958 F. Supp. 2d 331
D.R.I.2013Background
- TranSched sues Federal Insurance for direct action under Rhode Island law and for statutory/common-law bad faith.
- Versyss entities were insured under a Rhode Island policy; TranSched obtained a Delaware judgment against Versyss for misrepresentations in an Asset Purchase Agreement (APA).
- Federal defended Versyss in the Delaware suit and later disclaimed indemnity based on contract and fraud exclusions.
- Delaware verdict: Versyss liable for breach of contract, breach of the implied covenant, and intentional misrepresentation; post-judgment amounts issued and costs awarded; Versyss did not pay and is defunct.
- Policy exclusions at issue: contract exclusion and fraud exclusion; dispute whether these exclusions bar coverage for TranSched’s verdict.
- Court stance: alleges coverage exists notwithstanding exclusions; the bad-faith claims are stayed pending resolution of coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy provides coverage despite exclusions | Coverage exists unless exclusion applies | Contract and fraud exclusions bar coverage | Coverage possible; exclusions not yet dispositive at pleading stage |
| Does the contract exclusion apply to TranSched’s intentional misrepresentation claim | Pre-APA conduct or independent liability defeats application | Misrepresentations arose from the APA; exclusion applies | Contract exclusion not proven applicable at this stage; plausible independent liability exists |
| Does the fraud exclusion apply to the Versyss verdict | Exclusion limited to acts by the Insured; allegedly fraudulent acts by named employees can be imputed only to Versyss under severability | Versyss’ fraud exclusion bars coverage for deliberate fraud by Insured | Fraud exclusion not applicable; severability clause limits imputations to certain officers, and alleged actors do not hold those positions |
| Whether TranSched can assert bad faith claims as a third party | Rhode Island allows equitable assignment or third-party standing in some contexts | Bad faith claims require standing of the insured; third party generally cannot recover | Bad faith claims stayed pending coverage determination; not decided due to potential equitable assignment issue |
| Whether the direct action claim under 27-7-2.2 remains viable | Pre-trial demand within policy limits; insurer rejected; statutory interest may apply | Recovery limited to policy coverage; dispute on whether pre-trial demands were within limits | Count II denial not warranted at this stage; coverage found sufficient to keep it alive |
Key Cases Cited
- Penn-America Ins. Co. v. Lavigne, 617 F.3d 82 (1st Cir. 2010) (contractual nexus broad meaning of 'arising from' in exclusions)
- Emhart Indus., Inc. v. Home Ins. Co., 515 F.Supp.2d 228 (D.R.I.2007) (duty to defend broader than duty to indemnify)
- Employers’ Fire Ins. Co. v. Beals, 240 A.2d 397 (R.I.1968) (principles on insurance coverage and exclusions)
- Amica Mut. Ins. Co. v. Streicker, 583 A.2d 550 (R.I.1990) (interpretation of insurance contract terms and ambiguity)
- Sentry Ins. Co. v. Grenga, 556 A.2d 998 (R.I.1989) (strict construction against insurer where ambiguity exists)
- Peloquin v. Haven Health Ctr. of Greenville, LLC, 61 A.3d 419 (R.I.2013) (ambiguity and contract interpretation in insurance matters)
- Cianci v. Nationwide Ins. Co., 659 A.2d 662 (R.I.1995) (standing/claims considerations in bad faith context)
- Gooley v. Mobil Oil Corp., 851 F.2d 513 (1st Cir.1988) (pleading standards and entitlement to relief)