CARLYLE INVESTMENT MANAGEMENT, LLC v. ACE AMERICAN INSURANCE COMPANY
131 A.3d 886
| D.C. | 2016Background
- Carlyle entities (CIM, TCG, TCGH) managed Carlyle Capital Corporation (CCC); CCC collapsed in 2008 and multiple lawsuits followed (investors, liquidators, shareholders).
- Carlyle sought coverage and advancement of defense costs under private-equity management/professional liability policies issued to TCG (the TCG Program); insurers denied coverage citing an endorsement—“Carlyle Capital Corp Exclusion” (the professional services/CCC exclusion).
- The exclusion barred payment for "Loss in connection with any Professional Services Claim arising from Professional Services provided to Carlyle Capital Corp."
- Appellants sued for declaratory relief and breach of contract; insurers moved to dismiss under Super. Ct. Civ. R. 12(b)(6).
- Trial court granted dismissal, holding that the exclusion was unambiguous and encompassed all allegations in underlying suits, so no coverage existed as a matter of law.
- The D.C. Court of Appeals vacated and remanded: it found the professional services definition ambiguous and held that dismissal was improper at the Rule 12(b)(6) stage without discovery and a proper eight-corners comparison regarding the duty to defend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the professional services/CCC exclusion bars all coverage as a matter of law | Exclusion should be construed narrowly; terms like "investment management services" and "management services" are ambiguous and do not unambiguously encompass corporate governance, post-investment misstatements, or certain claims (e.g., shadow-director allegations) | Exclusion language is broad and unambiguous; claims “arise from” professional services provided to CCC and therefore fall within exclusion | Court: Ambiguity exists; cannot decide coverage as matter of law at dismissal stage—remand for discovery and further proceedings |
| Proper standard at Rule 12(b)(6) for coverage dispute seeking defense costs | Court must apply the defense-cost/duty-to-defend standard and eight-corners rule; dismissal only when no possibility of coverage (plausibility standard controls at pleading stage) | Insurers argue written exclusion plainly precludes coverage, so dismissal appropriate | Court: Trial court may have misapplied standards; at pleading stage insurer must not prevail unless unquestionably no coverage; remand required |
| Whether undefined terms and policy context permit extrinsic evidence to resolve meaning | Plaintiff: Undefined technical terms and simultaneous underwriting/context make the exclusion susceptible to different constructions and permit extrinsic evidence | Defendant: Plain language controls; surrounding context irrelevant because exclusion applies to all services “provided to CCC” | Court: Because language is reasonably susceptible to multiple meanings, ambiguity allows consideration of extrinsic evidence; factual development required |
| Whether professional services exclusion defeats duty to defend when lawsuits allege mixed professional and nonprofessional conduct | Plaintiff: Many underlying claims allege non-professional conduct (e.g., corporate governance, post-investment misstatements) that may trigger duty to defend | Defendant: Under the broad definition, all allegations arise from professional services to CCC and therefore exclusion applies | Court: Exclusions construed strictly; where complaints allege both professional and nonprofessional conduct, insurer may still owe defense; factual determination required on remand |
Key Cases Cited
- Logan v. LaSalle Bank Nat’l Ass’n, 80 A.3d 1014 (D.C. 2013) (de novo review of Rule 12(b)(6) and pleading plausibility standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard: plausibility and well-pleaded factual allegations)
- Stevens v. United Gen. Title Ins. Co., 801 A.2d 61 (D.C. 2002) (eight-corners rule for duty to defend)
- Debnam v. Crane Co., 976 A.2d 193 (D.C. 2009) (contract interpreted as whole; ambiguities permit extrinsic evidence)
- Chase v. State Farm Fire & Cas. Co., 780 A.3d 1123 (D.C. 2001) (ambiguous insurance language construed for insured)
- Interstate Fire & Cas. Co. v. Washington Hosp. Ctr. Corp., 758 F.3d 378 (D.C. Cir. 2014) (plain meaning and context in contract interpretation)
- Centennial Ins. Co. v. Patterson, 564 F.3d 46 (1st Cir. 2009) (duty to defend broader than duty to indemnify)