Zahoruiko v. Chubb National Insurance Company

Filing 56

ORDER granting 34 Motion for Summary Judgment. See attached for memorandum of decision. The Clerk is directed to close this case. Signed by Judge Vanessa L. Bryant on 2/28/2017. (Hoffman, S)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
J. GRAHAM ZAHORUIKO,

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Plaintiff,

v.
FEDERAL INSURANCE COMPANY and
CHUBB GROUP OF INSURANCE
COMPANIES, Collectively and
Individually,
Defendants.

CIVIL ACTION NO.
3:15-cv-474 (VLB)

February 28, 2017

MEMORANDUM OF DECISION GRANTING
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT [DKT. 34]
I.

Introduction
Plaintiff J. Graham Zahoruiko brings this action for breach of contract,

unjust enrichment, conversion, and for declaratory relief, against Defendants
Federal Insurance Company (“Federal”) and Chubb Group of Insurance
Companies, individually and collectively (“Chubb”), for denying coverage under a
directors and officers (“D&O”) liability insurance policy. Federal moved for
summary judgment pursuant to Federal Rule of Civil Procedure 56. [Dkt. 34]. For
the reasons that follow, the Court GRANTS Federal’s motion.
II.

Background
Plaintiff was an officer of SpaceWeb Corporation (“SpaceWeb”), which was

later known as Refresh Software Corporation (“Refresh”), while these companies
were insured under two Federal D&O policies. [Dkt. 14 ¶¶ 7, 11; Dkt. 40 ¶¶ 4, 5, 7].
Federal issued SpaceWeb its first policy (the “SpaceWeb Policy”) on October 1,

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2000. [Dkt. 35 ¶ 5]. The SpaceWeb Policy was canceled for non-payment of
premium on or about May 26, 2001. [Dkt. 35 ¶ 6]. Federal then issued a new,
separate policy to Refresh (the “Refresh Policy”) effective December 14, 2002.
[Dkt. 35 ¶ 2]. The Refresh Policy remained effective until April 14, 2011. [Dkt. 35 ¶
7].
A. The Policies
Both policies are “claims-made” policies, which provide coverage based
on when a claim is first made rather than when the events giving rise to the claim
took place. [Dkt. 35-1, Declarations, at 1; Dkt. 35-2, Declarations, at 1]. The
SpaceWeb Policy states:
THIS IS A CLAIMS MADE POLICY. EXCEPT AS OTHERWISE PROVIDED
HEREIN, THIS POLICY COVERS ONLY CLAIMS FIRST MADE AGAINST THE
INSURED DURING THE POLICY PERIOD.
[Dkt. 35-1, Declarations, at 1]. The Refresh Policy states,
THIS COVERAGE SECTION PROVIDES CLAIMS MADE COVERAGE, WHICH
APPLIES ONLY TO “CLAIMS” FIRST MADE DURING THE “POLICY
PERIOD”, OR ANY EXTENDED REPORTING PERIOD.
[Dkt. 35-2, D&O Liability Coverage Section, at 1]. The parties do not dispute that
the Plaintiff was an “insured person” under these policies. [Dkt. 34-1 at 9].
The Policies both define a D&O Claim as:
(a) a written demand for monetary damages;1
(b) a civil proceeding commenced by the service of a complaint or
similar pleading
[Dkt. 35-1, Declarations, at 16; Dkt. 35-2, D&O Liability Coverage Section, at 4]. A
“Loss” under the Refresh Policy was defined as:

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The Refresh Policy also includes in the D&O Claim definition a written demand
for “nonmonetary relief.” [Dkt. 35-2, D&O Liability Coverage Section, at 4].
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[T]he total amount which an Insured becomes legally obligated to pay as a
result of any Claim made against any Insured for Wrongful Acts,2 including,
but not limited to, damages (including punitive or exemplary damages
which has a substantial relationship to the Insureds, the Company, this
Policy or the Claim and which is most favorable to the insurability of such
damages), judgments, settlements, pre-judgment and post-judgment
interest and Defense Costs.
Id. Additionally, to obtain coverage for losses under the D&O policy, an insured
could not:
[S]ettle any Claim, incur any Defense Costs, or otherwise assume any
contractual obligation or admit any liability with respect to any Claim
without [Federal’s] written consent, which shall not be unreasonably
withheld. [Federal] shall not be liable for any settlement, Defense Costs,
assumed obligation or admission to which it has not consented.
[Dkt. 35-2, General Terms and Conditions, at 9]. The policy also required the
insured to provide Federal “written notice as soon as practicable of any Claim.”
Id. at 8. The Refresh Policy also provides that:
No coverage will be available under this Coverage Section for any Claim
against an Insured . . . based upon, arising from, or in consequence of a
written demand, suit, or other proceeding pending, or order, decree or
judgment entered for or against any Insured on or prior to the applicable
Pending or Prior Litigation Date . . . or the same or any substantially similar
fact, circumstance or situation underlying or alleged therein.

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 A “Wrongful Act” was defined, in relevant part as:

(1) any error, misstatement, misleading statement, act, omission, neglect,
or breach of duty committed, attempted, or allegedly committed or
attempted by:
(a) . . . any Insured Person in his or her capacity as [an executive or
employee of the Insured Organization], or any matter claimed against
any Insured Person solely by reason of his or her status as [an
executive or employee of the Insured Organization].
[Dkt. 35-2, D&O Liability Coverage Section, at 5-6].  
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[Dkt. 35-2, D&O Liability Coverage Section, at 6]. Further, it states that “Related
Claims”3 will be treated as “a single Claim made when the earliest of such Related
Claims was first made.” [Dkt. 35-2, General Terms and Conditions, at 5].
B. The Claim
On May 26, 1999, Plaintiff completed a line of credit application with Fleet
Bank, acting as President of SpaceWeb. [Dkt. 36-1 at 2]. Plaintiff executed a note
for this line of credit (“1999 Note”) as President of SpaceWeb, and executed a
personal guaranty. Id. On July 1, 2002, a third-party called Premier Capital LLC
(“Premier Capital”) purchased the 1999 Note. [Dkt. 35-8]. On August 8, 2002,
Premier Capital sent a letter to Refresh and the Plaintiff, declaring that the 1999
Note was in default, and demanding payment of the balance. Id.
On October 29, 2002, Premier Capital filed a lawsuit against Refresh and
Plaintiff in Massachusetts Superior Court, Premier Capital LLC v. Refresh
Software Corp., No. 02-4566. [Dkt. 35-7 at 14-21]. Service was returned by the
Plaintiff [Dkt. 35-9 at 6]. The Refresh Policy was issued on December 14, 2002.
[Dkt. 35 ¶ 2]. Premier Capital asserted claims against Refresh for breaching its
obligations under the 1999 Note, and a second claim against Plaintiff for failing to
fulfill his obligations as guarantor of the 1999 Note. Id. On June 16, 2003, the
clerk entered default against Refresh and the Plaintiff. [Dkt. 35-9 at 6]. Neither

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Defined as “Claims for Wrongful Acts based upon, arising from, or in
consequence of the same or related facts, circumstances, situations,
transactions or events or the same or related series of facts, circumstances,
situations, transactions or events.” [Dkt. 35-2, General Terms and Conditions, at
5]. 
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Refresh nor Plaintiff notified Federal of the demand letter or the accompanying
lawsuit. [Dkt. 35 ¶ 11].
On July 1, 2003, the Plaintiff, Refresh, and Premier Capital executed a
settlement agreement, and a stipulation of voluntary dismissal was entered in the
Massachusetts action. [Dkt. 35-9 at 6; Dkt. 35-10 at 1]. The settlement agreement
was executed without Federal’s knowledge or participation, and required Refresh
and the Plaintiff to execute a second promissory note (the “2003 Note”) as
consideration for releasing all claims under the 1999 Note. [Dkt. 35 ¶ 13; Dkt. 3510 at 1]. Refresh and Premier Capital executed this note, with the Plaintiff again
signing a personal guaranty. [Dkt. 35-11 at 5].
On July 10, 2010, Premier Capital filed a second suit in Massachusetts
Superior Court, alleging that Refresh and Plaintiff failed to meet their obligations
under the 2003 Note. [Dkt. 35-13]. Plaintiff was served on or about August 25,
2010. [Dkt. 35-13 at 5]. Premier Capital alleged that Refresh began missing loan
payments in May 2008, immediately before a final “balloon” payment was due. Id.
at 1. In response, on May 30, 2008, Premier and Refresh, with the Plaintiff as
guarantor, executed a forbearance agreement, which delayed the balloon
payment until April 30, 2012. [Dkt. 35-12].
In the forbearance agreement, Premier Capital agreed “to forbear executing
on the collateral and extend the time for final payment of the note” in
consideration for a one-time forbearance fee of three percent of the loan balance,
monthly loan payments, and an agreement to pay the full balance on a new
maturity date. Id. ¶ 3. The agreement also stated that “[t]his Agreement does not

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in any way cure any outstanding default of terms under this Forbearance
Agreement,” and that in the event of a default, “Premier may immediately proceed
with execution on any and all collateral and assets of REFRESH without notice.”
Id. Refresh further agreed that it would not:
“(i) waive, not plead and not assert any defense(s) based on the lapse of
time between the date of the original Promissory Note and an event of
default; (ii) agree to waive any applicable statute of limitations,
presentment, demand for payment, protest and notice of dishonor . . . [and]
waive any requirement or obligation of holder to post a bond or other
security in connection with any prejudgment remedy obtained by holder
based on any offsets, claims, defenses or counterclaims of Obligors or any
other obligated party to any action brought by holder.”
Id. Refresh also acknowledged and represented to Premier Capital that “[T]he
aggregate legal balance of the Loan outstanding is due and owing from REFRESH
to PREMIER without any defense, offset or counterclaim of any kind[] or nature
whatsoever.” Id. ¶ 4. Plaintiff signed the forbearance agreement in his capacity
as President of Refresh and as the loan’s guarantor. Id. at 5.
Premier Capital’s 2010 complaint further alleged that it forwarded the
Plaintiff a demand letter on April 29, 2010, prior to filing suit. Plaintiff and Refresh
filed answers and counterclaims in the 2010 case, and motion practice relating to
the attachment of real estate proceeded in March of 2011. [Dkt. 35-14 at 7].
Between March and September 2011, no documents were filed on the 2010 case’s
docket. Id. In September 2011, litigation recommenced, with the court
considering the withdrawal of plaintiff’s counsel, a joint trial memorandum, and
motions regarding the assessment of damages. Id.
On February 3, 2012, Premier Capital notified the Plaintiff that it intended to
seek summary judgment. [Dkt. 35-15]. Ten days later, on February 13, 2012,
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Plaintiff notified Federal of the pending lawsuit. [Dkt. 35 ¶ 8; Dkt. 35-3; Dkt. 35-4].
On February 28, 2012, Premier Capital filed its motion for summary judgment.
[Dkt. 35-14 at 7]. Federal denied coverage by letter dated March 8, 2012. [Dkt. 354]. On March 28, 2012, the Massachusetts Superior Court granted summary
judgment, dismissed counterclaims, and directed the clerk to schedule an
assessment of damages hearing. Id. at 7-8.
Plaintiff filed the instant case on April 1, 2015, alleging that Federal’s failure
to cover losses from the 2010 lawsuit caused his default on the 2003 Note, as
modified by the 2008 forbearance agreement. [Dkt. 1-1].
III.

Standard of Review
Summary judgment should be granted “if the movant shows that there is

no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the burden of
proving that no factual issues exist. Vivenzio v. City of Syracuse, 611 F.3d 98,
106 (2d Cir. 2010). “In determining whether that burden has been met, the court is
required to resolve all ambiguities and credit all factual inferences that could be
drawn in favor of the party against whom summary judgment is sought. Id.
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Matsushita
Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). “If there is any
evidence in the record that could reasonably support a jury’s verdict for the
nonmoving party, summary judgment must be denied.” Am. Home Assurance
Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315-16 (2d Cir. 2006)
(quotation omitted). In addition, the court should not weigh evidence or assess

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the credibility of witnesses” on a motion for summary judgment, as “these
determinations are within the sole province of the jury.” Hayes v. New York City
Dep’t of Corr., 84 F.3d 614, 619 (2d Cir. 1996).
“A party opposing summary judgment ‘cannot defeat the motion by relying
on the allegations in [her] pleading, or on conclusory statements, or on mere
assertions that affidavits supporting the motion are not credible.’ At the
summary judgment stage of the proceeding, [p]laintiffs are required to present
admissible evidence in support of their allegations; allegations alone, without
evidence to back them up, are not sufficient.” Welch-Rubin v. Sandals Corp., No.
3:03-cv-481, 2004 WL 2472280, at *1 (D. Conn. Oct. 20, 2004) (quoting Gottlieb v.
County of Orange, 84 F.3d 511, 518 (2d Cir. 1996). “Summary judgment cannot be
defeated by the presentation . . . of but a ‘scintilla of evidence’ supporting [a]
claim.” Fincher v. Depository Trust & Clearing Corp., 604 F.3d 712, 726 (2d Cir.
2010) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986)).
IV.

Discussion
Plaintiff argues that Federal is liable for breach of contract, because it

failed to cover losses as set forth in the Federal Policy. An insurance policy “is
to be interpreted by the same general rules that govern the construction of any
written contract.” Zulick v. Patrons Mut. Ins. Co., 287 Conn. 367, 372-73 (2008).
Any contract “must be construed to effectuate the intent of the parties, which is
determined from the language used and interpreted in the light of the situation of
the parties and the circumstances connected with the transaction.” Murtha v.
City of Hartford, 303 Conn. 1, 7-8 (2011) (quoting Remillard v. Remillard, 297
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Conn. 345, 355 (2010)); Harbour Pointe, LLC v. Harbour Landing Condominium
Ass’n, Inc., 300 Conn. 254, 260 (2011) (“In ascertaining the contractual rights and
obligations of the parties, we seek to effectuate their intent, which is derived from
the language employed in the contract, taking into consideration the
circumstances of the parties and the transaction.” (quotations omitted)).
Where the language of a contract is unambiguous, a court “must give the
contract effect according to its terms.” Harbour Pointe, 300 Conn. at 260 (quoting
Cantonbury Heights Condominium Ass’n Inc. v. Local Land Dev., LLC, 273 Conn.
724, 734-35 (2005)). A contract is unambiguous when “its language is clear and
conveys a definite and precise intent . . . . The court will not torture words to
impart ambiguity where ordinary meaning leaves no room for ambiguity.” Id.
“[T]he mere fact that the parties advance different interpretations of the language
in question does not necessitate a conclusion that the language is ambiguous.”
Id.
Where the language of an insurance policy is ambiguous, such language
must be construed against the insurance company that drafted the policy. See
Springdale Donuts, Inc. v. Aetna Cas. & Sur. Co., 247 Conn. 801, 806 (1999).
However, any ambiguity in a contract “must emanate from the language used by
the parties” and “a contract is ambiguous if the intent of the parties is not clear
and certain from the language of the contract itself.” Murtha, 300 Conn. at 9.
“The contract must be viewed in its entirety, with each provision read in light of
the other provisions . . . and every provision must be given effect if it is possible
to do so . . . . If the language of the contract is susceptible to more than one

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reasonable interpretation, the contract is ambiguous.” Harbour Pointe, 300 Conn.
at 261 (quoting Cantonbury Heights, 273 Conn. at 735).
A. SpaceWeb Policy Coverage
A claims-made policy is “an insurance policy or an endorsement to an
insurance policy that covers liability for injury or damage that the insured is
legally obligated to pay (including injury or damage occurring prior to the
effective date of the policy, but subsequent to the retroactive date, if any), arising
out of incidents, acts or omissions, as long as the claim is first made during the
policy period or any extended reporting period. [T]he purpose behind ‘claims
made’ insurance [is] to limit [the insurer’s] liability to a fixed period of time. This
increased certainty permits an insurer to charge lower premiums for this
particular species of policy.” Nat’l Waste Assocs., LLC v. Travelers Cas. & Sur.
Co. of Am., 51 Conn. Supp. 369, 374 (Super. Ct. 2008), aff’d, 294 Conn. 511 (2010)
(quotations and citations omitted) (The Connecticut Supreme Court adopted the
trial court’s “concise and well-reasoned decision as a statement of . . . the
applicable law on the issues.”).
It is undisputed that SpaceWeb, Refresh, and the Plaintiff were not covered
by any liability policy between May 26, 2001 and December 14, 2002, [Dkt. 35 ¶¶ 2,
6], and that both Policies define a “claim” as a written demand for damages or a
civil suit. [Dkt. 35-1, Declarations, at 16; Dkt. 35-2, D&O Liability Coverage
Section, at 4]. It is similarly undisputed that the demand letter for the 2002 suit
was received on August 8, 2002, and that the complaint was filed on October 29,
2002 and served on or about November 25, 2002. Therefore, at the time the
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“claims” relating to the 1999 Note were made, Plaintiff was not covered under
either policy. Because no claims were made during the SpaceWeb Policy period,
the terms of this policy are irrelevant to the instant case.
However, the parties do not dispute that with respect to the 2010 lawsuit,
Plaintiff received the demand letter and was served the complaint within the
Refresh Policy period. While Federal has offered seven separate grounds for
excluding coverage under the Refresh Policy, the Court need only discuss two:
(1) whether coverage for the 2010 lawsuit must be excluded as “related” to the
2002 lawsuit; and (2) whether the Plaintiff complied with the Refresh Policy’s
notice requirements.
B. Related Claim and/or Pending or Prior Litigation Exclusion
Federal argues that the pending or prior litigation exclusion bars coverage
for the 2010 case. The exclusion bars coverage for losses “based upon, arising
from, or in consequence of a written demand, suit, or other proceeding pending,
or order, decree or judgment entered for or against any Insured on or prior to the
applicable Pending or Prior Litigation Date . . . or the same or any substantially
similar fact, circumstance or situation underlying or alleged therein.” [Dkt. 35-2,
D&O Liability Coverage Section, at 6]. Federal also argues that the 2010 claim is
related to the 2002 claim, because it is as “based upon, arising from, or in
consequence of the same or related facts, circumstances, situations,
transactions or events or the same or related series of facts, circumstances,
situations, transactions or events.” [Dkt. 35-2, General Terms and Conditions, at

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5]. The policy states that related claims should be treated as a single claim. Id. at
8.
“The purpose of the prior litigation exclusion provision is so that insurance
companies can be apprised of events that might blossom into a covered event
during the policy period.” Nat’l Waste, 51 Conn. Supp. at 381 (Super. Ct. 2008). A
“major drawback” to claims-made policies “from the insurer’s standpoint is that it
may face exposure for wrongful acts performed in the past, not just during the
policy period, and, therefore, it is not uncommon for the policy to limit the time
period of coverage for prior acts by including a retroactive date.” Am. Home
Assur. Co. v. Abrams, 69 F. Supp. 2d 339, 347 (D. Conn. 1999). “To permit an
insured to recover for claims arising from the same facts, circumstances,
situations, transactions, events or wrongful acts alleged in a pending lawsuit or
made the subject of a prior notice given to another insurer would be to grant the
insured more coverage than he bargained for and paid for, and to require the
insurer to provide coverage for risks not assumed.” Nat’l Waste, 51 Conn. Supp.
at 38 (quotations omitted). “In determining whether a prior litigation clause
excludes coverage, courts have focused on whether there was a sufficient factual
nexus between the two lawsuits . . . . The coverage does not depend upon the
pleader’s art but rather upon underlying facts.” Id. at 379 (quoting Pereira v.
Cogan, No. 04 Civ. 1134 (LTS), 2006 WL 1982789, at *4 (S.D.N.Y. July 12, 2006)).
Neither the Pending or Prior Litigation Exclusion, nor the Related Claims
language apply here. When Premier Capital agreed to settle the 2002 case, and
when Plaintiff executed a new note and guaranty, disputes relating to the 1999

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Note were definitively resolved and any obligations under that note were
extinguished. Because each case involves the breach of a different note, they
cannot be said to arise from the “same or any substantially similar fact,
circumstance or situation.”
C. Timely Notification
Although the Refresh Policy does not exclude coverage under its Pending
or Prior Litigation exclusion, or the Related Claims provisions, Plaintiff failed to
notify Federal of his claim within the time set forth in the policy. “Under
Connecticut law, absent waiver, an unexcused, unreasonable delay by an insured
in notification of a covered occurrence constitutes a failure of condition that
entirely discharges an insurance carrier from any further liability on its insurance
contract.” State Farm Fire & Cas. Co. v. Yoel, No. 03:13CV101 AWT, 2014 WL
4182614, at *5 (D. Conn. Aug. 21, 2014) (quoting Arrowood Indem. Co. v. King
(“Arrowood I”), 605 F.3d 62, 77 (2d Cir. 2010)). “Connecticut requires two
conditions to be satisfied before an insurer’s duties can be discharged pursuant
to the ‘notice’ provision of a policy: (1) an unexcused, unreasonable delay in
notification by the insured; and (2) resulting material prejudice to the insurer.” Id.
Thus, “a policyholder who fails to give timely notice of an insurable loss does not
forfeit his coverage if . . . his delay did not prejudice his insurer.” Id. “[T]he
insurer bears the burden of proving . . . that it has been prejudiced by the
insured’s failure to comply with a notice provision.” Id. (quoting Arrowood
Indem. Co. v. King (“Arrowood II”), 304 Conn. 179, 201 (2012)).

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The Refresh Policy states, “Any Insured shall, as a condition precedent to
exercising their rights under any Liability Coverage Section, give to [Federal]
written notice as soon as practicable of any Claim.” “In the context of notice
provisions, ‘as soon as practicable’ means ‘as soon as can reasonably be
expected under the circumstances[.] The duty to give notice does not arise
unless and until facts develop which would suggest to a person of ordinary and
reasonable prudence that [a claim has been made] and is complied with if notice
is given within a reasonable time after the claim.’” Arrowood II, 304 Conn. at 199
(quoting Plasticrete Corp. v. Am. Policyholders Ins. Co., 184 Conn. 231, 241
(1981)).
Defendants have offered undisputed evidence that the Plaintiff did not
notify them of any claims until February 13, 2012, ten days after learning that
Premier Capital intended to move for summary judgment, sixteen months after
being served the 2010 complaint, 20 months after receiving a demand letter, and
three years and nine months after signing a forbearance agreement with Premier
Capital. This is not “as soon as can reasonably be expected under the
circumstances,” and indeed, Plaintiff offers no legitimate explanation for his
failure to promptly notify Federal of the claim.
Plaintiff’s failure to timely notify Federal of his claim was prejudicial. The
policy states that “[n]o insured shall settle any Claim, incur any Defense Costs, or
otherwise assume any contractual obligation or admit any liability with respect to
any Claim without the Company’s written consent . . . [and] shall not be liable for
any settlement, Defense Costs, assumed obligation to which it has not

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consented.” [Dkt. 35-2, General Terms and Conditions, at 9]. Having failed to
notify Federal of the lawsuit in a timely fashion, Plaintiff executed a forbearance
agreement, in which he waived defenses to suits for non-payment of the loan, and
incurred litigation costs defending the 2010 lawsuit. He not only failed to comply
with the prohibition against assuming contractual obligations and defense costs,
he also prevented Federal from negotiating better repayment terms or from
settling the lawsuit before the defense costs were incurred.
Plaintiff therefore is not entitled to coverage under the Refresh Policy, and
his breach of contract claim must be DISMISSED. Because he is not entitled to
coverage, the remaining claims—for unjust enrichment, conversion, and a
declaratory ruling—must also be DISMISSED.
V.

Conclusion
For the foregoing reasons, Federal’s Motion for Summary Judgment is

GRANTED. The Clerk is directed to close this case.
IT IS SO ORDERED.

_____/s/_____ ____________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: February 28, 2017

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