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Gallup, Inc. v. Greenwich Insurance Co.

Superior Court of Delaware, New Castle

February 25, 2015

GALLUP, INC., Plaintiff,
v.
GREENWICH INSURANCE COMPANY, Defendant.

Submitted: November 13, 2014

Upon Plaintiff's Motion for Judgment on the Pleadings GRANTED, in part, DENIED, in part.

Upon Defendant's Cross Motion for Judgment on the Pleadings DENIED.

Brian M. Rostocki, Esquire and Diana Rabeh, Esquire, Reed Smith LLP, Carolyn H. Rosenberg, Esquire and Mark S. Hersh, Esquire, Reed Smith LLP, Attorneys for Plaintiff.

Carmella P. Keener, Esquire, Rosenthal, Monhait & Goddess, P.A., Stacey L. McGraw, Esquire and Brandon D. Almond, Esquire, Troutman Sanders LLP, Attorneys for Defendant.

ORDER

Ferris W. Wharton, Judge.

I. INTRODUCTION

The parties have submitted Cross Motions for Judgment on the Pleadings with regard to an insurance contract coverage dispute. The parties request that the Court resolve the dispute as a matter of law because the facts are undisputed and all of the remaining issues are questions of law. The parties request that the Court determine whether to apply Delaware or Nebraska substantive law to the matter. The parties also request that the Court interpret two provisions contained in the insurance contract, the "Loss" Provision and the Professional Services Exclusion, to determine whether Defendant must reimburse Plaintiff. Additionally, Plaintiff requests that the Court determine that two other provisions, the Contract Exclusion and the Allocation Provision, do not limit Plaintiff's recovery under the contract.

The Court treats Cross Motions for Judgment on the Pleadings procedurally similar to Super. Ct. Civ. R. 56 motions for summary judgment. But where only one party moves the Court to determine an issue, the Court applies traditional judgment on the pleading standards set forth in Super. Ct. Civ. R. 12(c). Therefore, on the "Loss" Provision and Professional Services Exclusion issues, the Court applies summary judgment standards and finds for the Plaintiff. Regarding the Contract Exclusion and Allocation Provision issues, the Court applies judgment on the pleadings standards and finds that Plaintiff fails to establish that no genuine issue of material fact exists such that Plaintiff is entitled to judgment as a matter of law. Therefore, Plaintiff's Motion for Judgment on the Pleadings is GRANTED, in part, and DENIED, in part, and Defendant's Motion for Judgment on the Pleadings is DENIED.

II. FACTUAL AND PROCEDURAL CONTEXT

Greenwich ("Defendant") issued an insurance policy ("Policy") to Gallup ("Plaintiff") to cover the period of January 1, 2010 to January 1, 2011.[1] The Policy consists of three separate coverage parts: the Management Liability Company Reimbursement part ("Management Liability Part"), the Employment Practices Liability Coverage part ("EPL Part") and the Pension and Welfare Benefit Plan Fiduciary Liability Coverage part ("Pension Coverage Part").[2] The Policy provides for a $15 million aggregate limit to coverage under all three parts.[3]

Plaintiff was sued by a former employee and the United States government in a qui tam action and, to date, Defendant has reimbursed Plaintiff for approximately $8.7 million in connection with the qui tam litigation, leaving approximately $6.3 million remaining in potential coverage to exhaust the $15 million aggregate policy limit.[4] Plaintiff settled the remainder of the qui tam lawsuit for $10.58 million (the "Settlement") and sought reimbursement via the Policy to cover its remaining unreimbursed defense costs and part of the Settlement payment.[5] Defendant denied coverage under the Policy.[6]

On February 14, 2014, Plaintiff filed a Complaint in which Plaintiff requested declaratory relief that the Settlement is covered up to the maximum aggregate amount of coverage (Count I) and that Defendant breached the contract by refusing to pay Plaintiff up to the aggregate amount of the policy (Count II).[7]On April 17, 2014, Defendant denied the allegations set forth in the Complaint and pleaded thirty-six affirmative defenses and four counterclaims.[8] Defendant disclaims liability for the Settlement and seeks declaratory relief on the following grounds: Plaintiff's repayment of overcharges is not insurable loss under the Policy (Count I); the Policy's Professional Services Exclusion precludes coverage of the Settlement amount (Count II); the Policy's Breach of Contract Exclusion precludes coverage of the Settlement amount (Count III); and/or allocation prevents further payment because Defendant has paid what it is obligated to pay based upon that which it deems to be insurable loss as defined in the policy (Count IV).[9]

On May 21, 2014, Plaintiff filed an Answer to the Counterclaims and disputed Defendant's assertions.[10] On June 10, 2014, the Court approved the parties' stipulation to resolve the dispute as a matter of law by submitting cross motions for judgment on the pleadings.[11] The parties appeared before the Court for oral argument on November 13, 2014.

A. Relevant Policy Provisions

The Policy consists of three parts and has a maximum aggregate limit of liability of $15 million less a $250, 000 retention fee.[12] Plaintiff is incorporated in Delaware and has a principle place of business in Nebraska. The Policy lists a Nebraska address and contains a Nebraska Amendatory Endorsement.[13] The Policy defines Loss for the three coverage parts as:

"Loss"[14] means damages, judgments, settlements or other amounts (including punitive or exemplary damages where insurable by law) in excess of the Retention that the Insured is obligated to pay, including Defense Expenses, whether incurred by the Insurer or the Insured. Loss will not include:
(1) the multiplied portion of any damage award;
(2) matters which are uninsurable under the law pursuant to which this Policy is construed; and
(3) fines, penalties or taxes imposed by law.[15]

The Management Liability Coverage Part contains the following provisions:

a. The Insurer shall not be liable to make any payment for Loss, and shall have no duty to defend or pay Defense Expenses, in connection with any Claim made against an Insured:…for any actual or alleged liability of the Company under any express contract or agreement[16]("Contract Exclusion").
b. The Insurer shall not be liable to make any payment for Loss, and shall have no duty to defend or pay Defense Expenses, in connection with any Claim made against an Insured:
(A) brought about or contributed to in fact by any:
(1) intentionally dishonest, fraudulent or criminal act or omission or any willful violation of any statute, rule or law; or
(2) profit or remunerations gained by any Insured to which such Insured is not legally entitled;
as determined by a final adjudication in the underlying action or in a separate action or proceeding[17] ("Fraud/Ill-Gotten Gains Exclusion").
c. If both Loss covered by this Policy and loss not covered by this Policy are incurred…the Insured and the Insurer will use their best efforts to determine a fair and appropriate allocation of Loss between that portion of Loss that is covered under this Policy and that portion of Loss that is not covered under this Policy[18] ("Allocation Provision").

The Policy includes a Professional Services Exclusion as a separate but attached document to the contract which states that:

a. [T]he Insurer shall not pay Loss, including Defense Expenses, for Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any actual or alleged act, error or omission in connection with the Insured's performance or failure to perform professional services for others for a fee, or any act, error, or omission relating thereto.[19]

B. Underlying Litigation and Payment Thusfar Under the Policy

A former employee of Plaintiff filed a qui tam complaint in 2009 alleging that Plaintiff violated the False Claims Act ("FCA") by "knowingly mischarging the Government by billing labor to a cost-based contract when the labor was actually performed to meet requirements on other fixed-price contracts, and obtaining contracts through improper influence."[20] The employee also sued for employment retaliation.[21] In 2012, the United States intervened with respect to the alleged FCA violations and for Plaintiff's recruitment of another employee.[22] In 2013, Plaintiff and the employee settled the retaliation claim and Defendant reimbursed Plaintiff for the full amount of that settlement which was approximately $8.7 million.[23] Plaintiff also settled with the U.S. Department of Justice regarding the recruitment issue and paid a penalty for which it did not seek reimbursement from Defendant.[24]

In July 2013, Plaintiff and the United States Department of Justice executed the Settlement as to the final claims regarding violations of the FCA in which Plaintiff owed the U.S. $10.58 million plus interest.[25] The remaining claims for which the parties settled included counts for violation of the FCA, counts for civil penalties, breach of contract, unjust enrichment, mistake and breach of fiduciary duty.[26] The Settlement Agreement provided that each party was to pay its own legal costs.[27] Defendant has paid all but $600, 000 of Plaintiff s Defense Expenses pursuant to the Policy which, ...


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