P&S LLC v. National Union Fire Insurance Company of Pittsburgh, PA
ORDER granting 45 Defendant's Motion for Summary Judgment. Judgment shall enter in favor of Defendant and against Plaintiff, and this case is dismissed and costs awarded to Defendant, by Judge Lewis T. Babcock on 7/29/2015. (ebuch)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 14-cv-00735-LTB-CBS
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
This matter is before me on a Motion for Summary Judgment filed by Defendant,
National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) in which it seeks
entry of judgment in its favor and against Plaintiff, P&S LLC (“P&S”). [Doc #45] Oral
arguments would not materially assist me in my determination. After consideration of the
parties’ briefs and attachments, and for the reason stated, I GRANT National Union’s Motion for
Summary Judgment and, as such, I DISMISS this case.
During the summer of 2007, the manager at P&S contacted Private Escapes Platinum
LLC (“Private Escapes”) seeking membership in its luxury destination travel club. Mr. Richard
Keith was the CEO of Private Escapes. On September 13, 2007, Private Escapes announced it
would be merging with Ultimate Resorts LLC, to create a new entity called Ultimate Escapes
Holdings, LLC (“Ultimate Escapes”).
Before the merger, P&S entered into a Membership Agreement with Private Escapes on
December 7, 2007. P&S paid $215,000 to Private Escapes as a membership deposit and agreed
to pay annual dues, and future usage fees. P&S asserts that Mr. Keith induced it to enter into the
agreement because he represented that P&S’s benefits under the Membership Agreement would
be protected or grandfathered after the planned merger. In May of 2008, Private Escapes and
Ultimate Resorts announced that they had merged to create Ultimate Escapes. Although the
timing is unclear, it appears that about that time Mr. Keith became Co-CEO of Ultimate Escapes.
After the merger, P&S was informed that it was now a member of Ultimate Escapes and
that the terms of its Membership Agreement with Private Escapes would not be honored.
Instead, P&S would be required to sign a new agreement with Ultimate Escapes in order to
continue its travel club membership. Thereafter, P&S sought a refund of its membership deposit
from Private Escapes. Ultimately, on July 23, 2010, P&S entered into an agreement with Private
Escapes and Ultimate Escapes in which Private Escapes and Ultimate Escapes agreed to pay
P&S $135,000, in 18 installments, as “a partial refund of the Membership Fee” (the “2010
Settlement Agreement”). After Private Escapes and Ultimate Escapes failed to make the first
settlement payment on August 1, 2010, P&S sent them notices of default. Then, on September
15, 2010, P&S filed a lawsuit against Private Escapes and Ultimate Escapes for breach of the
2010 Settlement Agreement. Directly thereafter, on September 20, 2010, Ultimate Escapes filed
for Chapter 11 bankruptcy protection. As such, the lawsuit was stayed and eventually
Then, on May 20, 2011, P&S filed a complaint against Private Escapes and Richard
Keith, as its CEO, in Denver County District Court (Case No. 11CV3742). In this underlying
lawsuit, P&S alleged that Mr. Keith induced P&S to sign the Membership Agreement with
Private Escapes by making misrepresentations about having grandfathered rights after the
pending merger. In addition, P&S alleged that they failed to disclose Ultimate Escapes’
financial situation when negotiating and signing the 2010 Settlement Agreement. With regard to
the underlying lawsuit, Mr. Keith sought defense coverage from Continental Casualty as Private
Escapes’ insurance carrier who, in turn, provided Mr. Keith a defense. Mr. Keith also sought
defense coverage from National Union under the Executive & Organization Liability Insurance
Policy # 01-317-72-99 (the “Policy”) issued to Ultimate Escapes. National Union declined to
provide Mr. Keith with a defense and denied coverage based on the Policy’s Specific Entity
Exclusion – which provided that National Union “. . . shall not be liable for any Loss in
connection with any Claim made against . . . [Private Escapes] . . . and/or any Executive or
Employee thereof . . . ” – via denial letter dated February 9, 2012.
On February 13, 2013, P&S settled the underlying lawsuit with Private Escapes, Mr.
Keith, and Continental Casualty. Continental Casualty agreed to pay P&S $25,000. In addition,
Mr. Keith also agreed to a stipulated judgment in P&S’s favor (in the amount of $450,000) and
assigned his rights against National Union under the Policy to P&S.
P&S then filed this lawsuit (as Mr. Keith’s assignee) against National Union in Boulder
County District Court (Case No. 14CV30016) on January 8, 2014. National Union filed a Notice
of Removal to this Court, on March 11, 2014, based on diversity jurisdiction pursuant to 28
U.S.C. §§ 1332, 1441 & 1442. [Doc #1] In its Amended Complaint, P&S seeks declaratory
judgment, damages, and statutory damages with respect to benefits due, but unreasonably
withheld by National Union under the Policy issued to Ultimate Escapes. It avers that National
Union owed coverage to Mr. Keith under the Policy for Executive & Organization liability
coverage, but has refused to provide coverage. [Doc #32] P&S asserts claims for: 1)
Declaratory Judgment, in the form of a declaration that the stipulated judgment in the underlying
lawsuit is a loss covered under the Policy; 2) Breach of Contract for refusing or failing to pay
loss arising from Mr. Keith’s wrongful acts that are covered under the Policy; 3) Breach of Duty
of Good Faith and Fair Dealing/Bad Faith Denial of Insurance Coverage; and 4) Violations of
Colorado Revised Statutes §10-3-115 and §10-3-116 for unreasonable delay and/or denial of
payment for Mr. Keith’s claim for benefits under the Policy. [Doc #32]
II. STANDARD OF REVIEW
National Union seeks summary judgment in its favor on P&S’ claims against it and, as
such, dismissal of this case. The purpose of a summary judgment motion under Fed.R.Civ.P. 56
is to assess whether trial is necessary. White v. York Int’l Corp., 45 F.3d 357, 360 (10th Cir.
1995). Fed.R.Civ.P. 56(c) provides that summary judgment shall be granted if the pleadings,
depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law. The
non-moving party has the burden of showing that there are issues of material fact to be
determined. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
III. COVERAGE EXCLUSION
In this motion, National Union argues that the Policy does not provide coverage for
P&S’s underlying claims pursuant to the “Specific Entity Exclusion” which excludes coverage
for any loss in connection with any claim made against Private Escapes or its executives.
National Union asserts that the Specific Entity Exclusion applies, as a matter of law, to bar
coverage of the claims in P&S’s underlying lawsuit brought against Private Escapes and Richard
With regard to the law related to insurance contract interpretation, the parties appear to
agree that Colorado law applies. In its motion, National Union argues that it prevails “regardless
of which state’s law is applied,” including Colorado. P&S cites to Colorado contract
interpretation law in its briefing. Thus, I apply the general standards of insurance contract
interpretation as set forth under Colorado law.
An insurance policy is a contract, which should be interpreted consistently with the
well-settled principles of contractual interpretation. Chacon v. Am. Family Mut. Ins. Co., 788
P.2d 748, 750 (Colo. 1990). As such, the words of the contract should be given their plain
meaning according to common usage, and strained constructions should be avoided. Allstate Ins.
Co. v. Starke, 797 P.2d 14, 18 (Colo. 1990). Insurance contracts are not to be technically
construed, but are to be “construed as they would be understood by a person of ordinary
intelligence.” State Farm Mut. Auto. Ins. Co. v. Nissen, 851 P.2d 165, 167 (Colo.1993)
Policy provisions that are clear and unambiguous should be enforced as written. Chacon v. Am.
Family, supra, 788 P.2d at 750. A policy term is ambiguous if it is reasonably susceptible to
more than one meaning. Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58, 60 (Colo.
“[T]o benefit from an exclusionary provision in a particular contract of insurance the
insurer must establish that the exemption claimed applies in the particular case, and that the
exclusions are not subject to any other reasonable interpretation.” Broderick Inv. Co. v. Hartford
Acc. & Indem. Co., 954 F.2d 601, 606 (10th Cir. 1992)(applying Colorado law); Hecla Mining
Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991). The insured has the burden
to show that a claim is covered by the policy. Once met, the burden shifts to the insurer to show
that a covered claim falls solely and entirely within a policy exclusion. Prudential Prop. & Cas.
Co. v. LaRose, 919 P.2d 915, 917 (Colo. App. 1996). The interpretation of an insurance policy is
a legal question. Allstate Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo. 2002).
Endorsement #34 of the Policy contains the Specific Entity Exclusion, which provides
In consideration of the premium charged, it is hereby understood and agreed that
the Insurer shall not be liable for any Loss in connection with any Claim made
against or brought by or on behalf of any entity(ies) listed below and/or any
Executive or Employee thereof; or by any security holder of the Organization
whether directly or derivatively, unless such Claim is instigated and continued
totally independent of, or without the intervention of such entity(ies) and/or any
Executive or Employee thereof. . . : Private Escapes Holdings, LLC (including
any subsidiary or affiliate thereof)
National Union asserts, in support of its motion, that the Specific Entity Exclusion is
unambiguous and clearly applies to bar coverage of the claims raised by P&S in the underlying
lawsuit against Private Escapes and Mr. Keith. Specifically, the exclusion indicates that
National Union is not “liable for any Loss in connection with any Claim made against . . .
[Private Escapes] . . . and/or any Executive of Employee thereof” (emphasis added). The
exclusion only requires that a loss is made “in connection” with a claim against Private Escapes
for it to be excluded from coverage. Here, the underlying lawsuit raises claims against Private
Escapes and, as such, constitutes a loss in connection with a claim against Private Escapes.
P&S argues, in response, that the Specific Entity Exclusion does not unambiguously
preclude coverage. In so arguing, P&S first notes that it is undisputed that the Policy provides
broad coverage for the wrongful actions of Ultimate Escape executives when the executive is
acting in his or her capacity as executive of Ultimate Escapes. P&S contends that because it
alleged, in the underlying lawsuit, that Mr. Keith committed wrongful acts while acting in his
capacity as an executive of Ultimate Escapes – specifically, when he made misrepresentations
and misleading statements and/or omissions to P&S regarding Ultimate Escape’s financial
situation and ability to pay its obligation to P&S in the 2010 Settlement Agreement – those
wrongful acts are covered by the Policy. And, while the Specific Entity Exclusion precludes
coverage of losses when a Private Escapes executive commits a wrongful action, while acting in
his or her capacity as an executive of Private Escapes, it should be narrowly interpreted to not
apply when it is alleged, as here, that Mr. Keith’s alleged wrongful acts were committed on
behalf of Ultimate Escapes. See Continental Western Ins. Co. v. Shay Const., Inc., 805
F.Supp.2d 1125, 1128 (D.Colo. 2011)(noting that exclusions and limitations on coverage are to
be given a narrow construction). Thus, P&S asserted that to the extent Mr. Keith was acting
solely in his capacity as an executive of Ultimate Escapes, the Specific Entity Exclusion does not
In support of this interpretation, P&S relies upon National Union’s decision to provide a
defense and coverage to Mr. Keith in a lawsuit filed by another Private Escapes member against
Ultimate Escapes, Privates Escapes, and Richard Keith acting in his capacity as CEO of Private
Escapes and “Co-CEO” of Ultimate Escapes. P&S argues that the facts of that case, as well as
the claims raised, are virtually identical to the facts and claims raised here. See Jupp v. Private
Escapes Platinum, LLC, et. al., 10-cv-2290-DME-MEH. Because National Union agreed to
provide Mr. Keith with a defense and (ultimately) coverage in that case, it must have made a
determination that the Specific Entity Exclusion did not apply. As a result, P&S asserts that the
National Union interpreted the exclusion consistent with coverage for Mr. Keith when his
wrongful actions where as an executive of Ultimate Escapes, even when the alleged loss was in
connection with a claim made against Private Escapes. Thus, at a minimum, the exclusion can
be reasonably interpreted as to not be applicable here. As such, P&S argues that it is ambiguous
and must be construed in favor of coverage. See Continental Western v. Shay Const., supra, 805
F.Supp.2d at 1128 (if a contractual provision is reasonably susceptible to different meanings, it is
ambiguous and must be construed against the drafter and in favor of providing coverage to the
First, to the extent that P&S is asserting that the exclusion does not apply because Keith’s
wrongful acts can be clearly attributed to either Private Escapes (prior to the merger) or to
Ultimate Escapes (after the merger), I find that the minimal case law cited does not support this
distinction. See Continental Cas. Co. v. Adams, 2003 WL 22162379 (M.D. Pa. 2003)
(unpublished)(holding that claims brought against named insureds were excluded where those
claims were closely connected to the named insureds’ activities as agents of an uninsured
affiliate corporation); see also Yocum v. St. Paul Mercury Ins. Co., 2010 WL 2179137 (E.D. Ark.
More importantly, I disagree with P&S that the Specific Entity Exclusion is ambiguous.
By its own plain language, the exclusion apply to any loss “in connection with” any claim
against Private Escapes or its executives. Here, the underlying lawsuit is brought against Private
Escapes and Mr. Keith in his capacity as a Private Escapes’ executive. To the extent that the
factual assertions within the complaint include an allegation that Mr. Keith wrongfully acted in
the underlying situation as an Ultimate Escapes’ executive, it does not change the fact that the
loss alleged was in connection with a claim against Private Escapes. As such, it is
unambiguously applicable to bar coverage for the loss claimed here.
In so finding, I reject P&S’s characterization of National Union’s decision to provide a
defense and coverage (under a reservation of rights) in a different case as relevant to an
interpretation of the unambiguous Specific Entity Exclusion in this matter. While it is clear that
the relief sought in that case was based on the same Policy and essentially the same claims as the
underlying lawsuit in this case, I disagree that the decision by National Union was based on a
reasonable interpretation of the Specific Entity Exclusion. I note that National Union only
acknowledged that Mr. Keith was afforded “limited coverage . . . as co-CEO at Ultimate
Escapes” and the claims in that case raised were against Ultimate Escapes as a named Defendant.
Furthermore, I reject P&S’s argument that an “exception to the exclusion” reinstates
coverage in this case. P&S maintains that the Specific Entity Exclusion provides coverage for a
claim connected with Private Escapes when it is “instigated and continued totally independent
of” Private Escapes and its executives. Because P&S is only seeking coverage for Mr. Keith’s
wrongful acts done on behalf of Ultimate Escapes (as opposed to his acts taken on behalf of
Private Escapes) P&S asserts that the acts are separate and independent and, thus, fall within the
exception to the exclusion. First, under the language of the Specific Entity Exclusion, it is not
the acts of the executive that are at issue, but rather whether the claim is instigated and continued
totally independent of the entity. Moreover, a reading of the entire Specific Entity Exclusion is
clear that the exception for a claim “instigated and continued totally independent of, or without
the intervention of” the excluded entity applies to a loss “by any security holder of the
Finally, I reject P&S’s assertion that the exclusionary language conflicts with Ultimate
Escape’s objectively reasonable expectations – i.e. that, as the insured, they would expect
coverage for Mr. Keith when acting in his capacity as an Ultimate Escape executive – or that an
interpretation of the Specific Entity Exclusion defeating coverage “would lead to an absurd
result” in that it would preclude coverage in a large number of cases. Such arguments are not
only cursory and unsubstantiated, but are contrary to the unambiguous language of the exclusion.
Accordingly, I agree with National Union that the exclusion only requires that the claim
against the executive be made in connection with a claim against Private Escapes. Here, the loss
sought from Mr. Keith’s actions were clearly a loss in connection with a lawsuit against Private
Escapes. See generally Foodtown Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 412
Fed.Appx. 502, 509 (3rd Cir. 2011)(not selected for publication). As such, I agree that the
exclusion is unambiguous and applies here. I find that National Union has met its burden to
prove that the Specific Entity Exclusion applied with regard to the claim raised against Mr. Keith
in the underlying lawsuit as a matter of law. Thus, National Union is entitled to summary
judgment as to P&S’s claims, as Mr. Keith’s assignee, for Declaratory Judgment that Mr. Keith’s
losses are covered under the Policy, and for Breach of Contract for refusing to pay losses arising
from Mr. Keith’s wrongful acts.
IV. BAD FAITH CLAIMS
In addition, because I have ruled that the plain language of the Specific Entity Exclusion
bars coverage for Mr. Keith in the underlying lawsuit, I likewise conclude that P&S’s claims
seeking relief under common law and statutory bad faith are likewise foreclosed as a matter of
law. See Prospect Resources, Inc. v. St. Paul Fire & Marine Ins. Co., 2012 WL 263394 (D.
Colo. 2012) (not selected for publication)(ruling that because it found that the insurer had no
duty to defend or indemnify, “no reasonable juror could find that it was unreasonable for the
Defendants to deny payment of the claim in this case”); see also Berry & Murphy, P.C. v.
Carolina Cas. Ins. Co., 586 F.3d 803, 815 (10th Cir. 2009)(ruling that when an insurer “had no
legally cognizable duty to defend or indemnify a claim, plaintiffs’ bad faith claim also cannot
survive”). As a result, National Union is also entitled to summary judgment as to P&S’s claims,
as Mr. Keith’s assignee, for the Breach of Duty of Good Faith and Fair Dealing/Bad Faith Denial
of Insurance Coverage, and for Violations of Colorado Revised Statutes §10-3-115 and §10-3116.
ACCORDINGLY, I GRANT the Motion for Summary Judgment filed by Defendant,
National Union Fire Insurance Company of Pittsburgh, PA. [Doc #45] As such, JUDGMENT
ENTERS in favor of Defendant and against Plaintiff, P&S LLC, and this case is DISMISSED
and COSTS AWARDED to Defendant.
Dated: July 29 , 2015 in Denver, Colorado.
BY THE COURT:
s/Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE
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