832 F. Supp. 2d 554
W.D. Pa.2011Background
- ACE Capital Limited seeks declaratory judgment that it owes no defense or indemnity regarding two ERISA-based lawsuits (Meznarich and Schwind) filed in Ohio federal courts against MWIM, Morgan, Waldron, and related plan entities; ACE has defended under a reservation of rights.
- Policy ME10147 provides professional liability coverage to MWIM and associated insureds for Wrongful Acts in Professional Services, with exclusions and complex definitions of Insureds, Subsidiaries, and Damages.
- Meznarich and Schwind allege fiduciary breaches, underfunding, mismanagement of plan funds, commingling of assets, and related damages to Local 270/Local 245 plans; claims target MWIM and principals.
- Policy excludes insolvency/financial inability to pay claims under II.A.3, and the Meznarich/Schwind complaints implicate self-insured plans and trusts funded by FirstEnergy contributions.
- Court granted ACE summary judgment on the insolvency exclusion, ruling II.A.3 applies to bar defense/indemnity for the Meznarich and Schwind actions; other counts were dismissed as moot.
- Procedural posture: cross-motions for summary judgment were heard; ACE’s motion granted; Defendants’ motion denied; remaining counts moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does insolvency exclusion II.A.3 preclude coverage? | ACE: exclusion bars claims arising from insolvency/financial inability. | MWIM: exclusion is ambiguous and would render policy illusory. | II.A.3 applies; coverage and defense duties are precluded. |
| Is the insolvency exclusion ambiguous or illusory? | Exclusion language clear; unambiguous. | Exclusion broad and potentially illusory to insured. | Exclusion is unambiguous and enforceable. |
| Should the insurer defend or indemnify given potential coverage? | Defense obligation exists if potential coverage; seek declaratory judgment. | Until underlying actions resolve, decision premature. | If exclusion applies, no defense/indemnity; judgment for ACE. |
| Relation between defense and indemnity determinations? | Duty to defend broader; if no defense, no indemnity. | Duty independent; should be evaluated in underlying action. | Finding no defense under II.A.3 precludes indemnity obligation. |
Key Cases Cited
- Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d 123 (2d Cir. 2001) (insolvency-related exclusions construed broadly)
- Employers Ins. of Wausau v. Tri World Ins. Agency, Inc., 134 F.3d 377 (9th Cir. 1998) (insolvency exclusions frequently preclude coverage)
- Transamerica Insurance Co. v. South, 975 F.2d 321 (7th Cir. 1992) (insolvency exclusion bars coverage where insured placed client funds in insolvent entity)
- McCabe v. Old Republic Ins. Co., 425 Pa. 221, 228 A.2d 901 (Pa. 1967) (arising out of interpreted as causally connected = but-for relationship)
- Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484 (Pa. 1959) (duty to defend determined by complaint language and policy)
- Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320 (Pa. 1963) (interpretation of policy provisions against insurer when ambiguous)
- Erie Ins. Exch. v. Transamerica Ins. Co., 516 Pa. 574, 533 A.2d 1363 (Pa. 1987) (duty to defend broader than indemnification; establish coverage potential)
- Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100 (Pa. 1999) (strictly construed exclusions; reasonable expectations limited)
- Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3d Cir. 2005) (ambiguous terms construed against insurer)
- Cincinnati Ins. Cos. v. Pestco, Inc., 374 F. Supp. 2d 451 (W.D. Pa. 2004) (declaratory actions defer indemnity until underlying liability resolved)