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Northrop Grumman Corp. v. Axis Reinsurance Co.

United States District Court, D. Delaware

October 26, 2018

NORTHROP GRUMMAN CORPORATION, Plaintiff,
v.
AXIS REINSURANCE COMPANY, Defendant, Cross-Claimant, and Cross-Defendant,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA Defendant, Cross-Claimant, and Cross-Defendant.

          MEMORANDUM OPINION

          Matthew W. Brann United States District Judge

         Three motions for summary judgment-one filed by each of the three parties to this action-are pending before this Court. Also pending is a motion to strike or stay filed by the AXIS Reinsurance Company. For the reasons that follow, the Court will grant, in part, the summary judgment motions filed by Northrop Grumman and the National Union Fire Insurance Company of Pittsburgh as well as the motion to strike or stay filed by AXIS.

         I. BACKGROUND

         Like many employers, the Northrop Grumman Corporation gives its employees the opportunity to participate in retirement plans through which employees may invest a portion of their earnings in preselected funds. Northrop Grumman created an “Investment Committee” and an “Administrative Committee” to manage these plans.

         The committees' stewardship of the plans is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).[1] This law imposes a number of fiduciary duties on the committees' individual members[2] and allows them to be held personally liable when a breach of their duties results in a loss to the plans.[3]To protect those individuals, Northrop Grumman purchases fiduciary liability insurance.

         A. Northrop Grumman's Fiduciary Liability Insurance

         From August 1, 2006, to August 1, 2007, Northrop Grumman carried at least $45, 000, 000 worth of fiduciary liability insurance. The first $15, 000, 000 of that coverage was provided through a policy issued by National Union;[4] the second $15, 000, 000 (which kicked in when the first $15, 000, 000 was exhausted) through a policy issued by Continental Casualty Company;[5] and the third $15, 000, 000 (which kicked in when the first $30, 000, 000 was exhausted) through a policy issued by AXIS.[6] All three policies in this tower of insurance were “claims-made” policies-that is, they covered claims “made” during the 2006-2007 period, no matter when the claims' underlying conduct allegedly occurred.

         Claims, however, are not always considered “made” at the time they are reported to the insurers. For example, claims reported after the 2006-2007 policy period are nevertheless considered made during the 2006-2007 policy period if the claims “alleg[e] any Wrongful Act which is . . . related to any Wrongful Act alleged” in any other claim made during the 2006-2007 policy period.[7] The effect of this “Relation-Back Provision” was that, once a claim was made during the 2006-2007 policy period, a subsequent claim alleging a related “Wrongful Act” (as that term was defined by the policies) would also be covered by that period's insurance tower.

         Northrop Grumman also had a tower of fiduciary liability insurance covering the period from August 1, 2016, to August 1, 2017; as before, the first $15, 000, 000 of that tower's coverage was provided through a claims-made policy issued by National Union.[8] Complementing the earlier policies' Relation-Back Provision, the 2016-2017 policy specifically excluded coverage for claims “alleging . . . related Wrongful Act[s] alleged or contained[] in any claim which has been reported prior to the inception of this policy.”[9] Combined with the 2006-2007 policies' Relation-Back Provision, this “Prior Notice Exclusion” means that all claims alleging related Wrongful Acts are covered either by the 2006-2007 tower or the 2016-2017 tower-but not both.

         B. Class Action Lawsuits

         On September 28, 2006, a class action lawsuit (“Grabek”) was filed against members of Northrop Grumman's Investment Committee and Administrative Committee on behalf of all participants and beneficiaries of the company's retirement plans.[10] Grabek's operative complaint alleged that the committee members violated their ERISA fiduciary duties by allowing the plans to pay excessive administrative fees to Northrop Grumman[11] and third-party service providers, [12] and by allowing the plans to pay excessive investment management fees on various funds offered by the plans, including an “Emerging Markets Fund.”[13] Northrop Grumman notified its insurers about the suit, who determined that the claim was made during the 2006-2007 policy year; correspondingly, its defense costs were covered by that year's insurance tower.[14]

         At its outset, the Grabek plaintiffs were only seeking to hold the committee members liable for ERISA violations allegedly committed between September 28, 2000, and September 28, 2006.[15] They eventually convinced the court to extend that period to May 11, 2009.[16] The Grabek action, however, continued to putter along, and its plaintiffs eventually sought another expansion, this time to a date twenty months before the then-unscheduled trial date.[17] The court denied that request on June 21, 2016.[18]

         Less than three months later (and presumably as a result of that denial), another class action lawsuit (“Marshall”) was filed against members of Northrop Grumman's Investment Committee and Administrative Committee on behalf of all participants and beneficiaries of the company's retirement plans.[19] Marshall's operative complaint, as did Grabek's, alleged that the committee members violated their ERISA fiduciary duties by allowing the plans to pay excessive administrative fees to Northrop Grumman[20] and a third-party service provider, [21] and by allowing the plans to pay excessive investment management fees on the plans' Emerging Markets Fund.[22] That complaint also specifically notes that Grabek was a “related case.”[23]

         Northrop Grumman attempted to obtain coverage for Marshall under the 2016-2017 insurance tower, [24] but National Union (as noted above, issuer of the first layer of that tower) took the position that Marshall alleged Wrongful Acts that were related to the Wrongful Acts alleged in Grabek, and that, therefore, coverage properly belonged under the 2006-2007 tower.[25] Because National Union believed that the coverage available under the first two layers of that tower ($30, 000, 000) had been depleted defending Grabek and a related Department of Labor investigation, [26] it argued that coverage for Marshall was owed by AXIS (as noted above, issuer of the third layer of the 2006-2007 tower). AXIS, however, took the position that Marshall was not related to Grabek and Marshall's coverage, therefore, belonged in the 2016-2017 tower-i.e., that National Union had to pay as that tower's first layer.

         C. Procedural History

         The dispute between Northrop Grumman, National Union, and AXIS about coverage for the Marshall action is the genesis of the instant lawsuit. Northrop Grumman's complaint, brought against both National Union and AXIS, seeks to hold at least one of them responsible for covering Marshall's defense costs.[27]Nation Union's[28] and AXIS's[29] cross-claim complaints each argue that the other defendant is responsible for coverage.

         In the pending motions for summary judgment, Northrup Grumman and National Union argue that AXIS is liable for Marshall defense costs; AXIS asserts that such liability lies with National Union.

         II. DISCUSSION

         A. Whether Grabek and Marshall Allege “Related” Wrongful Acts

         When determining if claims are “related”[30] under a liability insurance policy, a court must determine if there is either a “logical” or a “causal” connection between them.[31] No. party here argues that there is a causal connection between Grabek's and Marshall's allegations. Northrup ...


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