Macey et al v. Carolina Casualty Insurance Co
ORDER. Defendant's Renewed Motion for Summary Judgment 133 is denied. The parties shall submit their Joint Trial Memorandum on or before January 9, 2013. Signed by Shira Scheindlin on 12/10/2012. (Lake, G.)
the Legacy Shareholders became minority shareholders, in the newly reorganized CRADelaware. The share purchase agreement designated Macey and Santoro as CRA-Delaware
directors, and Terbell later joined CRA-Delaware’s board. After the share purchase agreement,
Sterling was able to nominate individuals to the board of directors of CRA-Delaware.
In October 2004, CRA-Delaware purchased D & O insurance from Carolina. In relevant
part, the Carolina Policy covered claims against CRA-Delaware directors for any “Wrongful
Act,” which was defined to include “any actual or alleged breach of duty.”2 Coverage was
subject to a number of exclusions, however, including (1) an “insured vs. insured” exclusion by
which Carolina would not be liable for claims brought by any of the insured directors against one
another, and (2) an “other insurance” clause that stated that Carolina would “not be liable to
make any payment for Loss in connection with a Claim made against any Insured . . . which is
insured in whole or in part by another valid policy . . . .”3 In June 2005, Sterling purchased
coverage from Federal Insurance Company (“Chubb”) for officers, directors, and managing
members of Sterling Entities.4 The Chubb Policy covered Macey and Santoro, but not Terbell.
In August 2005, Plaintiffs approved a separate merger whereby all of CRA-Delaware’s
stock was sold to a third party, CRA Acquisitions Corp. The Legacy Shareholders filed a lawsuit
(“underlying lawsuit”) alleging breach of fiduciary duty in connection with this merger.
Plaintiffs and the Legacy Shareholders settled the underlying lawsuit for three million dollars.
Chubb paid $ 1.5 million and most of the defense costs, and Sterling, a co-defendant in the
Carolina Policy [doc. # 65-3] at 1, 4 (bold formatting omitted).
Id. at 4–5.
See Chubb Policy [doc. # 65-10] at 1, 15.
underlying lawsuit, paid the remainder. Plaintiffs filed a claim with Carolina, alleging an insured
loss under its policy. Carolina denied the claim.
In 2006, Plaintiffs initiated the present suit against Carolina, challenging its denial of
coverage. In 2008, the late Judge Mark R. Kravitz granted Carolina’s motion for summary
judgment, ruling that Carolina’s denial of coverage was proper under the terms of its policy.5
Judge Kravitz concluded that “the Legacy Shareholders were former directors and/or officers
within the meaning of the Carolina policy and that suits by former directors and officers . . . fall
squarely within the terms of the unambiguous ‘insured vs. insured’ exclusion.”6 Because this
determination was sufficient to grant Carolina’s motion, Judge Kravitz did not rule on two
additional arguments raised by Carolina in support of summary judgment: (1) that the “other
insurance” clause in the Carolina Policy precludes liability because the underlying lawsuit was
covered by the Chubb Policy; and (2) that Plaintiffs did not suffer a “loss” as defined by the
Carolina Policy.7 On appeal, the Second Circuit vacated the judgment, concluding that the
Carolina Policy is “ambiguous with respect to whether suits by certain Legacy Shareholders in
this case are excluded from coverage by the ‘insured vs. insured’ provision.”8 The Second
Circuit declined to consider Carolina’s two additional grounds for summary judgment.9 On
Id. at 286.
Id. at 279 n.4.
Macey, 674 F.3d at 131.
See Macey v. Carolina Cas. Ins. Co., 585 F. Supp. 2d 277 (D. Conn. 2008).
Id. (quoting Colavito v. New York Organ Donor Network, Inc., 486 F.3d 78, 80 (2d Cir.
remand, Carolina renews its motion for summary judgment, asking the Court to rule on the two
remaining arguments presented in its Motion for Summary Judgment [doc. # 98].
Summary judgment is appropriate only when the “depositions, documents, electronically
stored information, affidavits or declarations, stipulations (including those made for purposes of
this motion only), admissions, interrogatory answers, or other materials” submitted to the Court
“show that there is no genuine issue as to any material fact and that the movant is entitled to
judgment as a matter of law.”10 Summary judgment must be denied “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.”11 However, the party against
whom summary judgment is sought cannot prevail by “simply show[ing] that there is some
metaphysical doubt as to the material facts,” and instead “must come forward with specific facts
showing that there is genuine issue for trial.”12
“Other Insurance” Clause
Carolina argues that the “other insurance” exclusion in its policy precludes recovery.13
Carolina observes that Chubb provided Plaintiffs with coverage for up to five million dollars,
indemnified and defended Plaintiffs in the underlying lawsuit, and ultimately paid $1.5 million
Fed. R. Civ. P. 56(c)(1)(A); Fed. R. Civ. P. 56(a).
Williams v. Utica Coll. of Syracuse Univ., 453 F.3d 112, 116 (2d Cir. 2006) (quotation
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 & n.11 (1986)
(quotation marks and citations omitted).
See Carolina Policy [doc. # 65-3] at 4–5 (“The insurer shall not be liable to make any
payment for Loss in connection with a Claim made against any Insured . . . which is insured in
whole or in part by another valid policy . . . .”).
of the settlement. Carolina contends that the plain language of its “other insurance” exclusion
bars recovery, because Plaintiffs’ claim was “insured in whole or in part” by Chubb and because
there was no “excess beyond the amount . . . of coverage under such policy.”14 With the benefit
of greater context, however, the “other insurance” clause in the Carolina Policy does not operate
in the manner that Carolina contends that it does.
Plaintiffs challenge the operability of the Carolina “other insurance” clause, arguing first
that “other insurance” provisions only go into effect when another policy covers the identical risk
for identical parties. The Chubb Policy covered officers, directors, and managing members of
Sterling Entities, while the Carolina Policy insured directors and officers of CRA-Delaware.15
While both policies insure Macey and Santoro for claims arising from their “Wrongful Acts”—
similarly defined in both policies16—Plaintiffs contend that the policies cover different risks,
because the “risks associated with serving as an officer or director of CRA are not co-extensive
with those of being a managing member in one or all of the Sterling Entities.”17
See Chubb Policy [doc. # 65-10] at 1, 15; Carolina Policy [doc. # 65-3] at 1, 4.
Compare Chubb Policy [doc. # 65-10] at 1, 18 (defining “wrongful act” as “any error,
misstatement, misleading statement, act, omission, neglect, or breach of duty. . . committed,
attempted, or allegedly committed or attempted . . . by an insured person”), with Carolina Policy
[doc. # 65-3] at 1, 4 (defining “wrongful act” as “any actual or alleged breach of duty, neglect,
error, misstatement, misleading statement, omission or act by the Directors or Officers of an
Insured Entity in their respective capacities as such”).
Plaintiffs’ Opposition to Defendant’s Motion for Summary Judgment (“Pl. Opp.”)
[doc. # 78] at 25–26.
“It is generally held that in order for an [‘other insurance’] clause to operate in the
insurer’s favor, there must be both an identity of the insured interest and an identity of risk.”18
Terbell was not insured under the Chubb Policy, as she was not an officer, director, or managing
member of any of the Sterling Entities.19 Terbell was therefore not subject to the “other
insurance” clause, because her share of the settlement costs of the underlying lawsuit were not
“insured in whole or in part by another valid policy.”20 At a minimum, summary judgment is
inappropriate as to Terbell.
It is more difficult to determine whether the identity-of-risk requirement bars the
operation of the “other insurance” clause against Santoro and Macey, because, based on the
record, I cannot ascertain which of Chubb’s insuring clauses is the source of Santoro and
Macey’s coverage. If Santoro and Macey received coverage by virtue of Insuring Clause 4,
which affords outside directorship liability coverage, then the covered risks appear identical:
both Chubb and Carolina insured Santoro and Macey in their capacity as directors or officers for
CRA-Delaware.21 However, because I conclude below that Carolina’s “other insurance” clause
15 Couch on Insurance 3d, § 219.14. Accord National Union Fire Ins. Co. v. St. Paul
Fire and Marine Ins. Co., 447 F.2d 75, 77 (9th Cir. 1971) (“[I]t is first necessary to show that
both policies cover the same risk . . . . Then the ‘other insurance’ clauses of each policy come
into play and the game of policy semantics begins.”); State v. Janicki, 188 W.Va. 100 (1992)
(“[E]xcess and other insurance clauses are applicable only where there is overlapping or double
insurance and this occurs only where two or more policies insure the same party upon the same
subject matter and assume the same risks.” (quoting 8 Appleman, Insurance Law and Practice,
§ 4911 (1962)).
See Declaration of Harriet Weiss Terbell [doc. # 73] ¶¶ 1–2.
Carolina Policy [doc. # 65-3] at 4–5 (Clause IV.G).
See Chubb Policy [doc. # 65-10] at 1.
must be disregarded under Virginia law as irreconcilable with Chubb’s “other insurance” clause,
I need not resolve this question.
Mutually Repugnant “Other Insurance” Clauses
Noting that the Chubb Policy also contains an “other insurance” excess clause, Plaintiffs
also argue that if two policies both have “other insurance” clauses, they are mutually repugnant
and should be disregarded.22 The parties agree that Virginia law governs. While this Court is
unaware of a Virginia decision that squarely addresses this issue, the Virginia Supreme Court has
offered some guidance on how a court should analyze purportedly conflicting “other insurance”
exclusions in insurance policies that would otherwise cover a loss.
In State Capital Insurance v. Mutual Assurance Society,23 three policies provided liability
coverage to an individual operating a motor boat that struck a swimmer. All three policies
contained “excess insurance” clauses. “Although varying slightly in wording, all the clauses had
the same effect, viz., to provide that the liability coverage afforded by the particular policy would
The Fourth Circuit has provided a helpful primer on the basic types of “other
insurance” clauses: “An ‘other insurance’ clause applies when two or more insurance policies
cover the same risk for the benefit of the same person. . . . There are three basic types of ‘other
insurance’ clauses: pro rata, excess, and escape. . . . A pro rata clause typically provides that, in
the event other insurance covers the same loss, the insurer will pay its pro rata share of the loss,
generally determined by the ratio of the limit of its policy to the sum of the limits of all the
policies covering the same claim. . . . An excess clause generally provides that when there is
other primary coverage, the insurer’s liability is limited to the amount by which the loss exceeds
the coverage provided by the other primary insurance, up to the limit of the excess policy. . . . An
escape clause generally provides that, in the event other insurance covers the loss, the insurer is
not liable for any loss.” Medical Protective Co. v. National Union Fire Ins., 25 Fed. App’x 145,
146 n.1 (4th Cir. 2002). See generally Douglas R. Richmond & Darren S. Black, Expanding
Liability Coverage: Insured Contracts and Additional Insureds, 44 Drake L. Rev. 781, 820–31
(1996) (discussing differing treatment of dueling “other insurance” clauses).
241 S.E.2d 759 (Va. 1978).
not apply to the extent other valid and collectible insurance was available to the insured.”24
After disposing of a statutory argument that one insurer’s excess insurance clause was invalid
under state law, the court reached the question of how, if at all, to reconcile the two excess
insurance clauses involved in the appeal:
The two clauses are of identical effect in providing that the watercraft coverage
shall not apply to the extent other valid and collectible insurance is available to
the insured. Given full force and effect, the two clauses operate mutually to
reduce or eliminate the amount of valid and otherwise collectible insurance
available to the insured from both policies. The two excess insurance clauses,
therefore, are in irreconcilable conflict with one another. In this situation, both
must be disregarded, with the result that neither policy provides primary coverage
for the loss in question.25
In GEICO v. Universal Underwriters Insurance, however, the Virginia Supreme Court
concluded that competing “other insurance” clauses are not always mutually repugnant and can
sometimes be reconciled.26 In GEICO, two car insurance policies provided uninsured-motorist
coverage and contained “other insurance” clauses. The GEICO policy furnished only “excess
insurance over any other similar insurance available to such insured and applicable to such
vehicle as primary insurance,”27 while the Universal Insurance policy provided that
[i]f there is other valid and
contingent, available to the
insurance are sufficient to
collectible Insurance whether primary, excess or
GARAGE CUSTOMER and the limits of such
pay damages . . . up to the amount of the
RESPONSIBILITY LIMIT [and if] the limits of
Id. at 760.
Id. Accord Reliance Ins. Co. v. St. Paul Surplus Lines Ins. Co., 753 F.2d 1288, 1290
(4th Cir. 1985) (“When two insurance policies cover the same risk and each contains an excess
clause, the clauses are considered mutually repugnant and are disregarded. Once disregarded, the
general coverage of each policy applies and the insurers are obligated to share the loss.”).
350 S.E.2d 612 (Va. 1986).
Id. at 613.
such insurance are insufficient . . . this insurance shall apply to the excess of
damages . . . up to such limit.28
After reaffirming the principle that the insured “is entitled to primary protection under one or the
other,” the GEICO court indicated that rather than categorically disregarding dueling “other
insurance” clauses, courts “must construe the terms of the contracts to determine which” policy
provided primary coverage.29 This inquiry involved two questions: “(1) Does the existence of
the GEICO policy trigger the escape clause in Universal’s policy? (2) Does the existence of the
Universal policy trigger the escape clause in GEICO’s policy?”30 Analyzing the parties’ intent
as embodied in the contractual language, the court determined that the two clauses were not, in
fact, mutually repugnant. The court found that the GEICO policy triggered the exclusion in the
Universal policy, because the latter expressly excluded coverage whenever the individual was
insured by other insurance “whether primary, excess, or contingent.”31 However, the court
further determined that the existence of the Universal policy did not trigger the exclusion in the
GEICO policy, because the Universal policy—with its exclusion triggered—was not primary
Id. at 614.
Id. at 615 (emphasis added).
insurance.32 In short, a fine-grained analysis of the parties’ intent with each clause revealed that
the clauses were not mutually repugnant.33
Based on State Capital Insurance and GEICO,34 I must carefully consider the precise
wording of both “other insurance” clauses before me. Two questions must be answered: (1)
whether the existence of the Chubb Policy triggers the “other insurance” clause in the Carolina
Policy; and (2) whether the existence of the Carolina Policy triggers the “other insurance” clause
in the Chubb Policy.35 If both clauses operate to preclude the insurers’ liability, then they present
See id. at 613 (noting that GEICO policy provided only “excess insurance over any
other similar insurance available to such insured and applicable to such vehicle as primary
insurance” (emphasis added)).
See Allstate Ins. Co. v. Shelby Mut. Ins. Co., 152 S.E.2d 436, 439, 443 (N.C. 1967)
(crediting language differences between the “other insurance” escape clauses to hold that the
clauses were not mutually repugnant).
As the parties note, the Virginia cases do not deal precisely with the type of “other
insurance” clauses at issue here. See Memorandum of Law in Support of Defendant’s Motion for
Summary Judgment (“Def. Mem.”) [doc. # 65] at 24 n.12; Pl. Opp. [doc. # 78] at 29. However,
neither party has offered a convincing reason why the framework articulated by the Virginia
Supreme Court does not apply more broadly whenever “other insurance” clauses are purportedly
See GEICO, 350 S.E.2d at 614; see also Medical Protective Co., 25 Fed. App’x at 146
(“In light of GEICO, we conclude that the Virginia Supreme Court would adopt the majority rule
of reconciling competing ‘other insurance’ clauses when it is possible to do so.”).
an “irreconcilable conflict” and “must be disregarded.”36 However, if the “other insurance”
exclusion clauses can be reconciled, they must be given effect.37
The Chubb Policy unequivocally triggers the “other insurance” exclusion in the Carolina
Policy. Carolina’s exclusion clause precludes liability for “Loss . . . which is insured in whole or
in part by another valid policy, except with respect to any excess beyond the amount or amounts
of coverage under such policy whether such other policy is stated to be primary, contributory,
excess, contingent, or otherwise.”38 While the wording of Chubb’s “other insurance” clause
varies depending on which “Insuring Clause” activated coverage under the policy, both versions
of the “other insurance” clause provide that Chubb will offer some form of excess insurance,
falling within the ambit of the language of the Carolina “other insurance” exclusion.39
Similarly, the Carolina Policy triggers the Chubb “other insurance” provision. As noted
earlier, there are two distinct “other insurance” clauses in the Chubb contract. If Chubb coverage
is provided through Insuring Clause 1, 2, and 3—management liability, management
indemnification, and professional liability coverage, respectively—then
State Capital Ins., 241 S.E.2d at 760. Accord Aetna Cas. & Surety Co. v. National
Union Fire Ins. Co., 233 Va. 49, 54 (1987) (“We have recently held that when ‘other insurance’
clauses of two policies are of identical effect in that they operate mutually to reduce or eliminate
the amount of collectible insurance available, neither provides primary coverage . . . .” (citing
State Capital Insurance, 241 S.E.2d 759)); Allstate, 152 S.E.2d at 442 (noting that “it was clearly
not the intent of the parties to [Policy One], or of the parties to the [Policy Two], that [the
insured] would be an uninsured motorist while driving the automobile in question”).
See GEICO, 350 S.E.2d at 613; see also Aetna Cas. & Surety Co., 233 Va. at 54 (citing
for comparison GEICO and parenthetically characterizing the case as holding that “‘other
insurance’ clauses [were] reconcilable”).
Carolina Policy [doc. # 65-3] at 4–5 (Clause IV.G) (emphasis added); see also GEICO,
350 S.E.2d at 615 (giving significant weight to the language in one policy that there would be no
liability if there were another insurer “whether primary, excess, or contingent”).
See Chubb Policy [doc. # 65-10] ¶ 18.
if any Loss under this Policy is insured under any other valid and collectible
insurance policy(ies), then this Policy shall cover such Loss . . . only to the extent
that the amount of such Loss is in excess of the applicable retention (or
deductible) and limit of liability under such other insurance, whether such other
insurance is stated to be primary, contributory, excess, contingent or otherwise,
unless such other insurance is written only as specific excess insurance over the
Limits of Liability provided in this Policy.40
If coverage is provided by Insuring Clause 4—outside directorship liability coverage—then
this Policy shall be specifically excess of any indemnity (other than the indemnity
provided by the Organization) and insurance available to such Insured Person by
reason of serving in an Outside Capacity, including any indemnity or insurance
available from or provided by the Outside Entity.41
Based on the current state of the record, I cannot determine which insuring clause activated
Chubb’s coverage. However, both versions of the “other insurance” clause are triggered by the
Carolina Policy. The first of the clauses uses the same type of broad catch-all language that the
GEICO court credited, and there is no doubt that the Carolina policy constituted a “valid and
collectible insurance policy . . . [whether it] be primary, contributory, excess contingent or
The Carolina Policy also triggers Chubb’s second “other insurance” clause.
Although this clause does not include the same catch-all language as the first clause, it has the
same effect because it states that the Chubb Policy will be “specifically excess of any. . .
insurance” available.43 Thus, under either clause, the situation here is analogous to that in State
Capital Insurance—namely that the two “other insurance” exclusions are “of identical effect”
Id. ¶¶ 1–3, 18.
Id. ¶¶ 4, 18.
Id. ¶ 18.
Id. (emphasis added).
and therefore must be disregarded.44 As a result, Carolina’s “other insurance” clause does not
provide a basis for summary judgment.
Defendant’s Remaining Arguments
In the underlying lawsuit, Plaintiffs settled for three million dollars. Chubb covered $ 1.5
million of the settlement and a portion of Plaintiffs’ legal expenses. Sterling—a co-defendant in
the underlying lawsuit—paid the remainder. Plaintiffs have not paid, nor will they pay, any
defense costs or settlement. Pointing to this arrangement, Carolina makes three related arguments
as to why it is not liable under its policy: (1) having paid nothing out of pocket, Plaintiffs have
not suffered any “Loss” within the meaning of the Carolina Policy; (2) recovery is equitably
barred because it would represent a windfall or double recovery; and (3) recovery is barred
because Plaintiffs have entered into a champertous contract with Sterling, whereby any proceeds
from the pending lawsuit will be given to Sterling.45
The Carolina Policy defines “Loss” to include defense expenses, settlements and
judgments.46 Carolina argues that because Plaintiffs have not paid anything out of pocket, they
have not incurred a loss sufficient to trigger liability under its policy.47 In interpreting the
See Def. Mem. at 26–30.
Carolina Policy [doc. # 65-3] at 1 (“This Policy shall pay the Loss of . . . each and
every Director or Officer of the Insured Entity arising from any Claim . . . for any Wrongful Act
. . . .”); id. at 3 (“‘Loss’ means damages, judgments, settlements, pre-judgment interest and postjudgment interest and Costs of Defense . . .”).
See Def. Mem. at 27 (citing Pan Pac. Retail Props., Inc. v. Gulf Ins. Co., No. Civ. 03CV-679, 2004 WL 2958479 (S.D. Cal. July 14, 2004), aff’d in part and rev’d in part, 471 F.3d
961 (9th Cir. 2006)).
insurance contract, Carolina contends that “the definition of ‘Loss’ cannot be read to ignore the
word ‘Loss’ itself, since doing so would completely eviscerate the meaning of the word.”48 In
arguing that there is no contractual loss, Carolina relies heavily on the district court opinion in
Pan Pacific Retail Properties v. Gulf Insurance Company. There, Pan Pacific Retail Properties
and Western Properties Trust (“Western”) sued their respective insurers, Gulf Insurance
Company and Twin City Fire Insurance Company (“Twin City”), for failing to indemnify them
for the costs associated with settling a class action lawsuit related to the merger of their two
companies. Twin City declined to defend or indemnify Western, asserting that Western suffered
no “loss” because Pan Pacific—not Western—paid the defense and settlement costs associated
with the underlying lawsuit. The district court agreed, concluding that because Western “did not
pay any of the [underlying] settlement . . . , no covered ‘loss’ accrued with respect to Western.”49
Carolina’s reliance on Pan Pacific is misplaced. On appeal, the Ninth Circuit disagreed
with the district court’s determination that, because Western itself paid nothing, there was no
“loss” pursuant to the Twin City policy.50 The Ninth Circuit carefully distinguished between
insurance policies for liability and for indemnity: “In a liability contract, the insurer agrees to
cover liability for damages. If the insured is liable, the insurance company must pay the
damages. In an indemnity contract, by contrast, the insurer agrees to reimburse expenses to the
insured that the insure[d] is liable to pay and has paid.”51 Western sought payment under two
Id. at 26 (quoting CNL Hotels & Resorts, Inc. v. Houston Cas. Co., 505 F. Supp. 2d
1317, 1322 (M.D. Fla. 2007)).
Pan Pac. Retail Props., 2004 WL 2958479, at *10.
See 471 F.3d at 973.
Id. at 972 (emphasis in original).
different types of coverage offered by the Twin City policy. Pursuant to “Insuring Agreement
B(1),” Twin City agreed to “pay on behalf of the Company Loss for . . . which the Company has
. . . indemnified the Directors and Officers.”52 Insuring Agreement B(1), the Ninth Circuit
concluded, was an indemnity policy; by its plain terms, Twin City was liable only when Western
had, in fact, indemnified its directors and officers.53 As Western had not paid anything to its
officers and directors, Twin City was not liable under Insuring Agreement B(1). However, under
“Insuring Agreement C”—the second type of coverage—Twin City agreed to “pay on behalf of
the Company Loss . . . which the Company shall become legally obligated to pay as a result of a
Securities Claim.”54 The Ninth Circuit observed that
Insuring Agreement C is a typical liability policy where the insurer must pay damages or
expenses if the insured is legally liable as a result of a covered claim. . . . . Western was
legally liable to pay any expenses or damages incurred by Western as a result of the
[underlying lawsuit], regardless of whether Pan Pacific had honored its indemnification
agreement. To the extent that Western is seeking coverage under Insuring Agreement C,
it has suffered a Loss and may be entitled to indemnification by Twin City.55
The lesson from Pan Pacific, then, is not that the insured must always incur out-of-pocket
expenses to trigger coverage for a “loss.” The principle is that a court must look to the actual
language of the insurance contract—being mindful of the difference between policies for
indemnity and for liability—to determine whether the insurance policy in question requires that
the insured have incurred actual expenses, or whether the insured’s legal liability by itself
Id. at 973 (emphasis added and citation omitted).
The Carolina Policy, like the Twin City policy in Pan Pacific, provides liability coverage
for the directors and officers of CRA-Delaware and indemnity coverage to CRA-Delaware.
“Coverage A” in the Carolina Policy provides that it “shall pay the Loss of”:
1. each and every Director or Officer of the Insured Entity arising from any Claim
first made against the Directors or Officers during the Policy Period or the
Extended Reporting Period (if applicable) for any Wrongful Act, except and to
the extent that the Insured Entity has indemnified the Directors or Officers.
2. the Insured Entity arising from any Claim first made against the Directors or
Officers during the Policy Period or the Extended Reporting Period (if applicable)
for any Wrongful Act, but only to the extent that the Insured Entity has
indemnified the Directors or Officers for such Loss as permitted by law.56
Loss is defined to mean “damages, judgments, settlements, . . . and Costs of Defense.”57
Notwithstanding the fact that the Carolina Policy expressly excludes eight items from the
contractual definition of “Loss,”58 nowhere does it indicate that the “damages, judgments,
settlements” must have been initially paid by the insured.59 Weighing against Carolina’s
argument that “loss” should be interpreted according to its natural meaning is the fact that the
term is contractually defined and that this definition expressly excludes various items from
counting as “loss.”60 The maxim expressio unius est exclusio alterius cautions a court against
grafting an additional exception onto an enumerated list of express exceptions.61 Accordingly, I
Carolina Policy [doc. # 65-3] at 1 (bold highlighting omitted).
Id. at 3 (emphasis added and bold formatting omitted).
See id. (excluding, inter alia, taxes, payment of insurance, commissions).
See Black’s Law Dictionary 620 (8th ed. 2004) (“A canon of construction holding that
to express or include one thing implies the exclusion of the other, or of the alterative.”); Greene
find that Carolina was liable directly to Plaintiffs under the first clause in “Coverage A,” because
this insuring clause was triggered not by indemnification in fact, but by the “Loss” which the
Carolina Policy defined to include settlements and defense costs without specifying any
additional requirement that the directors and officers must have themselves paid some portion of
Carolina next argues that any recovery in this lawsuit should be barred as a windfall or
double recovery, because Plaintiffs have already recovered in full with Chubb and Sterling
having paid the entirety of Plaintiffs’ defense and settlement obligations in the underlying
lawsuit.62 As Carolina acknowledges, however, Plaintiffs have an agreement with Sterling to
assign to it the proceeds of this lawsuit.63 If this agreement is valid,64 then there will be no
double recovery or windfall. Carolina’s double-recovery claim thus depends on the invalidity of
Plaintiffs’ agreement with Sterling to assign the proceeds of this lawsuit, and, as such, turns on
the merits of Carolina’s third argument: that the Plaintiffs-Sterling agreement is champertous and
thus invalid under Virginia law.
v. United States, 79 F.3d 1348, 1355 (2d Cir. 1996); Scott v. City of New York, 592 F. Supp. 2d
501 (S.D.N.Y. 2008).
See Def. Mem. at 29–30.
See id. at 30.
See infra Part III.C.3
Sterling and Plaintiffs entered into agreements whereby Sterling funded the present suit
and Plaintiffs assigned any proceeds from the suit to Sterling.65 Because Sterling was not insured
under the Carolina Policy and is not a Plaintiff here, Carolina argues that this contract constitutes
champerty.66 According to Carolina, Virginia law defines a champertous agreement as one by
which a person without interest in another’s lawsuit undertakes to fund the suit at her own
expense and, in exchange, receives all or part of the proceeds from the suit.67 However, as
Plaintiffs point out, Carolina relies on cases decided before Virginia passed a statute specifically
authorizing assignment of the proceeds to a lawsuit. Section 8.01-26 of the Annotated Code of
Only those causes of action for damage to real or personal property, whether such
damage be direct or indirect, and causes of action ex contractu are assignable. The
provisions of this section shall not prohibit any injured party or his estate from making a
voluntary assignment of the proceeds or anticipated proceeds of any court award or
settlement as security for new value given in consideration of such voluntary
Whatever the common law rule regarding champerty may have been, § 8.01-26 plainly
authorizes the type of agreement entered into by Sterling and the Plaintiffs. Plaintiffs’ cause of
action arises from contract—the Carolina Policy—and “causes of action ex contractu are
See Defendant’s Local Rule 56(a)(1) Statement [doc. # 60] ¶ 58; Deposition of William
Macey, Ex. 8 to Def. Mem. [doc. # 65-11] at 113.
See Def. Mem. at 30–31.
See id. at 30 (citing NAACP v. Committee on Offenses Against the Admin. of Justice,
199 Va. 665, 673 n.2 (1958)).
Va. Code Ann. § 8.01-26.
- Appearances –
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