67 F. Supp. 3d 523
D.R.I.2014Background
- TranSched seeks coverage from Federal for a Delaware Underlying Suit verdict against Versyss on tort and contract claims arising from a software asset purchase.
- Versyss allegedly misrepresented Titan software viability pre-APA; the APA and related agreements govern liability and representations.
- Jury found Versyss liable on three counts including intentional misrepresentation; damages totaled $500,000 plus costs and prejudgment interest.
- Federal denied coverage citing two exclusions: a Limited Contract Exclusion and a Fraud Exclusion; TranSched sues to recover the verdict under the policy.
- The court applies Rhode Island law to interpret the policy, considering severability of exclusions and allocation issues across covered/uncovered claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Limited Contract Exclusion bars coverage for the intentional misrepresentation damages. | TranSched: misrepresentation claim predated APA; not arising under Versyss contract. | Federal: misrepresentation arose from contract; exclusion applies. | Contract exclusion not applicable; coverage exists for independent pre-APA misrepresentation. |
| Whether the Fraud Exclusion applies given severability provisions and executive-level imputation. | Fraud can be determined by Severability of Exclusions; conduct by non-enumerated employees not imputable. | Fraud exclusion should apply to the insured as a whole if fraud occurred by any insured. | Fraud exclusion does not apply; severability prevents imputation of pre-APA misconduct here. |
| How the damages verdict should be allocated between covered and uncovered claims. | Allocation burden lies with insurer after coverage is determined; no allocation form required in this case. | Allocation required to prevent paying for non-covered claims; insurer must ensure allocation. | Damages allocation ordered by mediation; not resolved on summary judgment. |
| Whether Rhode Island’s rejected settlement statute applies to this coverage dispute. | Statute should apply to encourage post-judgment settlements and award interest. | Statute applies to Rhode Island settlements; this is a post-judgment insurance coverage dispute, not settlement stage. | Rejected settlement statute does not apply here. |
Key Cases Cited
- Church Mut. Ins. Co. v. U.S. Liab. Ins. Co., 347 F.Supp.2d 880 (S.D.Cal.2004) (fraud exclusions and coverage interpretations)
- Admiral Ins. Co. v. Briggs, 264 F.Supp.2d 460 (N.D.Tex.2003) (fraud exclusion and severability considerations)
- Am. Title Ins. Co. v. East West Fin., 16 F.3d 449 (1st Cir.1994) (allocation and exclusions principles in title/insurer context)
- Gen. Accident Ins. Co. of Am. v. Am. Nat. Fireproofing, Inc., 716 A.2d 751 (R.I.1998) (burden-shifting framework for policy exclusions)
- Amica Mut. Ins. Co. v. Streicker, 583 A.2d 550 (R.I.1990) (strict construction against insurer for exclusions)
- Allstate Ins. Co. v. Russo, 641 A.2d 1304 (R.I.1994) (insurer burden when exclusions apply)
- Textron, Inc. v. Aetna Cas. & Sur. Co., 638 A.2d 537 (R.I.1994) (interpretation of contractual exclusions)
- Murdock v. Dinsmoor, 892 F.2d 7 (1st Cir.1989) (origin of broad nexus concepts in contract/claims analysis)
- Penn-Am. Ins. Co. v. Lavigne, 617 F.3d 82 (1st Cir.2010) (broadly defines arising from in insurance context)
- Rosciti v. Ins. Co. of Penn., 659 F.3d 92 (1st Cir.2011) (choice-of-law and Rhode Island application in diversity cases)