s Partial Motion for Summary Judgment on the Keippel Action Claim and Lloyd’s Counterclaims, GRANTED.
Upon Plaintiff ’s Partial Motion for Summary Judgment on the Belin Action Claim, DENIED.
Upon Defendant Endurance Assurance Corporation’s Motion for Summary Judgment, GRANTED.
Upon Defendant Executive Risk Indemnity, Inc.’s Motion for Summary Judgment, GRANTED. Upon Defendant Certain Underwriters at Lloyd’s of London’s Motion for Summary Judgment, GRANTED in part, DENIED in part.
MEMORANDUM OPINION AND ORDER
Jennifer C. Wasson, Esquire, and Carla M. Jones, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Joshua Gold, Esquire (argued), Dennis J. Nolan, Esquire, and John Leonard, Esquire, ANDERSON KILL, P.C., New York, New York, Attorneys for Plaintiff Benefytt Technologies, Inc.
David J. Soldo, Esquire, MORRIS JAMES LLP, Wilmington, Delaware; Michael D. Margulies, Esquire (argued), and Charles W. Stotter, Esquire, CARLTON FIELDS, P.A., New York, New York, Attorneys for Defendant Endurance Assurance Corporation.
Robert J. Katzenstein, Esquire, and Julie M. O’Dell, Esquire, SMITH KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Ralph A. Guirgis, Esquire, Sean R. Simpson, Esquire (argued), and Amy Resh, Esquire, CLYDE & CO US LLP, Irvine, California, Attorneys for Defendant Executive Risk Indemnity, Inc.
Timothy Jay Houseal, Esquire, and Jennifer M. Kinkus, Esquire, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Raymond T. DeMeo, Esquire (argued), and Matthew M. Burke, Esquire, ROBINSON & COLE LLP, Boston, Massachusetts, Attorneys for Defendant Certain Underwriters at Lloyd’s of London.
Robert J. Katzenstein, Esquire, and Julie M. O’Dell, Esquire, SMITH KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Matthew W. Beato, Esquire (argued), and Anna Schaffner, Esquire, WILEY REIN LLP, Washington, DC, Attorneys for Defendant XL Specialty Insurance Company.
WALLACE, J. ii In 2018 and 2019, Plaintiff Benefytt Technologies faced seven different
lawsuits or other enforcement actions that alleged securities violations, charges of
racketeering, federal trade violations, and other related wrongdoings. Principally,
two of those—the Keippel action and the Belin action—are at issue here. Benefytt
is before this Court seeking a declaratory judgment against its then-extant insurers
that those two underlying suits were covered by those companies’ policies.
Upon the parties’ cross-motions for summary judgment, the Court finds that
(1) the Keippel action falls within the 2018-2019 policy period and (2) the Belin
action falls outside the 2017-2018 policy period, outside the 2018-2019 policy
periods, and is not interrelated with any other covered claim. With these findings in
mind—and because the Insurers already indemnified for the Keippel action under
the 2018-2019 policy—Certain Underwriters at Lloyd’s of London reimbursement,
recoupment, and unjust enrichment counterclaims are moot.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. THE PARTIES AND INSURANCE COVERAGE
Plaintiff Benefytt is a Delaware corporation with its principal place of
business in Florida.1 Before filing for bankruptcy, Benefytt operated a “health
insurance technology business.”2 In connection therewith, Lloyd’s provided
1 Moving Parties’ Joint Appendix of Exhibits (“JA”) Ex. 1 (“Third Am. Compl.”) ¶ 39, and Ex. 2 (“Lloyd’s Answer”), at 20 (D.I. 239). 2 Benefytt Technologies, Inc. v. Capitol Specialty Insurance Corporation, 2022 WL 16504, at *1 -1- Benefytt $10 million in insurance coverage under both a 2017-2018 primary policy
and a 2018-2019 primary policy.3 Lloyd’s also wrote the Primary Policies’
language.4 The other insurer defendants—Capitol Specialty Insurance Corporation,
Maxum Indemnity Company, XL Specialty Insurance Company, Executive Risk
Indemnity, Inc., Argonaut Insurance Company, and Endurance Assurance
Corporation (collectively, “the Excess Policies”)—each contracted to provide
Benefytt $5 million in excess coverage above the previous insurance layer.5
The Policies provided coverage as follows:6
Policy Number Coverage Period Coverage Amount Tower 1 Lloyd’s B0507N17FT08360 5/8/2017-5/8/2018 $10M XL Specialty ELU149887-17 5/8/2017-5/8/2018 $5M xs $10M Executive Risk 8242-2156 5/8/2017-5/8/2018 $5M xs $15M Endurance DOX10006425402 5/8/2017-5/8/2018 $5M xs $20M Tower 2 Lloyd’s B0621PHEAL003118 6/8/2018-6/8/2019 $10M XL Specialty ELU155940-18 6/8/2018-6/8/2019 $5M xs $10M Argonaut MLX4209146-0 6/8/2018-6/8/2019 $5M xs $15M Endurance DOX10013192200 6/8/2018-6/8/2019 $5M xs $20M
(Del. Super. Ct. Jan. 3, 2022) (“Benefytt I”); see Transcript of Motions Hearing held on Tuesday, September 24, 2024 (“MSJ Tr.”) at 40-45 (noting Benefytt filed for bankruptcy and its effect) (D.I. 327). 3 JA Ex. 17 (“2017-2018 primary policy”), and Ex. 21 (“2018-2019 primary policy” and together with the 2017-2018 primary policy, “the Primary Policies”). 4 The Primary Policies. 5 JA Ex. 18 (“XL 2017-2018 policy”), Ex. 19 (“Executive Risk 2017-2018 policy”), Ex. 20 (“Endurance 2017-2018 policy”), Ex. 22 (“XL 2018-2019 policy”), Ex. 23 (“Argonaut 2018-2019 policy”), Ex. 24 (“Endurance 2018-2019 policy”). In all relevant ways these are identical, so together with the Primary Policies, this collective shall hereinafter be the “Policy” or “Policies.” 6 JA Exs. 17-24.
-2- All of these listed policies are functionally identical;7 the Excess Policies
generally follow the Primary Policies’ operative language.8
B. THE POLICIES’ LANGUAGE
The Policies require Insurers to reimburse Benefytt for any:
Loss which the Company is required or permitted or has agreed to pay as indemnification to any of the Insured Persons resulting from any Claim first made against the Insured Persons during the Policy Period for a Wrongful Act[.]9
“Insured Persons” included “all persons who [] now are . . . directors, officers or risk
managers of the Company[.]”10 The Policies define “Claim” as:
any written demand for monetary damages, non monetary relief, injunctive relief or other relief against any of the Insureds, or any civil, criminal, administrative, regulatory, arbitration or mediation proceeding or other alternative dispute resolution process initiated against any of the Insureds[.]11
7 See the Primary Policies. Because the operative language of the Policies is identical the Court may sometimes cite to them interchangeably. 8 See, e.g., XL 2017-2018 policy at BFT00057043 (“Coverage hereunder will apply in conformance with the terms, conditions, endorsements and warranties of the Primary Policy together with the terms, conditions, endorsements and warranties of any other Underlying Insurance.”). At oral argument, Executive Risk stressed that its policy included a notice-and- consent to settlement provision that is distinct from the Primary Policies and Excess Policies. MSJ Tr. at 35-39; see JA Ex. 19 at ERCF00538 (defining the notice-and-settlement provisions of the Executive Risk 2017-2018 policy). The distinct notice-and-settlement provision might just provide alternative grounds to absolve Executive Risk of any coverage responsibility. But as the Court concludes neither the Keippel nor the Belin actions fall within 2017-2018 policy, Executive Risk has no further obligations related to those two actions. Accordingly, the Court needn’t address the arguments related to the Executive Risk policy’s separate notice-and-settlement consent provisions. 9 2017-2018 primary policy § I.B.1. 10 Id. § II.K.1. 11 Id. § II.B.1.
-3- Additionally, Insurers agreed to pay Benefytt for any “Company Loss resulting
from any Securities Claim first made against the Company during the Policy
Period for a Wrongful Act.”12
The Policies recognize the possibility of multiple claims related to the same
underlying conduct.13 Accordingly, the Policies provide:
More than one Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be deemed to constitute a single Claim and shall be deemed to have been made at the earliest of the following dates:
1. the date on which the earliest Claim involving the same Wrongful Act or Interrelated Wrongful Acts is first made; or
2. the date on which the Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be deemed to have been made pursuant to Clause[.]14
“Wrongful Act” is defined as “any actual or alleged act, error, omission,
misstatement, misleading statement, neglect or breach of duty,” by a covered
individual or entity.15 Similarly, “Interrelated Wrongful Acts” are defined as
“Wrongful Acts which have as a common nexus any fact, circumstance, situation,
event, transaction or series of facts, circumstances, situations, events or
12 Id. § I.C. 13 Id. § IV.C. 14 Id. 15 Id. § I.BB.
-4- transaction.”16
The Policies contain several coverage exclusions.17 Relevant here is the
“Professional Services Exclusion” which bars coverage:
For any act, error or omission in connection with the performance of any professional services by or on behalf of the Company for the benefit of any other entity or person; provided however that this Exclusion shall not apply to a Securities Claim.18
Notably, the Policies don’t define “professional service.”19
The Policies require Benefytt to give Insurers notice of any claim for which it
seeks coverage.20 Benefytt may also provide a Notice of Circumstances if it
“become[s] aware of a specific fact, circumstance or situation which could
reasonably give rise to a Claim.”21 If the notice of claim details “the specific fact,
circumstance, [or] situation . . . the consequences which have resulted or may result
therefrom; and the circumstance by which [Benefytt] first became aware thereof,”
then any subsequent related claim “shall be deemed . . . to have been first made or
commenced at the time such notice was first given.”22
16 Id. § I.M. 17 Id. § III. 18 Id. at ENDUR001846 (“Professional Services Exclusion”). 19 See generally Professional Services Exclusion; JA Ex. 21. 20 2017-2018 primary policy § VI.A. 21 Id. § VI.C. 22 Id.
-5- C. THE UNDERLYING ACTIONS AGAINST BENEFYTT
Central to the parties’ coverage disputes are the seven underlying actions that
Benefytt had to defend. Those are the Keippel action, the Belin action, the Daniels
action, the DiFalco action, the Rector action, the Federal Trade Commission action,
and the Spiewak action.
1. The Keippel Action
First filed in February 2019, the Keippel action was a securities class action
which asserted claims against Benefytt, its CEO, and its CFO.23 In July 2019, the
Keippel action became a consolidated class action asserting the same claims, against
the same defendants, with a class period of September 25, 2017 through April 11,
2019.24
The Keippel plaintiffs brought claims for violation of Sections 10(b) and 20(a)
of the Exchange Act and SEC Rule 10b-5.25 The consolidated complaint alleged
that: (1) Benefytt and a health insurance provider, Simple Health, conspired to sell
Benefytt products to customers who falsely believed they were buying
comprehensive health insurance;26 (2) Benefytt omitted material information and
23 Class Action Complaint for Keippel v. Health Ins. Innovation, Inc., et al., Case No. 8:19-cv- 00421-WFJ-CPJ (M.D. Fla. Feb. 18, 2019) (“Keippel Original Compl.”) (JA Ex. 6). 24 JA Ex. 7 (“Keippel Compl.”) ¶ 228. 25 Keippel Compl. ¶¶ 242-257. 26 Id. ¶¶ 49-69.
-6- made false statements to investors by failing to disclose the specifics of the Simple
Health scheme;27 (3) Benefytt’s directors were aware of the Simple Health scheme
since they received thousands of customer complaints;28 and (4) the individual
defendants participated in the endeavor so they could sell their Benefytt stock at an
artificially high price.29
Before the action was consolidated, Benefytt provided notice of the Keippel
action and Lloyd’s accepted coverage for the suit under the 2018-2019 primary
policy.30 But Lloyd’s revised its position in December 2019, months after the action
was consolidated. It argued the Keippel action was interrelated to three earlier
lawsuits, which meant that the action now fell within the 2017-2018 primary policy’s
coverage period.31 Despite this change, Lloyd’s agreed to cover the Keippel
settlement and defense costs under the 2018-2019 primary policy while reserving its
right to contest the Keippel claim’s placement.32
Ultimately, the Keippel action settled for $11 million that was paid to class
27 See id. ¶¶ 158-59. 28 Id. ¶¶ 70-114. 29 See id. ¶¶ 83, 121-35. 30 Affidavit of Carla M. Jones in Support of Plaintiff’s Motion for Partial Summary Judgment Regarding Keippel Claim Placement for Primary and Excess D&O Insurance Coverage and a Ruling that Lloyd’s Counterclaims Fail as Matter of Law (“Keippel Jones Aff.”) Ex. 1. 31 Keippel Jones Aff. Ex. 2. 32 Id.
-7- members plus approximately $4.2 million in attorneys’ fees.33
2. The Belin Action
The original Belin class action complaint was filed on June 7, 2019, and
asserted claims against Benefytt with a class period of June 2015 to June 2019.34 On
July 17, 2019, the Belin plaintiffs amended their complaint to add Benefytt’s
chairman and founder Michael Kosloske as a defendant.35 The Belin complaint was
later amended two more times, with the third and final amended complaint filed in
October 2020.36
The Belin class consisted of individuals who “purchased [Benefytt’s] limited
benefit indemnity plans through Simple Health.”37 The third amended complaint
brought claims for: (1) violation of RICO § 1962(c); (2) violation of RICO
§ 1962(d); (3) unjust enrichment; (4) aiding and abetting a violation of RICO
§ 1962(c); (5) aiding and abetting breach of fiduciary duties; and (6) aiding and
abetting fraud.38
33 Id. at Ex. 4, at 12-15. 34 See Class Action Complaint, Belin v. Health Ins. Innovations, Inc. et al., Case No. 0:19-cv- 61430-AHS (S.D. Fla. June 7, 2019) ¶¶ 1-7, 172 (JA Ex. 9) (“First Belin Compl.”). 35 See First Amended Class Action Complaint, Belin v. Health Ins. Innovations, Inc., et al., Case No. 0:19-cv-61430-AHS (S.D. Fla. July 17, 2019) (JA Ex. 10) (“Belin First Am. Compl.”). 36 See Third Amended Class Action Complaint, Belin v. Health Ins. Innovations, Inc., et al., Case No. 0:19-cv-61430-AHS (S.D. Fla. Oct. 28, 2020) (JA Ex. 12) (“Belin Third Am. Compl.”). 37 Belin Third Am. Compl. ¶ 261. 38 Id. ¶¶ 269-305.
-8- On October 31, 2019, Benefytt provided its 2018-2019 Insurers with notice
of the Belin action along with the original and first amended complaints (the “Belin
Notice”).39 Insurers denied coverage arguing the Belin notice was insufficient, and
the Belin action only became a covered claim after the 2018-2019 policies had
expired.40 In 2021, Benefytt settled the Belin action for $27.5 million.41
3. The Daniels42 and DiFalco43 Actions
The Daniels complaint was filed in April 2018 and asserted securities law
violations and corporate duty breach claims against several Benefytt directors.44 The
action had a class period running from November 3, 2016 to April 6, 2018.45
Similarly, the DiFalco action was also filed in April 2018, with a similar class
period of November 3, 2016 to April 5, 2018 (its class period was only a day shorter
than the period in the Daniels action) and its claims were identical to the Daniels
39 Affidavit of Carla Jones in Support of Plaintiff’s Motion for Partial Summary Judgment Regarding Insurance Coverage for the Belin Claim Under Defendants Primary and Excess D&O Coverage (“Belin Jones Aff.”) Ex. 8 (D.I. 249). 40 Belin Jones Aff. Ex. 9. 41 Id. at Exs. 1, 2 (providing court approval of the Belin settlement). 42 Daniels v. Health Ins. Innovations, Inc., et al., Case No. 1:18- 00527-UNA (D. Del. Apr. 6, 2018). 43 DiFalco v. Health Ins. Innovations, Inc., et al., Case No. 1:18- cv-00519-UNA (D. Del. Apr. 5, 2018). 44 Verified Shareholder Derivative Complaint, Daniels v. Health Ins. Innovations, Inc., et al., Case No. 1:18- 00527-UNA (D. Del. Apr. 6, 2018) (“Daniels Compl.”) ¶¶ 234-284 (JA Ex. 14). 45 Daniels Compl. ¶ 1.
-9- action claims.46
The Daniels and DiFalco actions are functionally identical for the purpose of
this litigation. Both actions alleged violations of Sections 14(a), 10(b), 20(a), and
SEC Rule 10b-5, fiduciary duty breaches, unjust enrichment, abuse of control, gross
mismanagement, and waste of corporate assets.47 The plaintiffs alleged Benefytt’s
directors made false statements and omitted material information concerning
Benefytt’s Florida third-party administrator (“TPA”) application.48
4. The Rector Action
The Rector action was filed in March 2018, and asserted various claims
against Benefytt’s directors. It had a class period of November 3, 2016 to September
11, 2017.49
The Rector complaint brought claims for violations of Section 10(b) and
Section 20(a) of the Securities Exchange Act of 1934 as well as a violation of SEC
Rule 10b-5.50 Similar to the Daniels and DiFalco actions, the Rector action alleged
that Benefytt’s directors made material misstatements and omissions related to
46 Verified Shareholder Derivative Complaint, DiFalco v. Health Ins. Innovations, Inc., et al., Case No. 1:18- cv-00519-UNA (D. Del. Apr. 5, 2018) (“DiFalco Compl.”) ¶ 1 (JA Ex. 15). 47 DiFalco Compl. ¶¶ 234-84. 48 Id. ¶¶ 11-13, 110-18, 136; Daniels Compl. ¶¶ 4-14, 100-118. 49 Consolidated Class Action Complaint, In re Health Ins. Innovations Securities Litig., Case No. 8:17-cv-02186-EAKMAP (M.D. Fla. Mar. 23, 2018) ¶¶ 1-2 (JA Ex. 17). 50 Id.
- 10 - Benefytt’s Florida TPA application.51 This action ultimately settled for $924,000
plus expenses.52
5. The Federal Trade Commission Action
In October 2018, the Federal Trade Commission (FTC) filed an action
alleging Simple Health, its directors, and other similar entities engaged in practices
that violated the Federal Trade Commission Act and Telemarketing Sales Rules.53
The suit challenged Simple Health’s alleged practice of selling “[l]imited benefit
plans to consumers” who “thought they had purchased comprehensive health
insurance” leaving them “without [] coverage.”54 The FTC sought an injunction and
any relief “necessary to redress injury to consumers.”55 Benefytt provided its 2018-
2019 Insurers with notice of the FTC action in December 2018, including a copy of
the complaint (collectively, the “2018 Notice of Circumstances”).56 Notice of this
action was provided as a precautionary Notice of Circumstance because Benefytt
wasn’t listed in the action but Benefytt could foresee their business with Simple
Health giving rise to a claim.57
51 Id. ¶¶ 155-65. 52 In re Health Ins. Innovations Sec. Litig., 2021 WL 1186838, at *2 (M.D. Fla. Mar. 30, 2021). 53 Belin Jones Aff. Ex. 3, at ENDUR007813-40. 54 Id. at ENDUR007818-19. 55 Id. at ENDUR007839. 56 Belin Jones Aff. Exs. 3, 8. 57 See id. at Ex. 3.
- 11 - 6. The Spiewak Action
In October 2018, Matthew Spiewak filed suit against Benefytt seeking a
declaration that he was the managing general agent of a health insurance vendor that
sold Benefytt products and insisting Benefytt breached their commission
agreement.58 In the 2018 Notice of Circumstances, as required by the D&O policy,
Benefytt provided the Insurers notice of the Spiewak action and a copy of the
Spiewak complaint.59
D. PROCEDURAL HISTORY OF THIS LITIGATION
Benefytt initiated this suit in February 2021.60 After the Court denied
Executive Risk’s motion to dismiss the Second Amended Complaint,61 Benefytt
filed the now-operative twelve-count Third Amended Complaint.62
In Count I, Benefytt seeks declaratory judgment concerning the Belin action
as to “whether: (i) the Belin Claim is a claim first made in the 2018-2019 policy
period; (ii) Argonaut and Endurance must provide insurance coverage up to their
respective policy limits for the Belin Claim costs of defense and damages, including
from settlement, and that their policies otherwise cover the Belin Claim; and (iii) the
58 Id. at ENDUR007842-43, ENDUR007847-49. 59 Belin Jones Aff. Exs. 3, 8. 60 See Complaint (D.I. 1). See also D.I. 290 and 294 (notice of bankruptcy and order transferring matter back from dormant docket). 61 See Benefytt I, 2022 WL 16504, at *1. 62 See Third Am. Compl. ¶¶ 124-226.
- 12 - Belin Claim is related to the Keippel Claim.”63
Count III seeks declaratory judgment regarding “whether [] the Keippel Claim
was first made in the 2018-2019 policy period and is not related to the 2017-2018
Actions, and Lloyd’s may not seek reimbursement from Benefytt for amounts paid
by Lloyd’s under the Lloyd’s 18-19 Primary Policy in defense and settlement of the
Keippel Claim[.]”64
Count IV seeks declaratory judgment (in the alternative to Count III), as to
“whether: (i) the Keippel Claim was first made in the 2018-2019 policy period and
is not related to the 2017-2018 Actions, and Lloyd’s may not seek reimbursement
from Benefytt for amounts paid by Lloyd’s under the Lloyd’s 18-19 Primary Policy
in defense and settlement of the Keippel Claim; and (ii) if not, then the Lloyd’s, XL,
Executive Risk and Endurance must pay the Keippel Claim in full under the 2017-
2018 policy period.”65
Count V alleges (in the alternative) that Lloyd’s, XL, Executive Risk and
Endurance breached their contract concerning the Keippel action.66 Also, Count VII
alleges that Argonaut and Endurance breached its contract concerning the Belin
63 Id. ¶ 132. 64 Id. ¶ 147. The “2017-2018 Actions” are collectively the Rector, Daniels and DiFalco actions. 65 Id. ¶ 158. 66 Id. ¶¶ 159-67.
- 13 - action.67 While, Count XII alleges (in the alternative) that Lloyd’s, XL, Argonaut,
CapSpecialty, Maxum, and Endurance breached their contract concerning the Belin
action.68
Because Benefytt reached settlements with CapSpecialty,69 Maxum,70 and
Argnonaut,71 claims which name only them as defendants (Counts II, VI, VIII, IX,
X, and XI) are moot.
Lloyd’s also filed counterclaims on Counts I, II, III, IV, and V.72 In Count I,
Lloyd’s seeks a declaration that the Rector, Daniels, Keippel, and other related
actions all involve the same wrongful or interrelated wrongful act and all constitute
a single claim first made during the 2017-2018 policy period and thus are subject to
a single $10 million limit.73 Additionally, Lloyd’s seeks a declaration that there is
no coverage for the Belin action under the 2018-2019 policy, and that Lloyd’s is
owed the amount it paid in excess of $10 million, totaling $5.2 million.74
In Count II, Lloyd’s seeks a declaration that there is no coverage for the
67 Id. ¶¶ 175-82. 68 Id. ¶¶ 214-26. 69 Partial Stipulation of Dismissal, Against Capitol Specialty Insurance Corporation (“CSIC”) as well as all counterclaims asserted by CSIC against Benefytt (D.I. 144). 70 D.I 163 (granting stipulated dismissal of Maxum). 71 D.I 236 (order granting dismissal of Argonaut). 72 D.I. 134 (“Countercl.”). 73 Countercl. ¶¶ 14, 84-91. 74 Id. ¶ 91.
- 14 - Keippel action because that action “involves Wrongful Acts that are the subject of
notices given in the 2017-2018 policy period.”75 Additionally, Lloyd’s seeks a
declaration that there is no coverage for the Belin action under the 2018-2019 policy,
and Benefytt is entitled to repayment for the costs and expenses it incurred in regard
to the Keippel action.76
In Count III, Lloyd’s seeks a reimbursement for the costs and expenses it
incurred above the policy limit.77 In Count IV, Lloyd’s asserts unjust enrichment
against Benefytt.78 And in Count V, Lloyd’s asserts that Benefytt breached its
contracts with Lloyd’s regarding the Keippel action.79
Plaintiff Benefytt and Defendants Lloyd’s, XL Specialty, Endurance, and
Executive Risk have all moved for summary judgment. Briefing and argument on
each of the motions that remain before the Court is complete. They are now ripe for
decision.
75 Id. ¶ 94. 76 Id. ¶ 97. 77 Id. ¶¶ 98-106. 78 Id. ¶¶ 107-17. 79 Id. ¶¶ 118-24.
- 15 - II. THE PARTIES CONTENTIONS
A. BENEFYTT’S MOTION FOR SUMMARY JUDGMENT REGARDING KEIPPEL AND ON LLOYD’S COUNTERCLAIMS80
Benefytt contends that the 2018-2019 policies cover the Keippel action.81
According to Benefytt, the Keippel action was filed during the 2018-2019 policies’
coverage period, so the only way it could be a 2017-2018 policy claim is if it is
interrelated to the 2017-2018 Actions.82 Benefytt insists that neither the facts nor
case law support finding that the Keippel action was interrelated with any other
lawsuit.83 Additionally, Benefytt says that Lloyd’s recoupment claim fails because
nothing in the Primary Policies permits recoupment of an overpayment by Lloyd’s,
especially as Lloyd’s could have included such a provision when it drafted those
insurance contracts.84
B. BENEFYTT’S MOTION FOR SUMMARY JUDGMENT REGARDING BELIN85
Benefytt argues the Belin action is a covered claim.86 To Benefytt, the original
Belin complaint’s lack of a securities claim doesn’t preclude coverage because the
80 D.I. 247 (“Benefytt Keippel MSJ”). 81 Benefytt Keippel MSJ at 17-29. 82 Id. at 1-2, 17. 83 Id. at 17-29. 84 Id. at 32-33. 85 D.I. 249 (“Benefytt Belin MSJ”). 86 Benefytt Belin MSJ at 11-15.
- 16 - ultimate settlement included at least some covered loss related to Mr. Kosloske.87
Similarly, Benefytt maintains its 2018 Notice of Circumstances also applies to the
Belin action.88 And, even if notice was insufficient, says Benefytt, that doesn’t bar
coverage because Insurers have demonstrated no prejudice.89 Finally, Benefytt
submits that the Keippel action is not interrelated with the Belin action, and the
Keippel claim was first made during the 2018-2019 policy period.90 Benefytt also
rejects Insurers’ contention that the Professional Services Exclusion bars coverage
because the Policies don’t define “professional service” and “[a]ny uncertainty in
the language must be resolved against the insurance company” in favor of
coverage.91
C. XL SPECIALTY’S MOTION FOR SUMMARY JUDGMENT92
Defendant XL Specialty moves for summary judgment requesting its exit
from the case because it has paid “all sums that [it] owes or could be held to owe for
the Keippel Action and Belin Action.”93 XL Specialty notes that it “agreed to pay
$5 million towards the settlement and defense costs for the Keippel Action,” because
87 Id. at 20-25. 88 Id. at 25-28. 89 Id. at 28-29. 90 Id. at 29-31. 91 Id. at 11-19 (citing Pac. Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246, 1255 (Del. 2008)). 92 D.I. 240 (“XL Specialty MSJ”). 93 XL Specialty MSJ at 1.
- 17 - it “occupied the same first excess position [in] both [policy periods].”94 Because
that $5 million payment exhausted its coverage limit, XL says it doesn’t owe any
more no matter how the Court rules on the other parties’ arguments.95
D. EXECUTIVE RISK’S MOTION FOR SUMMARY JUDGMENT96
Executive Risk was only an excess insurer for the 2017-2018 policy period.97
It insists that it owes nothing to Benefytt because neither the Keippel action nor the
Belin action are claims that fall under the 2017-2018 policy’s coverage period.98 In
making that argument, Executive Risk contends that the Keippel and Belin actions
are also not interrelated with each other or the 2017-2018 Actions.99
In the alternative, Executive Risk submits the Belin action is uncovered
because Benefytt failed to comply with the notice-and-settlement consent provisions
unique to the Executive Risk policy.100 It also says that the claim would be barred
by the Professional Services Exclusion.101
94 Id. at 3 (citing Defendant XL Specialty Insurance Company’s Answer and Affirmative Defenses to Plaintiff’s Third Amended Complaint ¶ 105 (“XL admits that it agreed to pay settlement and defense costs for the Keippel Action up to $5 million, the limit of liability under both its 2017-2018 policy and its 2018-2019 policy under a full reservation of rights.”) (D.I. 132)). 95 Id. at 3-4. 96 D.I. 243 (“Executive Risk MSJ”). 97 See JA Ex. 19. 98 Executive Risk MSJ at 16 (“neither Keippel nor Belin was a claim first made during the period of the ER Policy”). 99 Id. at 17-29. 100 Id. at 32-26. 101 Id. at 30.
- 18 - E. ENDURANCE’S MOTION FOR SUMMARY JUDGMENT102
Endurance argues that the Keippel and Belin actions fall within the coverage
policy that was in effect when Benefytt first noticed a “covered claim” arising out
of the litigation.103
Endurance adopts Benefytt’s position that the Keippel action falls within the
2018-2019 policy because it was filed in February 2019 and reported in March
2019.104 Given that Benefytt incurred $11 million in settlement costs105 and $4.3
million in defense costs,106 Endurance maintains the Keippel action does “not trigger
[its] 2018-19 excess policy layer.”107
Regarding the Belin action, Endurance suggests that while the suit was first
filed during the 2018-2019 policy’s coverage period, it did not become a covered
claim until June 17, 2019, when the first amended complaint was filed.108 Endurance
102 D.I. 244 (“Endurance MSJ”). 103 Endurance MSJ at 22-25. 104 Id. at 22. 105 JA Ex. 8 (“Keippel Settlement”); Declaration of David J. Soldo, Esquire in Support of Defendant Endurance Assurance Corporation’s Motion for Summary Judgment (“Soldo Aff.”) Ex. 1 (approving the Keippel Settlement) (D.I. 244). 106 Soldo Aff. Ex. 2, at 2-4. 107 Endurance MSJ at 24. 108 Id. at 24-25. Endurance points out that the Policies only cover “Company Loss” for securities suits and the Belin action was a consumer class action. Id. (citing 2017-2018 primary policy § I.C.). Thus, says Endurance, the fact that Benefytt was named in the first Belin complaint didn’t trigger coverage. Id. Rather, the Belin action only became a covered claim when the complaint was amended to add Mr. Kosloske, an “Insured Person,” as a defendant. Id. (citing 2017-2018 primary policy §§ I.B.1, II.K.1.).
- 19 - notes that Benefytt didn’t report the Belin action until October 31, 2019.109
Accordingly, Endurance maintains the Belin action isn’t indemnifiable because it
was not a covered claim and was not reported until the 2018-2019 policy expired.110
Endurance also argues that regardless of where the Belin action is placed (1)
there is no covered loss and (2) the Professional Services Exclusion bars coverage.111
Specifically, Endurance argues the Belin action made allegations against
Mr. Kosloske, not Benefytt, and “Kosloske paid nothing toward the Belin
settlement.”112 It also says the Belin claim concerned wrongful acts performed in
connection with professional services which the Policies don’t cover.113
Finally, Endurance contends neither the Keippel action nor the Belin action
are interrelated to any previous suit.114
F. LLOYD’S MOTION FOR SUMMARY JUDGMENT115
Lloyd’s Motion for Summary Judgment asks for three declarations.116 First,
109 Id. at 24 (citing Soldo Aff. Ex. 5 (October 2019 notice of Belin claim)). 110 Id. at 24-26. 111 Id. at 30. 112 Id. at 31. 113 Id. at 32-34. 114 Id. at 22-23, 28-30. 115 D.I. 245 (“Lloyd’s MSJ”). 116 Lloyd’s MSJ at 35 (“(1) the Keippel Action is a Claim first made in the 2017-2018 Policy, (2) there is no coverage under the Policies for the Belin Action or, in the alternative, the Belin Action and the 2017-2018 Actions involve Interrelated Wrongful Acts and constitute a single Claim first made in the 2017-2018 Policy, and (3) Underwriters are entitled to recoup the defense costs and settlements paid by them in the Actions in excess of the $10,000,000 limit under the - 20 - Lloyd’s requests a declaration that the Keippel action is a 2017-2018 policy claim
because “it involve[d] the same Wrongful Acts or Interrelated Wrongful acts” as the
2017-2018 Actions.117 Lloyd’s argues that the actions have “as a common nexus the
same facts [and] circumstances,” because they all challenge “wrongful acts
regarding sales misconduct and misrepresentations or omissions related thereto.”118
Second, Lloyd’s asks the Court to declare there is no coverage for the Belin
action. It posits two independent reasons therefor: (1) the Belin action is barred by
the Professional Services Exclusion; and (2) the original Belin complaint wasn’t
covered and the would-be covered amended complaint was filed after the 2018-2019
policy period ended.119 As an alternative, Lloyd’s suggests that the Court find that
the Belin action claim was first made in 2017-2018 as it is interrelated to the Keippel,
Rector, DiFalco, and Daniels claims.120
Finally, Lloyd’s insists that it is entitled to recoup the $5.3 million it overpaid
to Benefytt under the 2017-2018 policy.121
2017-2018 Policy.”). 117 Id. at 22-26. 118 Id. at 26. 119 Id. at 27-33. 120 Id. at 35; id. at 33 (“The alleged facts and circumstances underlying the Keippel Action and the Belin Action are virtually identical.”). 121 Id. at 26-27.
- 21 - III. APPLICABLE LEGAL STANDARDS
A. DELAWARE MOTIONS FOR SUMMARY JUDGMENT
Summary judgment is warranted “if the pleadings, depositions, answers to
interrogatories, and admission on file, together with the affidavits” show “there is no
genuine issue as to any material fact and that the moving party is entitled to judgment
as a matter of law.”122 The movant bears the initial burden of proving its motion is
supported by undisputed facts.123 If the movant meets its burden, the non-movant
must show there is a “genuine issue for trial.”124 To determine whether a genuine
issue exists, the Court construes the facts in the light most favorable to the non-
movant.125
The same “well-established standards and rules apply in full when the parties
have filed cross-motions for summary judgment.”126 Here, since the cross-motions
are filed and “neither party argues the existence of a genuine issue of material fact,
‘the Court shall deem the motions to be the equivalent of a stipulation for decision
122 Del. Super. Ct. Civ. R. 56(c); Options Clearing Corp. v. U.S. Specialty Ins. Co., 2021 WL 5577251, at *7 (Del. Super. Ct. Nov. 30, 2021). 123 Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979). 124 Del. Super. Ct. Civ. R. 56(e); see also Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995) (“If the facts permit reasonable persons to draw but one inference, the question is ripe for summary judgment.”). 125 Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977). 126 Radulski v. Liberty Mutual Fire Ins. Co., 2020 WL 8676027, at *4 n.35 (Del. Super. Ct. Oct. 28, 2020) (collecting cases); Zenith Energy Terminals Joliet Hldgs. LLC v. CenterPoint Props. Tr., 2023 WL 615997, at *8 (Del. Super. Ct. Jan. 23, 2023).
- 22 - on the merits based on the record submitted with the[m].’”127
B. NEW YORK INSURANCE CONTRACT INTERPRETATION
There is no dispute that the Policies are governed by New York law.128 As
such, the interpretation of an insurance policy is a question of law.129 “[T]he duty of
the insurer to defend the insured rests solely on whether the complaint alleges any
facts or grounds which bring the action within the protection purchased.”130
When determining whether claims are interrelated, New York courts examine
the coverage policy’s terms and conduct a comparison of the claims at issue.131 The
Court decides: (1) whether the provisions are ambiguous as a matter of law, and if
the answer to that question is yes, then what are the “plain and ordinary meanings”
if the provisions applied to the facts,132 and (2) “whether the Actions are related” by
“engag[ing] in a ‘side-by-side review of the underlying claims.’”133 “‘[T]o establish
127 Radulski, 2020 WL 8676027, at *4 (alteration in original) (quoting Del. Super. Ct. Civ. R. 56(h)). 128 2017-2018 primary policy (“Choice of Law . . . This insurance shall be governed by and construed in accordance with the law of New York . . .”); 2018-2019 primary policy (“Declarations Item N . . . Choice of Law New York.”). 129 Hansard v. Federal Ins. Co., 147 A.D.3d 734, 737 (N.Y. App. Div. 2017). 130 Seaboard Sur. Co. v. Gillette Co., 476 N.E.2d 272 (N.Y. 1984). 131 Zunenshine v. Exec. Risk Indem., Inc., 1998 WL 483475, at *4 (S.D.N.Y. Aug. 17, 1998), aff’d, 182 F.3d 902 (2d Cir. 1999). 132 Lonstein Law Office, P.C. v. Evanston Ins. Co., 2022 WL 311391, at *8 (S.D.N.Y) (quoting Nomura Holding Am., Inc. v. Federal Ins. Co., 45 F. Supp. 3d 354, 364 (S.D.N.Y. 2014), aff’d, 629 F. App’x 38 (2d Cir. 2015)). 133 Id. (quoting Nomura Hldg., 629 F.App’x at 40). While not universally applied, New York courts typically use “a side-by-side review of the factual - 23 - that a prior Claim is interrelated with a subsequent Claim, the Claims must share a
sufficient factual nexus.’”134 “A sufficient factual nexus exists where the Claims
‘are neither factually nor legally distinct, but instead arise from common facts’ and
where the ‘logically connected facts and circumstances demonstrate a factual nexus’
among the Claims.”135 But claims need not “involve precisely the same parties, legal
theories, Wrongful Acts, or requests for relief” to be interrelated.136 Rather, “all that
is required is ‘any’ common fact, circumstance, situation, event, transaction, cause
or series of casually or logically connected facts, circumstances, situations, events,
transactions or causes.”137 That said, New York courts may draw the line at
interrelatedness when the connection between the “two claims [is] tenuous at
allegations in the relevant complaints” to determine if a sufficient factual nexus exists. Lonstein, 2022 WL 311391, at *11 (citing Cushman & Wakefield, Inc. v. Illinois Nat’l Ins. Co., 2018 WL 1898339, at *17-18 (N.D. Ill. Apr. 20, 2018) (applying New York law)); Glascoff v. OneBeacon Midwest Ins. Co., 2014 WL 1876984, at *6 (S.D.N.Y. May 8, 2014); see Zahler v. Twin City Fire Ins. Co., 2006 WL 846352, at *6-7 (S.D.N.Y. Mar. 31, 2006) (applying the side-by-side test to determine two claims were interrelated). But see Alvarez v. XL Specialty Ins. Co., 2021 WL 2940963, at *4 (N.Y. Sup. Ct. July 12, 2021) (noting that the court did not engage the side-by-side test when determining two suits weren’t interrelated). But even where a New York court doesn’t apply the side-by-side methodology, it will nevertheless consider the underlying complaints’ allegations. See Darwin Nat. Assur. Co. v. Westport Ins. Corp., 2015 WL 1475887, at *12-14 (E.D.N.Y. Mar. 31, 2015); Alvarez, 2021 WL 2940963, at *4. 134 Glascoff, 2014 WL 1876984, at *5 (applying New York Law) (quoting Quanta Lines Ins. Co. v. Investors Capital Corp., 2009 WL 4884096, at *12 (S.D.N.Y. Dec. 17, 2009)); Seneca Ins. Co. v. Kemper Ins. Co., 2004 WL 1145830, at *8-9 (S.D.N.Y. May 21, 2004), aff’d, 133 F. App’x 770 (2d Cir. 2005); Zunenshine, 1998 WL 483475, at *5. 135 Quanta Lines, 2009 WL 4884096, at *14, aff’d sub nom., Quanta Specialty Lines Ins. Co. v. Investors Capital Corp., 403 F. App’x 530 (2d Cir. 2010) (internal reference omitted). 136 Zunenshine, 1998 WL 483475, at *5; see Glascoff, 2014 WL 1876984, at *5. 137 Weaver v. Axis Surplus Ins. Co., 2014 WL 5500667, at *12 (E.D.N.Y. Oct. 30, 2014), aff’d, 639 F. App’x 764 (2d Cir. 2016).
- 24 - best.”138
IV. DISCUSSION
The nub of the dispute (and inter-disputes) here is the proper policy-period
placement for the Keippel and Belin actions, and whether they are interrelated to
previous, covered actions. For a claim to be covered, (1) the claim must be a claim
against an Insured Person made within a covered policy period or interrelated to a
covered claim, and (2) the Insurers must receive a proper notice of circumstances.
The Policy’s insuring language mandates coverage for “any Claim first made
against the Insured Persons.” 139 A “Claim” is defined as:
any written demand for monetary damages, non monetary relief, injunctive relief or other relief against any of the Insureds, or any civil, criminal, administrative, regulatory, arbitration or mediation proceeding or other alternative dispute resolution process initiated against any of the Insureds[.]140
Interrelated Wrongful Acts mean: “Wrongful Acts which have as a common
nexus any fact, circumstance, situation, event, transaction or series of facts,
circumstances, situations, events or transactions.”141 And there is little dispute that
138 See Glascoff, 2014 WL 1876984, at *6 (“Here, the factual overlap between the two Claims is tenuous at best: Plaintiffs allegedly failed to act properly with respect to Antonucci, whether it be their control and oversight of him, as alleged in the Kingsley Complaint, or their failure to investigate allegations of his misconduct, as alleged by the FDIC.”). 139 2017-2018 primary policy § II. 140 Id. § II.B.1. 141 Id. § II (emphasis added).
- 25 - the actions’ allegations constitute wrongful acts.
For coverage, multiple claims can constitute a single claim if they involve the
same wrongful act or interrelated acts.142 If this occurs, the earlier date is deemed
the first-made date and the later claims are covered as if they were filed within the
original policy period.143
Also, the Notification Provision of the 2018-2019 primary policy states that
notice must be provided:
C. If the Insureds: 1. become aware of a specific fact, circumstance or situation which could reasonably give rise to a Claim or Investigation, or 2. receive any request to toll a period or statute of limitation which may be applicable to any Claim or Investigation, and if the Insureds during the Policy Period give written notice to Underwriters of: (a) the specific fact, circumstance, situation or the request to toll a period or statute of limitation; (b) the consequences which have resulted or may result therefrom; and (c) the circumstances by which the Insureds first became aware thereof, then any Claim or Investigation made subsequently arising out of such fact, circumstance, situation or the request to toll a period or statute of limitation shall be deemed for the purposes of this Policy to have been made or commenced at the time such notice was first given.144
142 Id. § IV. 143 Id. 144 2018-2019 primary policy § VI.C.
- 26 - Essentially, the Policies’ notification provision allows that once Benefytt “become[s]
aware of a specific fact, circumstance or situation which could reasonably give rise
to a Claim,” it may provide notice of “the specific fact, circumstance, [or] situation
. . . the consequences which have resulted or may result therefrom; and [] the
circumstances by which the Insureds first became aware thereof.”145 If Benefytt
provides such notice “then any Claim . . . made subsequently arising out of such
fact, circumstance, [or] situation . . . shall be deemed for the purposes of this Policy
to have been made or commenced at the time such notice was first given.”146
A. THE KEIPPEL ACTION IS COVERED BY THE 2018-2019 POLICY
The Keippel action is covered by the 2018-2019 policy because it was
properly filed in accord with the Policy, and it isn’t interrelated with any actions that
are covered by the 2017-2018 policy period.
The Keippel action was a securities class action alleging securities fraud and
false statements as the causes of action (Exchange Act §§ 10(b), 20(a) and SEC Rule
10b-5). The Keippel action was filed on February 18, 2019.147 It was amended and
consolidated on July 19, 2019.148 And it settled in December 2020.149
145 Id. 146 Id. 147 Keippel Original Compl. 148 Keippel Compl. 149 Keippel Settlement.
- 27 - Executive Risk, Endurance, and Benefytt say the Keippel action is covered by
and filed in the 2018-2019 policy period.150 While Lloyd’s maintains the Keippel
action was first filed in the 2017-2018 policy period, as an interrelated action.151
Specifically, Lloyd’s argues the Keippel and the 2017-2018 Actions all dealt with
Interrelated Wrongful Acts.152 If that were true, then under Section IV.C of the
Policies, the Keippel claim should be deemed first made during the 2017-2018
policy’s coverage period.153
There is no dispute that the Keippel action itself was filed within the 2018-
2019 policy period.154 Accordingly, that action will be covered by the 2018-2019
policy period unless it is interrelated with the 2017-2018 Actions. If the Keippel
action is interrelated, then it would be covered by the prior 2017-2018 policy period.
But to be interrelated with those prior actions, the Keippel action must “share a
sufficient factual nexus.”155
In this case particularly, with the term “any” used in the interrelated coverage
provision, “it is ‘immaterial’ that one claim may involve additional facts or
150 ER’s MSJ at 16-29; Endurance’s MSJ at 22; Benefytt’s Keippel MSJ at 17-20. 151 Lloyd’s MSJ at 22-26. 152 Id. 153 See 2017-2018 primary policy § IV.C (providing for coverage placement of claims involving the same or interrelated wrongful acts); 2018-2019 primary policy § IV.C (same). 154 Soldo Aff. Ex. 8 (RFA 3 at 7). 155 Quanta Lines, 2009 WL 4884096, at *12; see also Glascoff, 2014 WL 1876984, at *5.
- 28 - allegations because all that is required is ‘any’ common fact, circumstance, situation,
event, transaction, cause or series of casually or logically connected facts,
circumstances, situations, events, transactions or causes.”156 That said, the claims
do need “numerous logically connected facts and circumstances” to be
interrelated.157 And they shouldn’t be deemed interrelated when their relation to each
other is only “tenuous at best.”158
Here, a side-by-side examination of the actions reveals that the Keippel action
does not share a sufficient factual nexus with the Daniels, DiFalco, or Rector
actions.159 Making mere allegations about a company’s general misconduct that may
be related to another action isn’t enough.160 Here, Lloyd’s largely relies on the
introduction and background of the various complaints to make bald allegations of
interrelatedness; that’s insufficient.161
156 Weaver, 2014 WL 5500667, at *12. 157 See Seneca Ins. Co. v. Kemper Ins. Co., 133 F. App’x 770, 772 (2d Cir. 2005) (approvingly noting the district court’s use of this construction when determining interrelatedness). 158 Glascoff, 2014 WL 1876984, at *6. 159 In its briefing, Lloyd’s concedes “[t]he 2017-2018 Actions are not materially different from one another” and therefore compares the Keippel complaint to only the DiFalco complaint. Lloyd’s MSJ at 23 n.3. Accordingly, the Court also cites to the DiFalco complaint when discussing the 2017-2018 Actions here. 160 See Glascoff, 2014 WL 1876984, at *7 (S.D.N.Y. May 8, 2014) (referencing Home Ins. Co. of Ill. v. Spectrum Info Tech, Inc., 930 F.Supp. 825, 850 (E.D.N.Y. 1996) (finding unpersuasive the “attempt to intertwine the [claims] by relying on naked allegations in the original complaints that they represent mere pieces of a larger ‘scheme’”)). 161 See id. (referencing Nat’l Union Fire Ins. Co. of Pittsburgh v. Ambassador Grp., Inc., 691 F.Supp. 618, 623 (E.D.N.Y. 1988) (stating in dicta that claims aren’t interrelated just because when “[b]roadly construed, the claims are interrelated to the extent that they all involve allegations of - 29 - Remember, the 2017-2018 Actions were also securities class actions asserting
that Benefytt omitted material information and made false statements to investors.162
But those allegations were made in connection with the Florida TPA application, not
the Simple Health fraud.163 Indeed, the 2017-2018 Actions all concerned the Florida
TPA Application, while the Keippel action concerned Simple Health.164 The Keippel
action cites to completely different evidence, such as the 2017 10-K and 2018 10-Q
filing, to highlight different claims of wrongdoing, and the Keippel action also had
no allegations directed at any individuals.165 What’s more, Simple Health—an
integral non-party in the Keippel action—isn’t discussed in the Daniels, DiFalco, or
Rector actions.166
Simply put, such pleadings just don’t establish “numerous logically connected
facts and circumstances” Lloyd’s must demonstrate.167 “[A]ny specific common
fact, event or circumstance” shared by the various actions’ claims were used only to
wrongdoing of one sort or another and relate, in some way, to the demise of” the entity)). 162 DiFalco Compl. ¶¶ 234-84. 163 Id. 164 See Glascoff, 2014 WL 1876984, at *7 (“Here, Plaintiffs admit the FDIC and Kingsley Claims do not share parties, legal theories, or requests for relief, yet they want this Court to find the two Interrelated Wrongful Acts because both Claims ostensibly relate to Plaintiffs’ oversight of Antonucci. Without more, there simply is not a sufficient factual nexus between the FDIC Claim and the Kingsley Claim.”) (cleaned up). 165 See generally Keippel Compl. 166 See generally DiFalco Compl. 167 See Seneca Ins. Co., 133 F. App’x at 772.
- 30 - bolster the broad, generalized allegation of wrongdoing.168 As such, the Keippel
action and the 2017-2018 Actions lack a factual nexus to make them interrelated.
So Keippel is not interrelated to any of the 2017-2018 Actions and shouldn’t
be deemed made in the 2017-2018 policy period. The Court finds that the Keippel
action properly falls within the 2018-2019 policy period. And with this, Lloyd’s
recoupment argument fails as a matter of law because the Keippel action doesn’t
implicate Lloyd’s coverage liability limit for the 2017-2018 primary policy.
B. THE BELIN ACTION DOES NOT FALL WITHIN EITHER PRIMARY POLICY’S COVERAGE PERIOD For the Belin claim, the Court finds that it is not covered by the 2018-2019
policy, and it is not interrelated with any covered claims. Additionally, Benefytt
failed to provide a proper Notice of Circumstances for the Belin action.
1. The Belin action is not a covered by the 2018-2019 policy.
The Belin complaint was filed on June 7, 2019, which is in the 2018-2019
policy period.169 The original complaint only sought recovery from Benefytt.170 The
complaint was subsequently amended three times, all of which were outside the
2018-2019 policy period window.171 The first amended complaint added
168 Weaver, 2014 WL 5500667, at *12. 169 See generally First Belin Compl. 170 Id. ¶¶ 14-15, 182-209. 171 See Belin First Am. Compl.; JA Ex. 11 (Belin Second Am. Compl.); Belin Third Am. Compl.
- 31 - Mr. Kosloske as a defendant.172
Recall that if the claim involves the same wrongful act or interrelated acts as
a prior covered claim, the earlier date is deemed the first-made date and the later
claims are covered as if they were filed within the original policy period.173 Under
this Policy provision, Benefytt argues that the Belin Claim was first made in the
2018-2019 policy period because the original complaint made allegations against
Michael Kosloske even though he was not named as a defendant yet.174 So, Benefytt
says “the Belin Claim triggers Defendants’ coverage obligations because: (1) there
is a Claim against an Insured Person, Mr. Kosloske, (2) the Claim alleges
Mr. Kosloske committed ‘Wrongful Acts’ in his then-official capacity with Benefytt;
(3) and those acts resulted in ‘Loss’ to Benefytt for defense and settlement of the
Belin Claim exceeding $30 million.”175 Not so.
The original claim is not covered because it doesn’t make a claim against an
insured person. Here, the language of the contract is clear; it only requires coverage
of “any Claim first made against the Insured Persons . . . .”176 For there to be
coverage, the claim must be specifically pled against the insured person and demand
172 See Belin First Am. Compl. 173 2017-2018 primary policy § IV.C; 2018-2019 primary policy § IV.C. 174 D.I. 265 (“Benefytt’s Omnibus Answer”) at 49 (stating that the original complaint “still included allegations of wrongful acts by officers of Benefytt” (citations omitted)). 175 Id. at 22 (citations omitted). 176 2017-2018 primary policy § II.
- 32 - relief from them.177 Without such a claim, there is no covered claim within the
coverage period.178 The original Belin action only makes allegations about an
insured person, Mr. Kosloske, and his activity;179 that’s not enough here.
Mr. Kosloske wasn’t a named defendant in the original complaint, nor was any relief
sought from him individually via that complaint.180 In fact, he wasn’t even listed as
a “relevant nonparty.”181 As such, there was no covered claim within the contracted
coverage period. Accordingly, the Belin amended complaint cannot be covered—
the original complaint didn’t contain a triggering claim, so there is nothing to relate
back to that could gain coverage.182 To permit coverage to extend to the amended
complaint that was filed after the coverage period expired “would be to grant the
insured more coverage than [it] bargained for and paid for.”183
177 See Checkrite Ltd., Inc. v. Illinois Nat. Ins. Co., 95 F. Supp. 2d 180, 190 (S.D.N.Y. 2000) (“The term “claim” as used in liability insurance policies has generally been found by courts to be an unambiguous term that means a demand by a third party against the insured for money damages or other relief owed.”). 178 See id. at 191 (“[S]ome but not all claims are judicial proceedings and some but not all judicial proceedings are claims. These terms should not be conflated.”). 179 See generally Belin First Am. Compl. 180 Id. 181 Id. ¶¶ 16-24. 182 It would seem that under New York law an amended complaint is considered a “new claim” when there is “a new and distinct group of claimants”. See Checkrite, 95 F. Supp. 2d at 190. But it’s a bit murkier whether an amended complaint that adds a new defendant should be also considered a “new claim” or if it should be related back to an earlier pleading or proceeding for insurance purposes. No matter. The plain language of the at-issue coverage provision alone is sufficient for the Court to find extension of coverage to the amended complaint impermissible. As is the inadequate Notice of Circumstance explained later. 183 Zunenshine, 1998 WL 483475, at *5 (citation omitted).
- 33 - Accordingly, the Belin action does not fall within the 2018-2019 policy period
and does not give rise to a claim covered by the Policies.
2. The Belin action is not interrelated to any covered claim.
The Belin action could also be covered if it was interrelated to the 2017-2018
Actions or the Keippel claim. But it’s not.
The Belin action was filed by a class of consumers alleging they were tricked
by Simple Health into thinking they were buying comprehensive medical insurance
from Benefytt when they really weren’t.184 While the Keippel plaintiffs brought
claims for violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule
10b-5.185 The 2017-2018 Actions, on the other hand, were securities class actions
asserting Benefytt omitted material information and made false statements to
investors regarding a Florida TPA Application.
The Belin action isn’t interrelated to the Keippel action because the ties
between the two are just too feeble. Even though Benefytt’s misconduct related to
Simple Health is central to all the claims, there are insufficient factual overlaps
between the consumers’ and shareholders’ claims. The alleged wrongful acts are
separated by multiple years and involve different transactions—e.g. insurance policy
184 Belin Third Am. Compl. ¶¶ 242-257. 185 Keippel Compl. ¶¶ 242-257; Keippel also, in part, alleged that Benefytt conspired with Simple Health to sell Benefytt products to customers who falsely believed they were buying comprehensive health insurance.
- 34 - sales as compared to shareholder disclosures.186 There must be a reasonable limit
when interpreting the term “any” as used in the interrelated coverage provision.187
To say the ties between the actions from 2015 and actions from 2017 to 2019 with
different classes and causes of action are a “series of casually or logically connected
facts”—as would be required here—is to say too much.188 The various actions’
pleadings instead read as general allegations of wrongdoing over a long period of
time that indeed share similarities or even complement each other. But that’s it. The
Court cannot say these bestrewn claims rise to the required level of interrelatedness.
The Belin action also isn’t interrelated to the Daniels, DiFalco, or Rector
actions. There just aren’t the “numerous logically connected facts and
circumstances” between the Belin action and the 2017-2018 Actions to support the
necessary interrelatedness.189 Lloyd’s says the Belin action is interrelated with the
2017-2018 Actions “[f]or the same reasons” as the Keippel claim.190 But as already
mentioned, the Keippel claim itself isn’t interrelated with the 2017-2018 Actions.
So, to the extent Lloyd’s relies on Keippel as the needed bridge to the 2017-2018
Actions, it fails.
186 Id. ¶ 228, 49-69, 70-114; First Belin Compl. ¶¶ 172, 261. 187 See Weaver, 2014 WL 5500667, at *12. 188 See id. 189 See Seneca Ins. Co., 133 F. App’x at 772 (noting the use of this construction by the district court when affirming dismissal of coverage complaint because claims were interrelated). 190 Lloyd’s MSJ at 35.
- 35 - Independently, while the Belin action and the 2017-2018 Actions both assert
wrongful conduct by Benefytt, their relation to each other is also solely based on
general allegations of wrongdoing. While all the claims may have a single
overarching bad actor, the relationship between the schemes at issue “are tenuous at
best.”191
Accordingly, the Belin action is not interrelated with any covered claim.
3. The Belin action is not a covered 2018-2019 policy period claim via any Notice of Circumstances. For coverage, there must be a proper reporting of the claim or possibility of
the claim to the Insurers. This is because “[t]he nature of a claims-made policy is
that it protects the insured for claims made against it and reported to the insurer
within the policy period or, if applicable, the extended reporting period.”192
In Benefytt’s view, any Notice of Circumstances offered for the FTC and
Spiewak actions also gave notice for the Belin action.193 It reasons that under the
operable provision194 “the Belin Claim is deemed made and noticed in December
2018 because it arose out [sic] the situation involving the allegations against and
involving Simple Health.”195 Benefytt also suggests that the 2018 Notice of
191 Glascoff, 2014 WL 1876984, at *6. 192 Checkrite, 95 F. Supp. 2d at 191. 193 Benefytt’s Belin MSJ at 26-27. 194 E.g. 2018-2019 primary policy § VI.C. 195 Benefytt’s Belin MSJ at 28.
- 36 - Circumstances196 is sufficient to have the action covered by the 2018-2019 period.197
It isn’t.
The notification provision requires the notice to discuss facts that “could
reasonably give rise to” a later claim.198 Thus, the proper inquiry is not if the Belin
action alleged certain facts also present in the earlier notice, but whether the 2018
Notice of Circumstances discussed facts that later gave rise to the Belin claim. It
didn’t.
The 2018 Notice of Circumstances only provided the FTC and Spiewak
complaints. The FTC action makes no allegations against Benefytt.199 And the
Spiewak action alleges Benefytt breached a managing general agent commission
agreement.200 Neither of these related to Belin—a consumer class action alleging
Benefytt orchestrated a bait-and-switch regarding certain Benefytt products. So, the
FTC and Spiewak complaints gives no adequate notice of facts relevant to or
incorporated in the Belin action.
What is more, the 2018 Notice of Circumstances didn’t state that Benefytt
expected some future litigation.201 So it can’t be interpreted as giving notice of the
196 Belin Jones Aff. Ex. 3. 197 Benefytt’s Belin MSJ at 26. 198 2018-2019 primary policy § VI.C. 199 Belin Jones Aff. Ex. 3, at ENDUR007835-40 (FTC Compl. ¶¶ 55-65). 200 Id. at ENDUR007847-49 (Spiewak Compl. ¶¶ 30-43). 201 See generally 2018-2019 primary policy § VI.C.
- 37 - Belin action as a possible future consequence, as was required by the Policies.202 In
so finding, the Court is mindful to stay “consistent with the rule that exclusion
clauses should be construed narrowly and in favor of coverage. Interpreting [such]
any other way would stretch the terms of the policy beyond reasonableness.”203
As a last breath effort on notice, Benefytt hints that the Belin Notice of
Circumstances itself is sufficient—even though it was filed late—because “[t]he
record is devoid of any indication of prejudice to [the Insurers].”204
But there is no prejudice requirement in the excess policies, such is found only
in the primary policy.205 And even that prejudice requirement only prevents Insurers
from denying coverage “based solely upon late notice.”206 That doesn’t save
Benefytt’s Belin claim here because the denial certainly isn’t “based solely upon late
notice.” At bottom, the Belin action wasn’t made during the 2018-2019 policy
period and no alternative coverage theory Benefytt has posited saves it.
202 See 2018-2019 primary policy § VI.C.2(b) (requiring Benefytt to provide notice of “the consequences which have resulted or may result,” from the circumstances noticed in a Notice of Circumstances). 203 Checkrite, 95 F. Supp. 2d at 196. 204 Benefytt’s Belin MSJ at 28. 205 See 2017-2018 primary policy at 57 (“Amended ‘Notification’ Clause”) (“In consideration of the premium charged for this Policy, it is hereby understood and agreed that Clause VI. NOTIFICATION A. is amended by the addition of: In the event that the Insureds fail to provide notice of a Claim or Investigation in accordance with the above, Underwriters shall not be entitled to deny coverage for the Claim or Investigation based solely upon late notice, unless Underwriters can establish that their interests were materially prejudiced by reason of such late notice.”). 206 Amended ‘Notification’ Clause.
- 38 - Given all this, Lloyd’s attempt to invoke the professional services exclusion
is moot, as are its reimbursement, recoupment, and unjust enrichment counterclaims.
V. CONCLUSION
To sum up: (1) the Keippel action falls within the 2018-2019 policy period
and is properly covered under that Policy; (2) the Belin action falls outside both the
2017-2018 and 2018-2019 policy periods and isn’t interrelated with any covered
claim; and (3) as such, Lloyd’s reimbursement, recoupment, and unjust enrichment
counterclaims are moot.
Accordingly,
- Benefytt’s Partial Motion for Summary Judgment regarding the Keippel action and Lloyd’s counterclaims (D.I. 246) is GRANTED;
- Benefytt’s Partial Motion for Summary Judgment Regarding Belin action (D.I. 249) is DENIED;
- Endurance’s Motion for Summary Judgment (D.I. 244) is GRANTED;
- Executive Risk’s Motion for Summary Judgment (D.I. 243) is GRANTED; and
- Lloyd’s Motion for Summary Judgment (D.I. 245) is GRANTED in part, DENIED in part.
IT IS SO ORDERED.
/s/ Paul R. Wallace
Paul R. Wallace, Judge
- 39 -
Related
Cite This Page — Counsel Stack
Benefytt Technologies, Inc. v. Capitol Specialty Insurance Corporation, Counsel Stack Legal Research, https://law.counselstack.com/opinion/benefytt-technologies-inc-v-capitol-specialty-insurance-corporation-delsuperct-2025.