438 F.Supp.3d 779
E.D. Mich.2020Background
- Stout Risius Ross (Stout), a valuation firm, was retained to provide ERISA-required valuations of Paperweight stock held by the Appvion ESOP; Appvion later went bankrupt and the ESOP suffered losses.
- The Appvion ESOP sued Stout in federal court (E.D. Wis.) asserting ERISA-based claims (knowing participation in fiduciary breaches), securities-fraud claims, and common-law fraud and negligent misrepresentation.
- The Appvion Trust (bankruptcy plaintiffs) sued Stout in Delaware bankruptcy court asserting aiding-and-abetting fiduciary breaches and bankruptcy avoidance claims (preference, fraudulent transfer); one count was later transferred to E.D. Wis.
- Stout tendered defense/indemnity to its professional-liability insurer, Great American, under a policy covering valuation services; policy contains Exclusion F excluding claims "based on or arising out of" ERISA and securities-law violations.
- Great American defended under a reservation of rights, then filed this declaratory-judgment action and moved for partial summary judgment asserting Exclusion F bars coverage for the underlying suits; Great American also sought reimbursement and a declaration of no duty to indemnify.
- The court applied Michigan law, found Great American failed to prove that every underlying claim is excluded as a matter of law, denied partial summary judgment as to duty to defend, and dismissed the indemnity declaration as unripe.
Issues
| Issue | Great American's Argument | Stout's Argument | Held |
|---|---|---|---|
| Whether Exclusion F bars insurer's duty to defend all underlying claims | Exclusion F excludes any claim "based on or arising out of" ERISA or securities violations; all underlying claims flow from those violations | Exclusion F ambiguous and does not clearly cover some common-law claims; insurer must defend unless exclusion clearly applies | Court: Exclusion language not ambiguous, but Great American failed to show as a matter of law that every claim falls within the exclusion; duty to defend exists for some claims |
| Whether common-law fraud and negligent misrepresentation in ESOP suit are excluded as arising from ERISA or securities violations | These common-law counts arise from same facts as ERISA/securities claims and thus are excluded | Common-law claims are not necessarily "based on or arising out of" statutory violations merely because facts overlap; must be caused by a violation | Court: Great American failed to prove those common-law counts are based on or arise out of ERISA or securities violations; duty to defend those counts remains |
| Whether Appvion Trust bankruptcy avoidance claims are excluded due to ERISA connection | Avoidance claims arise from the same ERISA-driven valuation context and thus fall within Exclusion F | Bankruptcy avoidance claims are distinct, tied to insolvency and transfers, not caused by ERISA violations | Court: Connection is too remote; Great American did not show exclusion applies as a matter of law |
| Whether declaratory relief on indemnity is ripe | Seeks declaration that insurer has no duty to indemnify now | Indemnity dispute premature because underlying litigation unresolved and no liability yet | Court: Indemnity question unripe and dismissed without prejudice |
Key Cases Cited
- Am. Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 550 N.W.2d 475 (Mich. 1996) (duty to defend is broader than duty to indemnify)
- Allstate Ins. Co. v. Freeman, 443 N.W.2d 734 (Mich. 1989) (insurer must defend when complaint even arguably alleges covered claim)
- Auto Club Group Ins. Co. v. Burchell, 642 N.W.2d 406 (Mich. Ct. App. 2001) (if any theory in suit is covered, insurer must defend entire suit)
- Upjohn Co. v. New Hampshire Ins. Co., 476 N.W.2d 392 (Mich. 1991) (contracts enforced as written; interpret terms by common usage)
- Scott v. State Farm Mut. Auto. Ins. Co., 751 N.W.2d 51 (Mich. Ct. App. 2008) ("arising out of" requires more than incidental but not proximate causation)
- Jackson v. City of Cleveland, 925 F.3d 793 (6th Cir. 2019) (ripeness principles for indemnification judgments)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (summary judgment standard and nonmoving-party burden)