Genworth Financial v. AIG Specialty Insurance
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Opinion
IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
GENWORTH FINANCIAL, INC., ) GENWORTH LIFE INSURANCE ) COMPANY, and GENWORTH LIFE ) INSURANCE COMPANY OF NEW ) YORK, ) C.A. No. N22C-05-057 EMD CCLD ) Plaintiffs, ) ) v. ) ) AIG SPECIALTY INSURANCE ) COMPANY, AXIS INSURANCE ) COMPANY, U.S. SPECIALTY ) INSURANCE COMPANY, FREEDOM ) SPECIALTY INSURANCE COMPANY, ) ACE AMERICAN INSURANCE ) COMPANY, CONTINENTAL ) CASUALTY COMPANY, ATLANTIC ) SPECIALTY INSURANCE COMPANY, ) and ARGONAUT INSURANCE ) COMPANY, ) ) Defendants. ) )
Submitted: June 22, 2023 Decided: September 21, 2023
Upon Plaintiffs’ Motion for Partial Summary Judgment GRANTED, in part, and DENIED, in part
Upon Defendants’ Motion for Summary Judgment DENIED
Jennifer C. Wasson, Esq., Carla M. Jones, Esq., Potter Anderson & Corroon LLP, Wilmington, Delaware, Kenneth H. Frenchman, Esq., Michelle R. Migdon, Esq., Orrie A. Levy, Esq., Samantha Smith, Esq., Cohen Ziffer Frenchman & McKenna LLP, New York, New York, Attorneys for Plaintiffs.
Kurt M. Heyman, Esq., Aaron M. Nelson, Esq., Kelly E. Rowe, Esq., Heyman Enerio Gattuso & Hirzel LLP, Wilmington, Delaware, Scott B. Schreiber, Esq., Arthur Luk, Esq., William C. Perdue, Esq., Samuel I. Ferenc, Esq., Matthew Bemis, Esq., Arnold & Porter Kaye Scholer LLP, Washington, D.C., Attorneys for Defendant AIG Specialty Insurance Company.
John C. Phillips, Jr., Esq., David A. Bilson, Esq., Phillips McLaughlin & Hall, P.A., Wilmington, Delaware, Attorneys for Defendants U.S. Specialty Insurance Company and Argonaut Insurance Company.
Douglas M. Mangel, Esq., Michelle Beecy, Esq., Clyde & Co LLP, Washington, D.C., Attorneys for Defendant U.S. Specialty Insurance Company.
Geoffrey W. Heineman, Esq., Jung H. Park, Esq., Ropers Majeski, PC, New York, New York, Attorneys for Defendant Argonaut Insurance Company.
Robert J. Katzenstein, Esq., Julie M. O’Dell, Esq., Smith Katzenstein & Jenkins LLP, Wilmington, Delaware, Attorneys for Defendants AXIS Insurance Company, Continental Casualty Company, and Atlantic Specialty Insurance Company.
Matthew Beato, Esq., Jason Cronic, Esq., Jessica N. Gallinaro, Esq., Wiley Rein LLP, Washington, D.C., Attorneys for Defendant AXIS Insurance Company.
Karen H. Ventrell, Esq., CNA Corporate Litigation, Washington, D.C., Attorney for Defendant Continental Casualty Company.
Scott A. Schechter, Esq., Matthew Mawby, Esq., Kaufman Borgeest & Ryan LLP, Valhalla, New York, Attorneys for Defendant Atlantic Specialty Insurance Company.
John G. Day, Esq., Bruce E. Jameson, Esq., Prickett, Jones & Elliott, P.A., Wilmington, Delaware, Alexis J. Rogoski, Esq., Edward C. Carleton, Esq., Skarzynski Marick & Black LLC, New York, New York, Attorneys for Defendant Freedom Specialty Insurance Company.
John L. Reed, Esq., DLA Piper LLP (US), Wilmington, Delaware, Steven J. Brodie, Esq., Carlton Fields, P.A., Miami, Florida, Charles W. Stotter, Esq., Carlton Fields, P.A., New York, New York, Attorneys for Defendant ACE American Insurance Company.
DAVIS, J.
I. INTRODUCTION
This is an insurance coverage dispute alleging claims for breach of contract, anticipatory
breach of contract and declaratory relief assigned to the Complex Commercial Litigation
Division of this Court. On May 9, 2022, Plaintiffs Genworth Financial, Inc. (“GFI”), Genworth
Life Insurance Company (“GLIC”), and Genworth Life Insurance Company of New York
2 (“GLICNY”) (collectively, “Genworth”) commenced this action against Defendants AIG
Specialty Insurance Company (“AIG”), Axis Insurance Company (“Axis”), U.S. Specialty
Insurance Company (“U.S. Specialty”), Freedom Specialty Insurance Company (“Freedom
Specialty”), Ace American Insurance Company (“Ace”), Continental Casualty Company
(“CNA”), Atlantic Specialty Insurance Company (“Atlantic”), and Argonaut Insurance Company
(“Argonaut”) (collectively, “Insurers”). On September 21, 2022, Genworth filed an Amended
Complaint. 1 The Amended Complaint sets out three claims against the Insurers: (i) breach of
contract and/or anticipatory breach of contract for defense costs; (ii) breach of contract and/or
anticipatory breach of contract for indemnity; and (iii) certain declaratory relief.
Subsequently, Genworth moved for partial summary judgment (the “Genworth Motion”)
on October 3, 2022. 2 On December 1, 2022, Insurers filed their own motion for summary
judgment (the “Insurers Motion”). 3 The Court held a hearing on these motions on June 22,
2023. 4 At the end of the hearing, the Court took the Genworth Motion and the Insurers Motion
under advisement.
For the reasons stated below, the Genworth Motion is GRANTED, in part, DENIED, in
part, and the Insurers Motion is DENIED.
II. RELEVANT FACTS A. PARTIES
GFI is a Delaware corporation with its principal place of business in Virginia. 5 GLIC is a
Delaware corporation with its principal place of business in Virginia. 6 GLICNY is a New York
1 D.I. No. 62. 2 D.I. No. 63. 3 D.I. No. 67. 4 D.I. No. 96. 5 Amended Complaint (“Amend. Compl.”) ¶ 10. 6 Id. ¶ 11.
3 corporation with its principal place of business in New York. 7 Genworth is a financial,
retirement, and life insurance company which sells financial and retirement products, including
long-term care (“LTC”) insurance plans. 8 LTC insurance “seeks to minimize the cost of nursing
home care, home care, assisted living care, and other specialized care designed for individuals
unable to perform the basic functions of daily living (such as dressing, bathing, eating and
continence, among other things).” 9
Insurers are engaged in the business of selling insurance, investigating claims, and
issuing policies that cover policyholders in the State of Delaware, amongst other states. AIG is
an Illinois corporation with its principal place of business in New York. 10 Axis is also an Illinois
corporation with its principal place of business in Georgia. 11 U.S. Specialty is a Texas
corporation with its principal place of business in Texas. 12 Freedom Specialty is an Ohio
corporation with its principal place of business in Ohio. 13 Ace is a Pennsylvania corporation
with its principal place of business in Pennsylvania. 14 Like AIG and Axis, CNA is an Illinois
corporation. 15 CNA has it principal place of business in Illinois. 16 Atlantic is a New York
corporation with its principal place of business in Minnesota. 17 Argonaut is an Illinois
corporation with its principal place of business in Texas. 18
7 Id. ¶ 12. 8 Id. ¶ 24. 9 Id. ¶ 41. 10 Id. ¶ 13. 11 Id. ¶ 14. 12 Id. ¶ 15. 13 Id. ¶ 16. 14 Id. ¶ 17. 15 Id. ¶ 18. 16 Id. 17 Id. ¶ 19. 18 Id. ¶ 20.
4 B. THE INSURANCE POLICIES
As part of its risk management efforts, Genworth annually purchased primary and excess
professional liability insurance. 19 The Amended Complaint alleges that Genworth purchased the
insurance to insure against third-party claims, including those seeking damages and other relief
as a result of Genworth’s alleged misrepresentations and other professional errors or omissions. 20
During the relevant period, Genworth was covered under a professional liability coverage tower
from March 31, 2018 to March 31, 2019 (the “Policies”). 21 The Policies provided approximately
$80 million in liability coverage from nine 22 layers of insurance in excess of Genworth’s $25
million in self-insured retention amount. 23 The Policies followed form to the first layer liability
policy sold by the primary carrier, AIG. 24 The Policies include a Virginia choice of law
provision. 25
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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
GENWORTH FINANCIAL, INC., ) GENWORTH LIFE INSURANCE ) COMPANY, and GENWORTH LIFE ) INSURANCE COMPANY OF NEW ) YORK, ) C.A. No. N22C-05-057 EMD CCLD ) Plaintiffs, ) ) v. ) ) AIG SPECIALTY INSURANCE ) COMPANY, AXIS INSURANCE ) COMPANY, U.S. SPECIALTY ) INSURANCE COMPANY, FREEDOM ) SPECIALTY INSURANCE COMPANY, ) ACE AMERICAN INSURANCE ) COMPANY, CONTINENTAL ) CASUALTY COMPANY, ATLANTIC ) SPECIALTY INSURANCE COMPANY, ) and ARGONAUT INSURANCE ) COMPANY, ) ) Defendants. ) )
Submitted: June 22, 2023 Decided: September 21, 2023
Upon Plaintiffs’ Motion for Partial Summary Judgment GRANTED, in part, and DENIED, in part
Upon Defendants’ Motion for Summary Judgment DENIED
Jennifer C. Wasson, Esq., Carla M. Jones, Esq., Potter Anderson & Corroon LLP, Wilmington, Delaware, Kenneth H. Frenchman, Esq., Michelle R. Migdon, Esq., Orrie A. Levy, Esq., Samantha Smith, Esq., Cohen Ziffer Frenchman & McKenna LLP, New York, New York, Attorneys for Plaintiffs.
Kurt M. Heyman, Esq., Aaron M. Nelson, Esq., Kelly E. Rowe, Esq., Heyman Enerio Gattuso & Hirzel LLP, Wilmington, Delaware, Scott B. Schreiber, Esq., Arthur Luk, Esq., William C. Perdue, Esq., Samuel I. Ferenc, Esq., Matthew Bemis, Esq., Arnold & Porter Kaye Scholer LLP, Washington, D.C., Attorneys for Defendant AIG Specialty Insurance Company.
John C. Phillips, Jr., Esq., David A. Bilson, Esq., Phillips McLaughlin & Hall, P.A., Wilmington, Delaware, Attorneys for Defendants U.S. Specialty Insurance Company and Argonaut Insurance Company.
Douglas M. Mangel, Esq., Michelle Beecy, Esq., Clyde & Co LLP, Washington, D.C., Attorneys for Defendant U.S. Specialty Insurance Company.
Geoffrey W. Heineman, Esq., Jung H. Park, Esq., Ropers Majeski, PC, New York, New York, Attorneys for Defendant Argonaut Insurance Company.
Robert J. Katzenstein, Esq., Julie M. O’Dell, Esq., Smith Katzenstein & Jenkins LLP, Wilmington, Delaware, Attorneys for Defendants AXIS Insurance Company, Continental Casualty Company, and Atlantic Specialty Insurance Company.
Matthew Beato, Esq., Jason Cronic, Esq., Jessica N. Gallinaro, Esq., Wiley Rein LLP, Washington, D.C., Attorneys for Defendant AXIS Insurance Company.
Karen H. Ventrell, Esq., CNA Corporate Litigation, Washington, D.C., Attorney for Defendant Continental Casualty Company.
Scott A. Schechter, Esq., Matthew Mawby, Esq., Kaufman Borgeest & Ryan LLP, Valhalla, New York, Attorneys for Defendant Atlantic Specialty Insurance Company.
John G. Day, Esq., Bruce E. Jameson, Esq., Prickett, Jones & Elliott, P.A., Wilmington, Delaware, Alexis J. Rogoski, Esq., Edward C. Carleton, Esq., Skarzynski Marick & Black LLC, New York, New York, Attorneys for Defendant Freedom Specialty Insurance Company.
John L. Reed, Esq., DLA Piper LLP (US), Wilmington, Delaware, Steven J. Brodie, Esq., Carlton Fields, P.A., Miami, Florida, Charles W. Stotter, Esq., Carlton Fields, P.A., New York, New York, Attorneys for Defendant ACE American Insurance Company.
DAVIS, J.
I. INTRODUCTION
This is an insurance coverage dispute alleging claims for breach of contract, anticipatory
breach of contract and declaratory relief assigned to the Complex Commercial Litigation
Division of this Court. On May 9, 2022, Plaintiffs Genworth Financial, Inc. (“GFI”), Genworth
Life Insurance Company (“GLIC”), and Genworth Life Insurance Company of New York
2 (“GLICNY”) (collectively, “Genworth”) commenced this action against Defendants AIG
Specialty Insurance Company (“AIG”), Axis Insurance Company (“Axis”), U.S. Specialty
Insurance Company (“U.S. Specialty”), Freedom Specialty Insurance Company (“Freedom
Specialty”), Ace American Insurance Company (“Ace”), Continental Casualty Company
(“CNA”), Atlantic Specialty Insurance Company (“Atlantic”), and Argonaut Insurance Company
(“Argonaut”) (collectively, “Insurers”). On September 21, 2022, Genworth filed an Amended
Complaint. 1 The Amended Complaint sets out three claims against the Insurers: (i) breach of
contract and/or anticipatory breach of contract for defense costs; (ii) breach of contract and/or
anticipatory breach of contract for indemnity; and (iii) certain declaratory relief.
Subsequently, Genworth moved for partial summary judgment (the “Genworth Motion”)
on October 3, 2022. 2 On December 1, 2022, Insurers filed their own motion for summary
judgment (the “Insurers Motion”). 3 The Court held a hearing on these motions on June 22,
2023. 4 At the end of the hearing, the Court took the Genworth Motion and the Insurers Motion
under advisement.
For the reasons stated below, the Genworth Motion is GRANTED, in part, DENIED, in
part, and the Insurers Motion is DENIED.
II. RELEVANT FACTS A. PARTIES
GFI is a Delaware corporation with its principal place of business in Virginia. 5 GLIC is a
Delaware corporation with its principal place of business in Virginia. 6 GLICNY is a New York
1 D.I. No. 62. 2 D.I. No. 63. 3 D.I. No. 67. 4 D.I. No. 96. 5 Amended Complaint (“Amend. Compl.”) ¶ 10. 6 Id. ¶ 11.
3 corporation with its principal place of business in New York. 7 Genworth is a financial,
retirement, and life insurance company which sells financial and retirement products, including
long-term care (“LTC”) insurance plans. 8 LTC insurance “seeks to minimize the cost of nursing
home care, home care, assisted living care, and other specialized care designed for individuals
unable to perform the basic functions of daily living (such as dressing, bathing, eating and
continence, among other things).” 9
Insurers are engaged in the business of selling insurance, investigating claims, and
issuing policies that cover policyholders in the State of Delaware, amongst other states. AIG is
an Illinois corporation with its principal place of business in New York. 10 Axis is also an Illinois
corporation with its principal place of business in Georgia. 11 U.S. Specialty is a Texas
corporation with its principal place of business in Texas. 12 Freedom Specialty is an Ohio
corporation with its principal place of business in Ohio. 13 Ace is a Pennsylvania corporation
with its principal place of business in Pennsylvania. 14 Like AIG and Axis, CNA is an Illinois
corporation. 15 CNA has it principal place of business in Illinois. 16 Atlantic is a New York
corporation with its principal place of business in Minnesota. 17 Argonaut is an Illinois
corporation with its principal place of business in Texas. 18
7 Id. ¶ 12. 8 Id. ¶ 24. 9 Id. ¶ 41. 10 Id. ¶ 13. 11 Id. ¶ 14. 12 Id. ¶ 15. 13 Id. ¶ 16. 14 Id. ¶ 17. 15 Id. ¶ 18. 16 Id. 17 Id. ¶ 19. 18 Id. ¶ 20.
4 B. THE INSURANCE POLICIES
As part of its risk management efforts, Genworth annually purchased primary and excess
professional liability insurance. 19 The Amended Complaint alleges that Genworth purchased the
insurance to insure against third-party claims, including those seeking damages and other relief
as a result of Genworth’s alleged misrepresentations and other professional errors or omissions. 20
During the relevant period, Genworth was covered under a professional liability coverage tower
from March 31, 2018 to March 31, 2019 (the “Policies”). 21 The Policies provided approximately
$80 million in liability coverage from nine 22 layers of insurance in excess of Genworth’s $25
million in self-insured retention amount. 23 The Policies followed form to the first layer liability
policy sold by the primary carrier, AIG. 24 The Policies include a Virginia choice of law
provision. 25
AIG provided the first layer insurance policy (the “Primary Policy”) not exceeding $10
million in coverage beyond Genworth’s $25 million self-insured retention amount. 26 Axis
provided the second layer insurance policy not exceeding $10 million in coverage beyond $10
million in liability.27 U.S. Specialty provided the third layer insurance policy not exceeding $15
million in coverage beyond $20 million in liability. 28 Freedom Specialty provided the fourth
layer insurance policy not exceeding $10 million in coverage beyond $35 million in liability.29
19 Id. ¶ 25. 20 Id. 21 Id. ¶ 26. 22 The Amended Complaint alleges nine layers; however, the Complaint—when describing the layers—skips from seven to nine. This discrepancy (real or imagined) is not meaningful to the decision here. 23 Id. 24 Id. ¶ 27. 25 Insurance Company Professional Liability and Fiduciary Liability (“Primary Policy”), Endorsement #8 (D.I. No. 64, Ex. 1).. 26 Amend. Compl. ¶ 28. 27 Id. 28 Id. 29 Id.
5 Ace provided the fifth layer insurance policy not exceeding $10 million in coverage beyond $45
million in liability.30 CNA and Atlantic provided the sixth layer insurance policies issued not
exceeding $5 million each in a quota share ($10 million in total) in coverage beyond $55 million
in liability. 31 Argonaut provided the seventh layer insurance policy not exceeding $10 million in
coverage beyond $65 million in liability. 32 CNA provided the ninth layer insurance policy not
exceeding $5 million (as a part of a $10 million quota share) in coverage beyond $90 million in
liability.33
C. THE PRIMARY POLICY
The Insuring Clause of the Primary Policy provides that:
Underwriters shall pay on behalf of the Insureds Loss which the Insureds become legally obligated to pay by reason of any Claim first made by: 1) a policyholder; 2) third-party client of the Company; 3) mortgagor/borrower in connection with a private mortgage insurance Policy; or 4) Prospective Policyholder or Prospective Third-Party Client, but solely with respect to Defense Costs, against the Insureds during the Policy Period or an applicable Discovery Period for any Wrongful Acts by the Insureds or by a person or entity for whom the Insureds are legally responsible in rendering or failing to render Professional Services, if such Wrongful Acts take place prior to the end of the Policy Period. 34
The Primary Policy defines “Insured Person” as the “Company,” which is defined to include
the “Parent Company and Subsidiaries.” 35 The “Parent Company” is defined as GFI. 36
“Subsidiary” is defined as any entity “of which the Company has Management Control, i.e.,
GLIC and GLICNY. 37 “Claim” is defined as “a written demand for monetary or non-monetary
30 Id. 31 Id. 32 Id. 33 Id. Two eighth layer insurance policies and the other half of the ninth layer insurance policy are not included in the lawsuit due to mandatory arbitration provisions. Amend. Compl. at 12, n.2. 34 Primary Policy at 17. 35 Amend. Compl. ¶ 30, Primary Policy at 1. 36 Primary Policy at 3. 37 Id. at 4.
6 damages or injunctive relief” or “a civil proceeding commenced by the service of a complaint or
similar pleading.” 38
“Loss” is defined as:
[T]he amount which the Insureds become legally obligated to pay on account of each Claim and for all Claims in the Policy Period . . . made against them for Wrongful Acts for which coverage applies, including, but not limited to, damages, judgments, any award of pre-judgment and post-judgment interest, settlements and Defense Costs. Loss does not include (1) any amount for which the Insureds are absolved from payment, (2) taxes, fines or penalties imposed by law, or (3) matters uninsurable under the law pursuant to which this Policy is construed.
Loss shall also mean punitive, exemplary or multiple damages to the extent such damages are insurable under the internal laws of any jurisdiction most favorable to the insurability of such damages, and which has a substantial relationship to either the Insureds, Underwriters, this Policy or such Claim.39
“Defense Costs” is defined as “reasonable costs, charges, fees (including but not limited
to attorneys’ fees and experts’ fees) and expenses . . . incurred by the Insureds in defending or
investigating Claims and the premium for appeal, attachment or similar bonds.” 40
“Professional Services” is defined as:
[S]ervices, including but not limited to investment advisory services and investment management services, performed by or on behalf of the Company for: 1) a policyholder; 2) third-party client of the Company; 3) mortgagor/borrower in connection with a private mortgage insurance policy; or 4) solely with respect to Defense Costs, Prospective Policyholder or Prospective Third-Party Client. The Professional Services must be performed in connection with the sales and marketing of insurance and investment products and/or a written contract or policy with such or to be issued to such policyholder, Prospective Policyholder, third- party client or Prospective Third-party Client. A written contract shall include an insurance Policy issued by the Company.41
38 Id. at 18. 39 Id. at 19. 40 Id. at 2. 41 Id. at 19.
7 “Prospective Policyholder” or “Prospective Third-Party Client” is defined as
“someone who has actually submitted an application for coverage or other application seeking
the performance of a Professional Service from the Insured or inquired thereto.” 42
“Wrongful Act” is defined as “any error, misstatement, misleading statement, act,
omission, neglect or breach of duty actually or allegedly committed or attempted . . . by the
Company or by any person or organization for whom the Insureds are legally responsible.” 43
The Primary Policy also provides that in relation to claims:
For purposes of this Policy, all Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts of the Insureds shall be deemed one Claim, and such Claim shall be deemed to be first made on the date the earliest of such Claims is first made against them, regardless of whether such date is before or during the Policy Period. All Loss resulting from a single Claim shall be deemed a single Loss. 44
“Interrelated Wrongful Acts” is defined as “all Wrongful Acts that have as a common
nexus any fact, circumstance, situation, event, transaction, cause or series of related facts,
circumstances, situations, events, transactions or causes.” 45
D. THE COVERAGE EXCLUSIONS
The Primary Policy (and the other policies in the insurance coverage ladder) excluded
certain types of claims from coverage.
Section III(A)(19) (the “Underwriting Exclusion”) states:
[Underwriters shall not be liable for that portion of Loss on account of any Claim made against any Insured] based upon, arising out of or attributable to the underwriting of insurance, including any decisions involving the classification, selection, and renewal of risks as well as the rates and premiums charged to insure or reinsure risks; Notwithstanding the foregoing, this exclusion shall not apply to Claims arising out of the sale and marketing of insurance or investment products. 46
42 Id. 43 Id. at 20. 44 Id. at 5. 45 Id. at 3. 46 Id. at 24.
8 Section III(A)(20) (the “Premium Exclusion”) states:
[Underwriters shall not be liable for that portion of Loss on account of any Claim made against any Insured] if such Loss constitutes: . . . (iii) premiums, return premiums or commissions; but this exclusion shall not apply to Defense Costs. 47
Section III(A)(23) (the “Claim Reserves Exclusion”) states:
[Underwriters shall not be liable for that portion of Loss on account of any Claim made against any Insured] based upon, arising out of or attributable to (i) the inadequacy of any claim reserves of the Company or any entity to which the Insureds provide Professional Services; or (ii) the bankruptcy, insolvency, receivership, liquidation or financial inability of any entity to which the Insureds provide Professional Services to pay claims or perform Professional Services. 48
E. THE UNDERLYING CLASS ACTION LAWSUITS
1. The Skochin Action
On January 18, 2019, Jeremy Skochin, Susan Skochin, and Larry Huber (the “Skochin
Plaintiffs”) filed a class action lawsuit (“Skochin Action”) against Genworth. The Skochin
Action alleged that Genworth “made partial or inadequate disclosures of material information
and/or omissions of material information regarding potential or likely future rate increases that it
expected or planned to make in multiple subsequent years” which “affected [the Skochin
Plaintiffs’] ability to make informed decisions regarding policy options and policy renewal each
year.” 49 The Skochin Plaintiffs claimed that when they entered into the LTC policy, Genworth
failed to inform them of Genworth’s existing plans to increase the premium rates from 44-60%
in the near future. 50 The Skochin Plaintiffs also contended that in 2018, Genworth sent a rate
increase letter noting that Genworth planned on increasing the premium 150% over the following
6-8 years, while Genworth’s internal projections showed that the rate of increase was expected to
47 Id. at 25. 48 Id. at 26. 49 Amend. Compl. ¶¶ 43, 47. 50 Id. ¶ 43.
9 be closer to 300%. 51 The Skochin Plaintiffs, however, did not challenge Genworth’s right to
increase premiums if such increases were made across entire policy classes, and approved by the
policyholders’ state insurance regulators. 52
On October 30, 2019, the Skochin Action parties filed a Notice of Settlement and
executed a class action settlement agreement on December 20, 2019 (the “Skochin
Settlement”). 53 The terms of the Skochin Settlement provided that Genworth would send a
“Special Election Letter” to all settlement class members which provided disclosures about
future rate increases and the financial condition of Genworth. 54 The Skochin Settlement also
offered certain “Special Election Options” which the class members could select from in light of
these updated disclosures for future premiums. 55 One of the Special Election Options was a
“damages payment” payable to the class member which was calculated in various ways,
including: (i) a calculation of “premiums paid previously;” (ii) “future reduced benefit premiums
as a basis for calculating such damages payment;” or, alternatively, (iii) “using a one-time
specified cash payment for certain class members in certain categories.” 56 Genworth also agreed
to pay the class counsel attorneys’ fees, litigation costs, and service costs. 57 Genworth denied
any wrongdoing or legal liability of any kind under the settlement. 58
The Skochin Court approved the Settlement Agreement in November of 2020, granting
the plaintiffs’ motion for class counsel attorneys’ fees with an elimination of the $10 million
51 Id. ¶ 46. 52 Id. ¶ 48. 53 Id. ¶ 53. 54 Id. ¶ 54. 55 Id. 56 Id. ¶ 55. 57 Id. ¶ 56. The class counsel attorneys’ fees were calculated with a specific formula ($2 million plus an amount equal to 15% of the cash damages paid to the settlement class, subject to a $10 million floor and $24.5 million cap). The class counsel litigation costs were capped at $75,000. Service fees were capped at $25,000 for each of the three named class plaintiffs. 58 Id. ¶ 57.
10 floor, granting the $25,000 service fees per named class plaintiff, and approval of litigation costs
totaling $64,398.66. 59 As of May 2022, Genworth has paid over $8.6 million in defense costs
arising from the Skochin Action. 60 Under the Skochin Settlement, Genworth paid approximately
$26.5 million in class counsel attorneys’ fees, more than $213 million in cash damage payments
to the Skochin class members, $75,000 in service fees, and $64,398.66 in class counsel litigation
costs. 61
2. The Halcom Action
On January 11, 2021, Judy Halcom, Hugh Penson, Harold Cherry, and Richard Landino
(the “Halcom Plaintiffs”) filed a class action lawsuit against Genworth (“Halcom Action”). The
Halcom Plaintiffs contended that Genworth failed to disclose the possibility of future premium
increases at the time they entered into an LTC policy with Genworth. 62 The Halcom Plaintiffs
alleged that, while they paid steady premiums for the first few years of their LTC policies,
Genworth began obtaining large premium increases, with 11-12% premium increases in 2008,
and another 18% premium increase by 2010. 63 By 2012, the Halcom Plaintiffs claimed that
Genworth applied premium increases ranging from 60-95% for PCS I policies, and 63-78%
increases for PCS II policies. 64 The Halcom Plaintiffs contended that Genworth failed to “tell
policyholders the full scope of planned rate increases” in its communications to the policyholders
regarding premium increases, and also failed to disclose that there would be further significant
premium increases planned for the future. 65
59 Id. ¶ 59. 60 Id. ¶ 61. 61 Id. 62 Id. ¶ 62. The Halcom Plaintiffs purchased PCS I (issued between 1994-97) and PCS II (issued between 1997 to 2001) LTC policies from Genworth. 63 Id. ¶ 65. 64 Id. ¶ 66. 65 Id. ¶ 67.
11 As in the Skochin Action, the Halcom Plaintiffs did not contest the amount or extent of
Genworth’s premium increases, or Genworth’s right to make such increases. 66 The Halcom
Plaintiffs only challenged Genworth’s alleged failure to disclose such anticipated additional
increases to its policyholders. 67 The Halcom Plaintiffs sought compensatory, consequential, and
general damages. 68
On August 23, 2021, the Halcom Action parties filed an executed proposed settlement
agreement (the “Halcom Settlement”). 69 The Halcom Settlement was substantially similar to the
Skochin Settlement, with Genworth agreeing to send a “Special Election Letter” to all of the
settlement class members providing various disclosures about future rate increases and the
financial condition of Genworth. 70 Additionally, Genworth offered several “Special Election
Options” that the class members could choose in light of the disclosures regarding future
premium increases. 71 As in the Skochin Settlement, one of the Special Election Options was a
“damages payment” which was measured in different ways, including (i) a calculation of
“premiums paid previously;” (ii) “future reduced benefit premiums as a basis for calculating
such damages payment;” or, alternatively, (iii) “using a one-time specified cash payment for
certain class members in certain categories.” 72 Genworth also agreed to pay the class counsel
attorneys’ fees, litigation costs, and service costs. 73 Under the Halcom Settlement, Genworth
66 Id. ¶ 68. 67 Id. 68 Id. ¶ 71. 69 Id. ¶ 72. 70 Id. ¶ 73. 71 Id. 72 Id. ¶ 74. 73 Id. ¶ 76. The class counsel attorneys’ fees were calculated with a specific formula ($1 million plus an amount equal to 15% of the cash damages paid to the settlement class, subject to a cap of $18.5 million). The class counsel’ litigation costs were capped at $50,000. Service fees were capped at $15,000 for each of the four named class plaintiffs.
12 denied any wrongdoing or legal liability of any kind and denied that the lawsuit was appropriate
for class treatment. 74
On June 29, 2022, the Halcom Court granted a Final Judgment and Order of Dismissal
with Prejudice giving the final approval of the Halcom Settlement. 75 Genworth estimates that
the anticipated total value of the settlement payouts could range from between $84 million and
$251 million.76 As of May 2022, Genworth has paid $1.3 million in defense costs for the
Halcom Action, and “expects that it will incur “substantial amounts in defense costs, damages
payments and class counsel attorneys’ fees going forward for the Halcom Action.” 77
3. The Haney Action
On January 28, 2022, Fred Haney, Marsha Merrill, Sylvia Rausch, Stephen Swenson, and
Alan Wooten (the “Haney Plaintiffs”) filed a class action lawsuit against Genworth (“Haney
Action”). The Haney Plaintiffs contended that Genworth substantially increased premium rates
for Choice 2, Choice 2.1, California CADE, California Reprice, and California Unbundled Long-
Term Care Insurance policies (“Choice 2/2.1 Policies”) without disclosing material information
related to potential rate increases Genworth expected or planned to make in the future. 78 Similar
to the Skochin and Halcom Actions, the Haney Plaintiffs claimed that while they paid stable
premiums for the first few years of their Genworth LTC policies, by 2012, Genworth began
requesting, and received approvals for, sharp increases in the policy premiums from the state
regulators. 79 The Haney Plaintiffs maintained that Genworth failed to disclose to its
policyholders the expected need for Genworth to seek the premium increases from the state
74 Id. ¶ 77. 75 Id. ¶ 79. 76 Id. ¶ 75. The exact amount of the settlement payouts cannot be accurately calculated until all class members select their benefit options. 77 Id. ¶ 80 78 Id. ¶ 83. Choice 2/2.1 Policies were sold between 2003 and 2012. 79 Id. ¶ 86.
13 regulators, and that Genworth failed to inform the policyholders of the “full scope of planned
rate increases . . . or that Genworth was planning to ask for significant additional rate increases in
the future.” 80 “Like in the Skochin Action and the Halcom Actions, the Haney Plaintiffs did not
challenge the amount or extent of Genworth’s premium increases, or Genworth’s right to make
such increases, only Genworth’s alleged failure to disclose such anticipated additional increases
to its policyholders.” 81
In January 2022, the Haney Action parties agreed to a settlement in principle, and on July
5, 2022, the parties filed an Amended Joint Stipulation of Class Action Settlement and Release,
which was approved by the Haney Court on July 7, 2022. 82 As of May 2022, Genworth has paid
nearly $400,000 in defense costs in the Haney Action, and expects that it will incur “substantial
amounts in additional defense costs, damages payments and class counsel attorneys’ fees going
forward.” 83
F. DENIAL OF COVERAGE FOR THE SKOCHIN, HALCOM, AND HANEY ACTIONS
Genworth notified the Insurers about the Skochin Action and the incurred damages
arising from the lawsuit on or about January 25, 2019. 84 On September 12, 2019, AIG asserted
that coverage for the Skochin Action was barred under three policy exclusions under the Primary
Policy – the Underwriting Exclusion; the Claim Reserves Exclusion; and the Premiums
Exclusion. 85 On October 18, 2019, Axis denied coverage for the Skochin Action based on the
same three policy exclusions raised by AIG, as well as an additional exclusion for Loss from a
Claim. 86 On November 18, 2019, U.S. Specialty also denied coverage for the Skochin Action
80 Id. ¶ 88. 81 Id. ¶ 89. 82 Id. ¶ 93. 83 Id. ¶ 94. 84 Id. ¶ 96. 85 Id. ¶ 97. 86 Id. ¶ 100.
14 and adopted the same positions as Axis. 87 On November 23, 2020, Ace denied coverage for the
Skochin Action and adopted AIG’s coverage position. 88 The other Insurers did not acknowledge
coverage for the Skochin Action at the time Genworth filed this suit. 89
On or about January 19, 2021, Genworth notified the Insurers about the Halcom Action
and the incurred damages arising from that lawsuit. 90 On February 5, 2021, AIG asserted that
coverage for the Halcom Action was barred under the same three exclusions AIG had raised in
the rejection of coverage for the Skochin Action, and that AIG would consider the claim for the
Halcom Action as being first made during the 2018-2019 policy period because it was related to
the Skochin Action. 91 ACE, Axis, and U.S. Specialty adopted the same position for denying
coverage for the Halcom Action. 92
Genworth notified the Insurers of the pre-suit mediation request from the Haney Plaintiffs
on or about November 5, 2021 and, again, on December 28, 2021. 93 On January 11, 2022, AIG
denied coverage for the Haney Action and asserted the same three exclusions it asserted for non-
coverage of the Skochin and Halcom Actions. 94 Atlantic Specialty, ACE, and CNA adopted
AIG’s position on the Haney Action, and also denied coverage. 95
G. PRESENT LITIGATION
On September 21, 2022, Genworth filed its Amended Complaint asserting three claims:
(i) Breach of Contract and/or Anticipatory Breach of Contract Against All Defendants for
Defense Costs; (ii) Breach of Contract and/or Anticipatory Breach of Contract Against All
87 Id. ¶ 101. 88 Id. ¶ 102. 89 Id. ¶ 106. 90 Id. ¶ 108. 91 Id. ¶ 110. 92 Id. ¶¶ 112-115. 93 Id. ¶ 118. 94 Id. ¶ 120. 95 Id. ¶¶ 121-123.
15 Defendants for Indemnity; and (iii) Declaratory Relief Against All Defendants. 96 On October 3,
2022, Genworth filed its Motion for Partial Summary Judgment Dismissing Certain Insurer
Coverage Defenses. 97 On December 1, 2022, Insurers filed its Motion for Summary Judgment. 98
On January 25, 2023, Genworth filed its Combined Memorandum of Law 1) In Opposition to
Defendants’ Cross-Motion for Summary Judgment, 2) In Further Support of its Motion for
Partial Summary Judgment, and 3) In Opposition to Insurers’ 56(f) Affidavit. 99 On March 8,
2023, Insurers filed its Reply in Further Support of Their Cross-Motion for Summary
Judgment. 100
The Court held a hearing on the Genworth Motion and the Insurers Motion on June 22,
2023. After hearing from the parties, the Court took the matters under advisement. 101
III. PARTIES’ CONTENTIONS
A. THE GENWORTH MOTION
Genworth argues that the three exclusions to coverage asserted by the Insurers do not bar
coverage for the defense and settlement costs arising from the Skochin, Halcom, and Haney
Actions (collectively, the “Underlying Actions”). Genworth maintains that the losses incurred
by Genworth in the Underlying Actions “fall squarely within and satisfy all the elements of the
insuring agreements of Genworth’s policies.” 102 Genworth asserts that Insurers rely on
erroneous interpretations of the exclusions to argue that: (i) Genworth’s losses either constitute
premiums or return of premiums; (ii) Genworth’s losses are related to the inadequacy of its
96 D.I. No. 62. 97 D.I. No. 63. 98 D.I. No. 67. 99 D.I. No. 71. 100 D.I. No. 72. 101 D.I. No. 96. 102 Genworth’s Motion for Partial Summary Judgment (“Genworth Motion”) at 2 (D.I. No. 64).
16 claims reserves; or (iii) the Underlying Actions are attributable to issues in the underwriting of
the LTC policies in question. 103
B. THE INSURERS MOTION
Insurers counter and argue that the Court should grant summary judgment in their favor.
The Insurers contend that the facts show that there are no genuine issues of material fact as to the
applicability of the Claim Reserves Exclusion under the Policies. 104 The Insurers claim that the
plain reading of the clause bars coverage for Genworth’s losses arising from the Underlying
Actions. 105 The Insurers state that Genworth’s premium increases were a result of “substantial
shortfall in [Genworth’s] LTC reserves,” and that the Underlying Actions were “based upon,
arising out of or attributable” to the inadequacies of Genworth’s claim reserves, triggering the
Claim Reserves Exclusion. 106 As such, Genworth’s defense costs and settlement payments are
not covered under the Policies as a matter of law. 107
The Insurers alternatively argue that even if they are not entitled to summary judgment on
the Claim Reserves Exclusion clause, or the Premium Exclusion clause, the Insurers are entitled
to discovery. The Insurers contend that discovery is required to determine whether Genworth’s
settlement damages and costs arising from the Underlying Actions included “return of
premiums” paid by the class members, which would trigger the Premiums Exclusion under the
Policies. 108
Furthermore, the Insurers argue that genuine issues of material fact remain as to the
applicability of the Underwriting Exclusion, and discovery is necessary to find whether
103 Id. at 3-5. 104 Insurers’ Combined Opening Brief in Support of Their Cross-Motion for Summary Judgment and Opposition to Plaintiffs’ Motion for Partial Summary Judgment (“Insurers Motion”) at 3 (D.I. No. 67). 105 Id. 106 Id. 107 Id. at 4. 108 Id. at 32.
17 Genworth made certain decisions as to the need to seek significant future premium increases as a
part of the underwriting process for the LTC policies. 109 As such, the Insurers argue that the
Court should deny Genworth’s motion for partial summary judgment.
IV. STANDARD OF REVIEW
The standard of review on a motion for summary judgment is well-settled. The Court’s
principal function when considering a motion for summary judgment is to examine the record to
determine whether genuine issues of material fact exist, “but not to decide such issues.” 110
Summary judgment will be granted if, after viewing the record in a light most favorable to a
nonmoving party, no genuine issues of material fact exist and the moving party is entitled to
judgment as a matter of law. 111 If, however, the record reveals that material facts are in dispute,
or if the factual record has not been developed thoroughly enough to allow the Court to apply the
law to the factual record, then summary judgment will not be granted. 112 The moving party
bears the initial burden of demonstrating that the undisputed facts support his claims or
defenses. 113 If the motion is properly supported, then the burden shifts to the non-moving party
to demonstrate that there are material issues of fact for resolution by the ultimate fact-finder. 114
“These well-established standards and rules equally apply [to the extent] the parties have
filed cross-motions for summary judgment.” 115 Where cross-motions for summary judgment are
109 Id. at 33. 110 Merrill v. Crothall-American Inc., 606 A.2d 96, 99-100 (Del. 1992) (internal citations omitted); Oliver B. Cannon & Sons, Inc. v. Dorr-Oliver, Inc., 312 A.2d 322, 325 (Del. Super. 1973). 111 Id. 112 Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962); see also Cook v. City of Harrington, 1990 WL 35244, at *3 (Del. Super. Feb. 22, 1990) (citing Ebersole, 180 A.2d at 467) (“Summary judgment will not be granted under any circumstances when the record indicates . . . that it is desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances.”). 113 Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979) (citing Ebersole, 180 A.2d at 470). 114 See Brzoska v. Olsen, 668 A.2d 1355, 1364 (Del. 1995). 115 IDT Corp. v. U.S. Specialty Ins. Co., 2019 WL 413692, at *5 (Del. Super. Jan. 31, 2019) (citations omitted); see Capano v. Lockwood, 2013 WL 2724634, at *2 (Del. Super. May 31, 2013) (citing Total Care Physicians, P.A. v. O'Hara, 798 A.2d 1043, 1050 (Del. Super. 2001)).
18 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 on the merits based on the
record submitted with the motions.” 116 But where cross-motions for summary judgment are filed
and an issue of material fact exists, summary judgment is not appropriate. 117 To determine
whether there is a genuine issue of material fact, the Court evaluates each motion
independently. 118 And again, where it seems prudent to make a more thorough inquiry into the
facts, summary judgment will be denied. 119
V. DISCUSSION
After reviewing the relevant documents and hearing from the parties, the Court will grant
the Genworth Motion as to the Claims Reserves and Underwriting Exclusions. The Court does
find that there are genuine issues of material fact as to the applicability of the Premiums
Exclusion. The Court will DENY the Insurers Motion. 120
A. APPLICABLE VIRGINIA LAW
Under Virginia law, “[e]xclusionary language in an insurance policy will be construed
most strongly against the insurer and the burden is upon the insurer to prove that an exclusion
applies.” 121 “[I]t is incumbent upon the insurer to employ exclusionary language that is clear and
116 Del. Super. Ct. Civ. R. 56(h). 117 Motors Liquidation Co. DIP Lenders Tr. v. Allianz Ins. Co., 2017 WL 2495417, at *5 (Del. Super. June 19, 2017), aff’d sub nom., Motors Liquidation Co. DIP Lenders Tr. v. Allstate Ins. Co., 191 A.3d 1109 (Del. 2018); Comet Sys., Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024, 1029 (Del. Ch. 2008); see also Anolick v. Holy Trinity Greek Orthodox Church, Inc., 787 A.2d 732, 738 (Del. Ch. 2001) (“[T]he presence of cross-motions ‘does not act per se as a concession that there is an absence of factual issues.’” (quoting United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997))). 118 Motors Liquidation, 2017 WL 2495417, at *5; see Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160, 167 (Del. Ch. 2003). 119 Ebersole, 180 A.2d at 470-72; Pathmark Stores, Inc. v. 3821 Assocs., L.P., 663 A.2d 1189, 1191 (Del. Ch. 1995). 120 As both Motions heavily overlap in their arguments regarding the applicability of the three exclusions, this discussion section will address both Motions for conciseness. 121 Am. Reliance Ins. Co. v. Mitchell, 385 S.E.2d 583, 547 (Va. 1989) (citing Johnson v. Insurance Co. of North America, 350 S.E.2d 616, 619 (Va. 1986)).
19 unambiguous.” 122 Ambiguity of a policy term must be found “on the face of the policy.” 123
Language can be found to be ambiguous when “it may be understood in more than one way or
when it refers to two or more things at the same time.” 124 “[D]oubtful, ambiguous language in
an insurance policy will be given an interpretation which grants coverage, rather than one which
withholds it.” 125
When determining whether an insurer has a duty to defend its insured, Virginia courts
apply the “eight corners rule,” which compares the four corners of the insurance policy against
the four corners of the underlying complaint. 126 “If any of the allegations may potentially be
covered by the policy, the insurer has a duty to defend.” 127
B. THE CLAIM RESERVES EXCLUSION DOES NOT BAR COVERAGE.
The Insurers argue that the Claim Reserves Exclusion precludes coverage for Genworth’s
settlement payouts and related costs and fees because the Underlying Actions were “based upon,
arising out of or attributable . . . to the inadequacy of” Genworth’s claim reserves. 128 The
Insurers contend that each of the Underlying Actions’ complaints repeatedly refer to Genworth’s
alleged inadequate claims reserves for the LTC policies as the motive for Genworth increasing
the LTC premium rates. 129 In turn, the Insurers claim that “but for” Genworth’s insufficient
reserves, Genworth would not have had to omit “material information” from the LTC
policyholders that it would be seeking additional future rate increases, giving rise to the
Underlying Actions. 130 As such, Insurers assert that the Claim Reserves Exclusion bars
122 Id. (citing State Farm Mutual Ins. Co. v. Gandy, 383 S.E.2d 717, 719 (Va. 1989)). 123 Id. (citing Nationwide Mutual Ins. Co. v. Wenger, 278 S.E.2d 874, 877 (Va. 1981)). 124 Id. (citing Lincoln National Life Ins. Co. v. Commonwealth Container Corp., 327 S.E.2d 98, 101 (Va. 1985)). 125 Id. (citing St. Paul Ins. v. Nusbaum & Co., 316 S.E.2d 734, 736 (Va. 1984)). 126 Erie Ins. Exchange v. State Farm Mut. Auto. Ins. Co., 2002 WL 32075410, at *5 (Va. Cir. Ct. Dec. 16, 2002). 127 Penn. Nat. Mut. Cas. Ins. Co. v. Block Roofing Corp., 754 F. Supp. 2d 819, 822-23 (E.D. Va. 2010). 128 Insurers Motion at 18. 129 Id. at 19-22. 130 Id. at 7, 23.
20 recovery because the settlement payments and defense costs are not only “based upon, arising
out of or attributable . . . to the inadequacy of [Genworth’s] claim reserves.” 131 The Insurers
conclude that “Genworth’s inadequate claim reserves were part of the foundation for the
Underlying Actions (“based upon”); they were part of the causal chain leading to the underlying
plaintiffs filing suit (“arising out of”); and the Underlying Actions are capable of being explained
as occurring in consequence of Genworth’s inadequate claim reserves (“attributable to”).” 132
Genworth argues that the Court should find the Claim Reserves Exclusion does not bar
recovery because Genworth’s potential liability in the Underlying Actions was predicated solely
upon Genworth’s alleged misrepresentations or omissions regarding planned future premium
increases. 133 As Genworth states, “any background allegations regarding Genworth’s reserves
were merely contextual, and not a necessary element of Genworth’s liability in the Actions, as
required under Virginia law.” 134 Genworth notes that mere allegations and “incidental” claims to
the underlying class plaintiffs’ causes of action are insufficient to trigger the Claim Reserves
Exclusion, as there was no actual occurrence of Genworth failing to pay out claims due to
inadequate claim reserves. 135 Genworth summarizes that the “[class] plaintiffs did not need to
prove that Genworth’s reserves were actually inadequate, as either a legal or factual matter, in
order to establish liability in the Actions . . . Genworth’s liability turned on the scope and
adequacy of its rate increase disclosures.” 136
131 Id. at 25. 132 Id. at 25. 133 Genworth’s Combined Memorandum of Law 1) In Opposition to Defendants’ Cross-Motion for Summary Judgment, 2) In Further Support of Its Motion for Partial Summary Judgment, and 3) In Opposition to Insurers’ 56(f) Affidavit (“Genworth Opp.”) at 19 (D.I. No. 71). 134 Id. at 26. 135 Id. at 29. 136 Id. (emphasis in original).
21 A plain reading of the Claim Reserves Exclusion demonstrates that the provision does not
bar Genworth’s claims. The Claim Reserves Exclusion states:
[Insurers] shall not be liable for that portion of Loss on account of any Claim made against any Insured based upon, arising out of or attributable to (i) the inadequacy of any claim reserves of the Company or any entity to which the Insureds provide Professional Services; or (ii) the bankruptcy, insolvency, receivership, liquidation or financial inability of any entity to which the Insureds provide Professional Services to pay claims or perform Professional Services. 137
The Claims Reserve Exclusion, in its entirety, provides that the Insurers are not liable for losses
related to claims made against Genworth “based upon, arising out of or attributable to” either the
inadequacy of Genworth’s claim reserves, or the general financial insolvency of Genworth. In
other words, “Losses” incurred by Genworth must be directly attributable to Genworth’s
inability to pay claims to its insureds because Genworth either failed to maintain sufficient claim
reserves, or because of Genworth’s financial insolvency. Even under a broad reading of the
clause, the Claim Reserves Exclusion language does not implicate barring recovery for
Genworth’s “Losses” even if claims made by policyholders suggest that inadequacy of claims
reserves was a motivator or factor for Genworth’s failure to disclose planned premium increases
from its LTC policyholders.
Furthermore, the Insurers rely on James River Ins. Co. v. Doswell Truck Stop, LLC to
argue that under Virginia law, the language “arising out of” does not require a direct link
between a “liability” and a “violation” to implicate an exclusionary clause, and that only a
“reasonable causal connection” is required to trigger the clause. 138 However, a careful reading of
James River strongly suggests that the Virginia Supreme Court did not intend on its
interpretation of the language, “arising out of” to be applied beyond the immediate facts
Id. at 26 (emphasis in original). 137
Insurers Motion at 27-28 (citing James River Ins. Co. v. Doswell Truck Stop, LLC, 827 S.E.2d 374, 377 (Va. 138
2019)).
22 presented in that case, and thus, the Court will not adopt the interpretation proffered by
Insurers. 139
In each of the Underlying Actions, the class plaintiffs asserted claims alleging that
Genworth made misleading and inadequate disclosures regarding premium rate increases at the
time they entered into Genworth’s LTC policies. 140 The class plaintiffs’ complaints also stated
that “[t]his case does not challenge Genworth’s right to increase these premiums or the need for
premium increases given changes in certain of Genworth’s actuarial assumptions.” 141
As Genworth also points out, the Halcom Court noted in its memorandum opinion
approving the Halcom Settlement that “concerns related to Genworth’s actuarial decisions and its
long-term prospects for business success . . . [are] beyond the scope of this case.” 142 While the
class plaintiffs may have offered theories or evidence as to Genworth’s inadequate reserves as a
motive or cause for increasing the LTC policy premium rates, it was not asserted as a claim
against Genworth in the class plaintiffs’ case-in-chief.
In conclusion, the Court reads the plain language of the Claim Reserves Exclusion to
mean that the Insurers are not liable for Genworth’s losses if such losses arise from the
inadequacy of Genworth’s claim reserves. Mere allegations or background facts tangentially
relating to Genworth’s claim reserves are insufficient to trigger the exclusion. At best, the
139 The James River case involved a plaintiff who was injured on the premises of the defendant’s truck stop and repair garage due to an overinflated tire exploding near the plaintiff. The defendant was insured under a general commercial liability policy which excluded coverage for bodily injury arising out of the maintenance of any automobile on the truck stop premises. The James River court found that the auto exclusion clause language, “arising out of the ownership, maintenance or use” should be interpreted broadly, and following State Farm Mut. Auto. Ins. Co. v. Powell, 318 S/E/2d 393. 397 (Va. 1984), only a “reasonable causal connection” needed to exist between the maintenance or use of an automobile and the injury in question to trigger the exclusion and deny coverage for the plaintiff’s injury. The James River court did not provide for its interpretation of “arising out of” language to be applied wholesale in any and all insurance dispute cases beyond specific situations involving bodily injuries arising from maintenance or use of automobiles, and liability coverage exclusion clauses. 140 Amend. Compl. ¶¶ 2-4. 141 Genworth Opp. at 19, Ex. 11 ¶ 1; Exs. 22 & 23 ¶ 3. 142 Id. at 19, Ex. 26 at 43.
23 language of the Claim Reserves Exclusion can be found to be ambiguous on whether supporting
allegations or claims contained within the Underlying Actions’ complaints are sufficient to
trigger the clause. However, under Virginia law, exclusionary language in an insurance policy
must be “construed most strongly against the insurer and the burden is upon the insurer to prove
that an exclusion applies” 143 and “doubtful, ambiguous language in an insurance policy will be
given an interpretation which grants coverage, rather than one which withholds it.” 144
The Court finds that Insurers failed to overcome the burden of showing that Genworth’s
claims should be barred from coverage on the basis of the Claim Reserves Exclusion. As such,
the Court will GRANT the Genworth Motion as to the Claims Reserve Exclusion.
C. THE UNDERWRITING EXCLUSION DOES NOT BAR COVERAGE.
The Insurers contend that there are genuine factual disputes as to whether the Underlying
Actions are “based upon, arising out of or attributable to the underwriting of insurance, including
any decisions involving the renewal of risks as well as the rates and premiums charged to insure
or reinsure risks.” 145 The Insurers assert that the Underlying Actions’ central allegations were
based on Genworth’s decisions regarding the rates and premiums of the LTC plans, as well as its
failure to disclose significant premium increases. 146 The Insurers then argue that Genworth’s
inadequate disclosures to the class plaintiffs were material to the “renewal” of the LTC policies,
and the rates and premiums charged by Genworth for those policies. 147 As such, the Insurers
claim that the Underwriting Exclusion applies here because Genworth’s losses from the
Underlying Actions were based upon its decisions involving the renewal of risks, and the rates
143 Am. Reliance Ins. Co. v. Mitchell, 385 S.E.2d 583, 547 (Va. 1989) (citing Johnson v. Insurance Co. of North America, 350 S.E.2d 616, 619 (Va. 1986)). 144 Id. (citing St. Paul Ins. v. Nusbaum & Co., 316 S.E.2d 734, 736 (Va. 1984)). 145 Insurers Motion at 33. 146 Id. 147 Id.
24 and premiums charged for the policies. 148 In support, the Insurers note that the complaints of the
Underlying Actions use variants of the words “renewal,” “rate,” and “premium” “over 400
times” which evince the fact that the underwriting of the LTC policies was central to the
Underlying Actions. 149
The Insurers also argue that, at the minimum, the Court should deny the Genworth
Motion on this issue and permit discovery to go forward in order to “shed light on when and how
Genworth decided what rates and premiums to charge, as well as what role rates, premiums, and
renewables played in the underlying plaintiffs’ cases….” 150 The Insurers also contend they need
discovery on whether the Underlying Actions arose out of “the sale and marketing of insurance .
. . products” which are excluded from the Underwriting Exclusion. 151
Genworth argues that the Underwriting Exclusion does not apply as a matter of law
because the Underlying Actions only involved claims related to the “sale and marketing” of the
LTC policies in question. 152 Genworth contends that the Underlying Actions were brought on
the sole basis of Genworth’s alleged misrepresentation and false marketing of the LTC policies
regarding the undisclosed premium increases at the time the policies were sold to the
policyholders. 153 Genworth points out that the class plaintiffs argued they were harmed as a
result of Genworth’s marketing material as to the LTC policies, and that “plaintiffs purchased
and/or renewed their LTC policies based on Genworth’s market materials and allegedly
incomplete information about premium increases.” 154
148 Id. 149 Id. at 34. 150 Id. at 36. 151 Id. 152 Genworth Opp. at 43. 153 Id. at 44. 154 Id. at 44, Ex. 22 ¶¶ 8-10, 59-62; Ex. 28 ¶ 58 (“Genworth ‘marketed its experience and financial condition to induce new policyholders to purchase LTC policies and to keep its LTC policyholders renewing their policies.’”).
25 Additionally, Genworth asserts that the class plaintiffs never alleged any wrongdoing in
Genworth’s underwriting practices, and “expressly did not challenge Genworth’s ability to raise
premiums or the propriety of those projected increases.” 155 Genworth also notes that under
Virginia law, mere references in the underlying complaints to “renewals,” “rate,” or “premiums,”
do not preclude coverage, as the underwriting of the policies itself must be a required or
necessary element for liability in the Underlying Actions. 156 Genworth asks the Court to reject
the Insurers’ broad reading of the provision, and argues that the exclusion is much narrower,
only applying to “errors made in the underwriting process itself – i.e. at the business risks
Genworth itself assumes each time it issues a policy….” 157 Genworth maintains that the
exclusion “does not apply to subsequent errors or claims of wrongdoing that allegedly occurred
outside that process.” 158
The Court does not find this to be a complicated issue. A plain reading of the
Underwriting Exclusion provides that the Insurers are not liable for covering any Loss related to
the underwriting of insurance policies, or decisions made by Genworth involving the
“classification, selection, and renewal of risks as well as the rates and premiums charged to
insure or reinsure risks.” 159 Most importantly, the Underwriting Exclusion explicitly provides
that it does not apply to Claims arising out of the “sale and marketing of insurance or investment
products.” 160
The Underlying Actions involved class action lawsuits against Genworth for alleged false
and misleading marketing of their LTC policies and failure to disclose planned future premium
155 Genworth Opp. at 46. 156 Id. 157 Id. at 48. 158 Id. 159 Primary Policy at 24. 160 Id. (emphasis added).
26 increases. The Underlying Actions do not involve any allegations attributable to the
underwriting of the policies, or the decisions made during the underwriting of the policies as to
the rates and premiums charged to insure or reinsure risks. Upon review of the Underlying
Actions, it is evident that the claims made by the class plaintiffs, and the resulting losses to
Genworth from settling the Underlying Actions, can only be attributed to the “sale and marketing
of insurance” products, which are expressly not covered by the Underwriting Exclusion. The
Court finds that there are no genuine issues of material fact as to the applicability of the
Underwriting Exclusion. The Court also finds that no amount of discovery would alter the facts
of the Underlying Actions to fit the arguments presented by Insurers on this issue.
Accordingly, the Court will GRANT Genworth’s motion as to the Underwriting
Exclusion.
D. THERE ARE GENUINE ISSUES OF MATERIAL FACT AS TO THE APPLICABILITY OF THE PREMIUMS EXCLUSION.
The Insurers argue that Genworth is not entitled to partial summary judgment as to the
Premiums Exclusion because there are genuine issues of material fact as to whether the
settlement payments constitute premiums or return premiums. Insurers plead that they are
entitled to discovery on how the settlement payments were negotiated and whether the payments
include a return of LTC premiums. 161
The Insurers contend that under the Policies, when any loss consists of premiums or
return premiums, that loss is excluded from coverage under the Premiums Exclusion. 162 The
Insurers point out that in all three of the Underlying Actions, the class plaintiffs sought a “return
of premiums paid for each year a renewal of the policy was rescinded.” 163 The Insurers also note
161 Insurers Motion at 43-44. 162 Id. at 37. 163 Id.
27 that even Genworth’s own initial disclosures in the Underlying Actions admitted the fact that the
plaintiffs were seeking “compensatory damages, which will be calculated as a refund of
premiums.” 164
The Insurers also contest Genworth’s arguments that the Premiums Exclusion does not
bar coverage for Genworth’s defense costs, class counsel attorneys’ fees, and settlement
payments arising from the Underlying Actions. First, the Insurers argue that while the language
of the Premium Exclusion does state that it does not apply to defense costs, the Insurers point out
that the claimed defense costs of Genworth are only $10 million, which does not exceed the $25
million retention amount as per the Policies. 165 Second, the Insurers contend that the class
counsel attorneys’ fees were awarded under a “constructive common fund” doctrine, meaning
that the class counsel fees were a “hold-back from the payments Genworth made to class
members” and, as such, all of the payments made under the settlement agreements constitute a
return of premiums. 166 In other words, the Insurers maintain that the Premium Exclusion bars
recovery for the class counsel attorneys’ fees because (i) the settlement payments arising out of
the Skochin, Halcom, and Haney Settlements consisted of a return of premiums; and (ii) the class
counsel attorneys’ fees were paid out from that return of premiums.
Lastly, the Insurers rely on language from the Skochin Court regarding settlement. The
Insurers not that, despite Genworth’s assertions that the settlement payments were purely “cash
damages,” the Skochin Court referred to the settlement as involving the “partial refund of . . .
premiums,” despite later amending the statement. 167
164 Id. at 38. 165 Id. at 39. 166 Id. at 40. 167 Id. at 42. The Skochin Court issued an order amending a portion of its settlement approval opinion which originally stated, “a partial refund of the premiums that the policyholder has already made” to instead read “cash damages.” Genworth Motion at 25, Ex. 19.
28 The Insurers argue that at minimum, there are genuine issues of material fact related to
whether the settlement payments consist of return of premiums already paid by the underlying
action class members. The Insurers contend that discovery is necessary to resolve those issues of
fact prior to the Court’s decision on the Genworth Motion. 168
Genworth argues that the Premiums Exclusion does not bar coverage for the Underlying
Actions because the settlement payments and class counsel attorneys’ fees do not constitute
premiums or return premiums. Genworth disputes the Insurers’ arguments that the class counsel
attorneys’ fees consisted of premiums or return premiums and that such fees were awarded under
a “constructive common fund” doctrine. 169
Genworth alerts the Court to the final terms of the settlement agreements that provide:
“Genworth shall pay Class Counsel’s reasonable attorneys’ fees and litigation expenses, without
reducing the benefit to any Settlement Class members.” 170 Genworth maintains that these terms
controvert Insurers’ arguments as to the alleged “constructive common fund” scheme. 171
Genworth also relies upon the Notice of Pendency of Class Action and Proposed Settlement to
support the conclusion that class counsel attorneys’ fees were distinct from the settlement
payouts. The Notice of Pendency of Class Action and Proposed Settlement states: “Class
members will not be required to separately pay Class Counsel for any other attorneys’ fees or
expenses. Genworth has agreed to pay all fees and expenses separately.” 172 Genworth argues
that even if the Court were to find that the settlement payments constituted premiums or return
premiums, the class counsel attorneys’ fees would still be covered under the Policies as it was
168 Insurers Motion at 43-44. 169 Id. at 35. 170 Id. 171 Id. 172 Id. at 36.
29 not commingled with the settlement payments, and was expressly designated as a separate
payments and was to be made by Genworth. 173
Additionally, Genworth states that the cash damages settlement payments do not
constitute premiums or return premiums and that the Insurers failed to disprove a plethora of
evidence showing that the settlement payments were general cash damages that are covered
under the Policies. Genworth maintains that none of the briefings and orders related to the
settlements included any language or references to a return of premiums paid by the class
members.
Genworth also notes that the Underlying Actions’ “Prayer[s] for Relief” specifically
sought “compensatory, consequential, and general damages,” and that the Skochin, Halcom, and
Haney Courts never found that Genworth was either obligated to return premiums, or that class
members were entitled to the return of premiums paid during the LTC policies. 174 Most
importantly, Genworth presents the “smoking gun” evidence of the Skochin Court correcting its
settlement approval order from stating that the settlement payment was a “refund of . . .
premiums” to instead read that they were “Cash Damages.” 175
Here, on this record, the Court finds that genuine issues of material fact remain on this
issue. The plain reading of the Premiums Exclusion provides that coverage for loss is barred
when the loss constitutes premiums and return premiums. 176 Merriam-Webster defines
“constitute” as “make up, form, compose.” 177 Loss is found when claims are made against
Genworth for “Wrongful Acts” which are defined as “any error, misstatement, misleading
173 Id. at 37. 174 Id. at 39. 175 Genworth Opp. at 39. 176 Primary Policy at 25. 177 Constitute, Merriam-webster.com, https://www merriam-webster.com/dictionary/constitute (last visited Sept. 20, 2023)..
30 statement, act, omission, neglect or breach of duty actually or allegedly committed” by
Genworth. 178
The language of the Premiums Exclusion is unambiguous – Genworth’s loss is not
covered by the Policies if the loss consists of premium payments being returned to the
policyholders.
Upon review of the final settlement agreements, the Court finds that there is a genuine
issue of material fact as to the make-up of the cash damages offered to the class member
plaintiffs in the Underlying Actions. Here, the language of the final settlement agreements of the
Underlying Actions dictates whether the “Loss” consisted of a return of premium payments to
the class plaintiffs. The Settlement Agreements’ Appendix C titled “Special Election Options,”
provides several alternatives for the class members to opt into, including:
1. A settlement option consisting of two components: (a) a paid-up benefit option equivalent to 100% of the Settlement Class member's paid-in premiums through December 31, 2015 plus the Settlement Class member's paid-in premiums paid on or after January 1, 2020, if any, less any claims paid over the lifetime of the policy, and (b) a damages payment equal to premiums paid during the time period beginning January 1, 2016 through December 31, 2019; or
2. A settlement option consisting of a paid-up benefit equal to two times the difference between the Settlement Class member's paid-in premiums to date less claims paid to the Settlement Class member to date. This option will not include any damages payment. 179
The settlement payment options seem to suggests that certain portions of the settlement
amounts could have been calculated by adding up amounts “equivalent to 100% of the
Settlement Class member’s paid-in premiums.” 180 While Genworth argues that the final wording
of the settlement payment terms provide these are “cash payments” to the class members, the
178 Primary Policy at 20 (emphasis added). 179 Genworth Motion, Ex. 14B. 180 Id.
31 calculation of these “cash payments” appears to include calculating how much in premium
payments were made by the class members during the relevant policy period, and returning those
amounts back to the class members who opt for that alternative.
The language of the Premium Exclusion clause states that Insurers “shall not be liable for
that portion of Loss on account of any Claim made against [Genworth] if such Loss constitutes: .
. . (iii) premiums, return premiums.” 181 The Court thinks that Genworth’s arguments on the
Premium Exclusion are stronger. The provision seems to exclude the business situation where
Genworth has to return premiums and then seeks indemnification. The Underlying Actions do
not appear to seek the return of premiums. However, the comment from the Skochin Court and
the terms of the settlements creates an issue of fact. In other words, the Court finds there are
genuine issues of material fact as to whether portions of the settlement payments made to the
Underlying Action class members consist of premiums or return premiums. As such, the Court
will DENY the Genworth Motion as to the Premium Exclusion.
VI. CONCLUSION
For the foregoing reasons, the Genworth Motion is GRANTED, in part, as to the Claim
Reserves Exclusion and the Underwriting Exclusion, and DENIED, in part, as to the Premium
Exclusion. The Insurers Motion is DENIED.
IT IS SO ORDERED.
September 21, 2023 Wilmington, Delaware /s/ Eric M. Davis Eric M. Davis, Judge
cc: File&ServeXpress
181 Primary Policy at 25.
Related
Cite This Page — Counsel Stack
Genworth Financial v. AIG Specialty Insurance, Counsel Stack Legal Research, https://law.counselstack.com/opinion/genworth-financial-v-aig-specialty-insurance-delsuperct-2023.