The Charter Oak Fire Insurance Company et al v. American Capital, Ltd. et al
Filing
77
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 8/9/11. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
THE CHARTER OAK FIRE INSURANCE
COMPANY, et al.
v.
:
:
Civil Action No. DKC 09-0100
:
AMERICAN CAPITAL, LTD., et al.
:
MEMORANDUM OPINION
Presently
pending
and
ready
for
resolution
in
this
insurance case is a motion to dismiss (ECF No. 72) filed by
Defendants.
The issues are fully briefed and the court now
rules, no hearing being deemed necessary.
See Local Rule 105.6.
For the reasons that follow, Defendants’ motion will be denied.
I.
Background
A.
Principal Allegations
This case presents an insurance coverage dispute between
two insurers and an investment fund.
As two opinions in this
case have come before this one, some familiarity with the facts
is assumed.
See Charter Oak Fire Ins. Co. v. Am. Capital, Ltd.,
No. 09-0100, 2011 WL 856374 (D.Md. Mar. 9, 2011); Charter Oak
Fire Ins. Co. v. Am. Capital, Ltd., No. 09-0100, 2010 WL 437070
(D.Md. Feb. 2, 2010).
Beginning in 2008, Defendant American Capital, Ltd. and one
of its investments, Defendant Scientific Protein Laboratories
LLC (“SPL”), became involved in more than 100 suits pertaining
to allegedly defective heparin.
to
American
insurance
Capital,
policies
implicated
(“the
These suits, at least according
certain
Policies”)
primary
that
and
the
umbrella
company
had
purchased from Plaintiffs Charter Oak Fire Insurance Company and
Travelers Property Casualty Company of America for the years
2006 through 2009.
When American Capital sought coverage under
the Policies for itself and SPL, Plaintiffs filed this suit for
rescission and reformation.
insurers
contend
that
Of particular relevance here, the
American
Capital
made
a
variety
of
misrepresentations in its insurance applications, including:
•
Submitting insurance applications indicating that it had no
subsidiaries, even though it now seeks coverage for
subsidiaries (id. ¶¶ 32, 34);
•
Answering “no” on a 2008 insurance application when asked
whether it had acquired any operations in the past five
years, even though the company acquired SPL in 2006 (id.
¶ 37);
•
Answering “no” when asked whether there had been any
product liability loss in the last three years, even though
it had been named as a defendant in at least one heparin
lawsuit before submitting its 2008 insurance application
(id. ¶ 40);
•
Answering “no” on its 2008 insurance application when asked
whether any products had been recalled, even though heparin
and heparin’s active pharmaceutical ingredient had been
recalled (id. ¶ 43);
•
Answering “no” in one or more insurance applications when
asked whether it sold, distributed, or used foreign
2
products as components, even
processed in China (id. ¶ 46);
though
the
heparin
was
•
Answering “no” on one or more of its insurance applications
when asked whether it had been active or was currently
active in any joint ventures, even though American Capital
admitted in heparin lawsuits that the allegedly tainted
heparin was processed by a joint venture (id. ¶ 49); and
•
Failing to provide details of pending heparin lawsuits in
its 2008 application, even though it was asked to give
details “of all liability claims exceeding $10,000, or
occurrences that might give rise to such claims” (id.
¶ 52).
B.
Allegations Concerning Promptness
In an earlier decision on Defendants’ motion to dismiss,
the
court
explained
that
Plaintiffs
had
not
their claim for rescission of the Policies.
adequately
pled
See Charter Oak,
2011 WL 856374, at *13-15.
Specifically, Plaintiffs failed to
plead
they
facts
rescission.
showing
that
acted
promptly
in
seeking
Because “promptness” is an element of a plaintiff’s
case in any rescission claim, the court dismissed count one of
Plaintiffs’
first
amended
complaint.
The
insurers,
however,
were granted leave to file a second amended complaint, which
they were told should “include facts showing prompt action.”
Id.
at
*15.
complaint
Filed
includes
20
on
March
29,
additional
2011,
the
paragraphs
Plaintiffs knew and when they knew it.
second
that
amended
allege
what
(ECF No. 67).
Plaintiffs allege in the second amended complaint that they
first learned of a heparin suit filed against American Capital
3
in mid-August 2008, when American Capital forwarded it a notice
of a potential claim.
(Id. ¶ 88).
defense or indemnity.
(Id.).
The company did not request
The notice further stated that
the heparin suit was related to “American Capital’s ownership
interest” in SPL, but did not “specify the relationship” between
American Capital and SPL.
(Id.).
American Capital subsequently
sent additional notices “with the same or similar designation.”
(Id.).
Plaintiffs
allege
that
the
claim
notices
led
them
to
request a meeting with American Capital to “obtain additional
information
regarding
investigation,
seeking
coverage
Plaintiffs
meetings
and
sent
in
the
proceed
with
whether
American
Capital
determine
as
to
the
American
the
claims,
fall
of
heparin
Capital
2008,
claims.”
three
while
(Id.
written
also
their
¶
requests
repeatedly
whether American Capital was seeking coverage.
(Id.
was
90).
for
asking
¶ 91).
American Capital “refused” to meet with the insurers or discuss
whether it was in fact seeking coverage for several months.
(Id. ¶ 92).
According
to
insurers
in
coverage
issues,
Plaintiffs,
October
as
2008
its
that
American
it
“defense
did
Capital
not
counsel
informed
wish
to
ha[d]
the
discuss
been
in
discussion with plaintiffs’ counsel [in the underlying heparin
4
suits] to effect a no-cost dismissal of [American Capital].”
(Id. ¶ 93).
because
“issues
settlement.
23,
American Capital felt discussion was unnecessary
2008,
of
coverage
(Id.).
insisting
could
be
mooted”
by
such
a
Plaintiffs responded by letter on October
that
it
was
still
important
to
meet
to
discuss the claims and reminding the American Capital that it
had
not
explained
heparin suits.
The
whether
it
was
seeking
coverage
for
the
that
the
(Id. ¶¶ 94-95).
second
amended
complaint
further
explains
insurers and American Capital held a confidential meeting on
November 4, 2008.
“for
the
first
Two days later, American Capital requested
time”
that
Plaintiffs
provide
a
“coverage
position as to [American Capital] and any entity alleged in the
pleadings
to
Capital.”
(Id. ¶ 97).
began
be
submitting
a
direct
or
indirect
affiliate
of
Less than a week later, American Capital
notices
to
the
insurers
for
heparin
naming SPL - but not American Capital - as a defendant.
98).
American
suits
(Id. ¶
The insurers wrote back to American Capital, explaining
that it was still their understanding that American Capital was
not seeking defense or indemnification for the heparin suits.
(Id.
¶
1
99).1
The
letter
also
stressed
that
the
insurers
That understanding was perhaps tacitly confirmed in
late-November 2008, when American Capital provided a chart – at
5
continued
to
“reserve
all
of
their
rights
in
this
matter,”
particularly “to the extent that there was inadequate disclosure
. . . in the placement or renewal of any of [the Polices].”
(Id. ¶ 95).
On
December
4,
2008,
American
Capital
tendered
a
“New
General Liability Notice of Claim” to the insurers for a nonheparin
lawsuit
involving
American
Capital
and
Defendant
Spectator Management Group (“SMG”).
(Id. ¶ 101).
The insurers
“learned
SMG
of
Capital’s
shortly
thereafter”
“portfolio
intended
to
tender
however,
when
that
companies”
the
American
suit
and
for
Capital
was
one
American
that
American
Capital
coverage.
(Id.).
Later,
was
dismissed
from
the
suit,
American Capital purportedly informed Plaintiffs that it did not
intend to seek coverage under the Policies for SMG.
(Id.).
On December 29, 2008, American Capital and SPL allegedly
provided Plaintiffs with a settlement agreement they had signed
with Baxter Healthcare Corporations.
(Id. ¶ 102).
In that
agreement, SPL indicated that it “may” have rights under the
Policies.
(Id.).
The settlement agreement, along with all of
the request of Plaintiffs – that indicated that SPL Holdings
LLC, which in turn was owned by SPL Acquisition Corporation,
owned SPL.
(ECF No. 67 ¶ 100).
The chart allegedly did not
show any relationship between these entities and American
Capital. (Id.).
6
the preceding events, allegedly led Plaintiffs to conclude that
“American Capital might seek coverage on its own behalf for the
heparin suits and for SPL and other portfolio companies under”
the Policies.
(Id. ¶ 103).
January 16, 2009.
Thus, Plaintiffs filed this suit on
(Id. ¶ 104).
A month later, “for the very
first time,” American Capital and SPL requested a defense for
the heparin suits.
C.
(Id. ¶ 105).
Motion to Dismiss
On May 13, 2011, Defendants filed a motion to dismiss in
part the second amended complaint, arguing that Plaintiffs have
still not alleged facts evidencing promptness.
Plaintiffs opposed on June 27, 2011.
month later, Defendants replied.
II.
(ECF No. 72).
(ECF No. 73).
Roughly a
(ECF No. 76).
Standard of Review
As
the
explained,
Federal
opinion
the
Rule
sufficiency
on
purpose
of
of
Civil
the
Defendants’
of
a
first
motion
Procedure
complaint.
to
motion
dismiss
12(b)(6)
is
Presley
to
dismiss
pursuant
to
v.
Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).
to
test
the
City
of
Thus, the
court must consider all well-pleaded allegations in a complaint
as true, Albright v. Oliver, 510 U.S. 266, 268 (1994), and must
construe all factual allegations in the light most favorable to
the plaintiff, Harrison v. Westinghouse Savannah River Co., 176
7
F.3d 776, 783 (4th Cir. 1999).
everything as true.
Still, the court need not take
For instance, the court need not accept
unsupported legal allegations.
Revene v. Charles Cnty. Comm’rs,
882 F.2d 870, 873 (4th Cir. 1989).
Nor must it agree with legal
conclusions couched as factual allegations, Ashcroft v. Iqbal,
129 S.Ct. 1937, 1950 (2009), or conclusory factual allegations
devoid
of
any
reference
to
actual
events,
United
Black
Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979).
After
considering only the “well-pleaded facts,” the court must assess
whether those facts “permit the court to infer more than the
mere
possibility
of
misconduct.”
(quotation marks omitted).
granted.
Iqbal,
129
S.Ct.
at
1950
If they do not, the motion must be
Id.
III. Analysis
Charter
based
Because
upon
Oak
and
Travelers
American
Capital’s
purported
Policies
misrepresentations.
See
Org.,
radical
the
recognized that a party requesting it must move quickly.
Sugarman
a
rescind
long
v.
is
to
have
Cutler
rescission
seek
Ltd.,
88
remedy,
Md.App.
courts
567,
578
(1991)
(“[T]he remedy of rescission must be exercised promptly upon
discovery of the fraud or misrepresentation.
This is so because
rescission is considered to be a radical remedy; it therefore
must be promptly asserted once a party discovers facts which
8
justify
it.”
(citations
and
internal
marks
omitted));
accord
Baumel v. Rosen, 412 F.2d 571, 574 (4th Cir. 1969) (citations
omitted).
Courts
have
deemed
the
promptness
requirement
so
important that they place the onus on the plaintiff to show it.
See Merritt v. Craig, 130 Md.App. 350, 365-66 (2000) (quoting
Finch
v.
Hughes
Aircraft
Co.,
57
Md.App.
190,
244
(1984));
Ellerin v. Fairfax Sav. Ass’n, 78 Md.App. 92, 109 (1989); accord
Johns Hopkins Univ. v. Hutton, 488 F.2d 912, 916 n.2 (4th Cir.
1973) (“[I]n the general area of rescission it appears that the
requirement of prompt action is an element of the plaintiff’s
case, and the burden is upon the rescinding party to show that
he acted promptly in seeking rescission.”); see also Heidtman
Steel
Prods.
v.
Compuware
Corp.,
178
F.Supp.2d
862,
864-65
(N.D.Ohio 2001) (collecting cases).
Given the importance of promptness, the court instructed
Plaintiffs that their complaint would need to do more to address
that issue if they wished to pursue rescission.
The second
amended complaint satisfies the court’s earlier instruction.
As Plaintiffs correctly recognize, the relevant trigger for
rescission is when a plaintiff learns of “the facts that would
justify
rescission,”
not
merely
potentiality for rescission.”
Fid.
&
Guar.
Co.,
94
“facts
that
raise
the
mere
Monumental Life Ins. Co. v. U.S.
Md.App.
505,
9
541
(1993)
(emphasis
in
original); see also Pence v. Langdon, 99 U.S. 578, 581 (1878)
(explaining that a party must ask to rescind when he is “fully
advised” of the relevant facts); Goodman v. Poland, 395 F.Supp.
660, 676 (D.Md. 1975) (stating that plaintiff was not compelled
to act before it had “concrete indication” that it had been
defrauded).
Furthermore,
when
an
insurer
suspects
that
its
policyholder may have made misrepresentations, “it is entitled
to a reasonable time within which to investigate the matter”
before it must rescind.
N. Am. Specialty Ins. Co. v. Savage,
977 F.Supp. 725, 732 (D.Md. 1997).
In this case, the second amended complaint alleges that
American
Capital
originally
represented
that
it
had
no
subsidiaries and no liabilities stemming from activities such as
those
embodied
in
the
heparin
suits.
In
mid-August
2008,
Plaintiffs received their first indication that something was
amiss, when they were notified of one heparin suit.
Despite the
fact that the notification was not a formal claim for coverage,
the insurers then arguably made diligent attempts to investigate
the suits over the next several months.
They further reserved
their rights with regard to coverage in late-October 2008.
The
second amended complaint further alleges that American Capital
repeatedly engaged in dilatory and obfuscatory tactics, which
included
providing
Plaintiffs
with
10
a
“chart”
showing
an
ownership
Capital.
structure
for
SPL
that
did
not
include
American
Only in December 2008 did American Capital receive the
information
that
would
truly
compel
it
to
act:
(1)
an
indication - in the form of a claim notice for SMG - that
American Capital believed it had covered subsidiaries; and (2)
an indication – in the form of the Baxter settlement agreement –
that
SPL
itself
coverage.
suit.
believed
it
was
a
subsidiary
entitled
to
Just a few short weeks later, Plaintiffs filed this
The facts alleged render it plausible that Charter Oak
and Travelers acted promptly upon their first indication that
subsidiaries existed.
These facts are in stark contrast to the
ordinary case of inadequate promptness, wherein the party “has
simply
sat
back
after
knowledge
of
the
facts,
through
indifference, negligence, or a speculative desire to see how
things will turn out, and then, after what the court finds to be
an
unreasonable
Banque
Arabe
Et
time,
manifests
Internationale
his
election
to
D’Investissement
v.
rescind.”
Md.
Nat’l
Bank, 850 F.Supp. 1199, 1213 (S.D.N.Y. 1994) (quotation marks
omitted).
Defendants attempt to make a fine distinction, arguing that
the
second
amended
complaint
refers
only
to
when
Plaintiffs
realized American Capital might make a claim for coverage based
on the putative subsidiaries, not to when Plaintiffs actually
11
recognized
that
the
undisclosed
subsidiaries
existed.
The
reasonable inference, however, is that the two events are one
and
the
same.
The
facts
in
the
second
amended
complaint
indicate that Plaintiffs had no reason to believe that there
were any relevant entities related to American Capital until
American
Capital
investigated,
began
but
raising
received
coverage
no
firm
issues.
Plaintiffs
answers
about
the
relationship between American Capital and other entities such as
SPL.
seek
When Plaintiffs learned that American Capital planned to
coverage
under
the
Policies,
that
disclosure
apparently
answered Plaintiffs’ previously unresolved question; they were
then
presented
Capital
had
suppressed.
a
with
a
“concrete
relationship
with
indication”
SPL
that
that
was
American
improperly
Quite appropriately, Plaintiffs then filed suit.
In addition, Defendants cite (much as they did in their
last motion to dismiss) certain extra-complaint evidence that
they say would have put Plaintiffs on notice of the existence of
subsidiaries
much
earlier
than
late
2008.
As
the
court
explained before, “[t]his is a motion to dismiss, not a motion
for summary judgment.
As such, it is not appropriate to wrestle
with these types of factual issues at this stage.”
2011 WL 856374, at *12.
Charter Oak,
No further comment on such matters is
necessary here.
12
IV.
Conclusion
For the foregoing reasons, Defendants’ motion to dismiss
will be denied.
A separate order will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
13
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?