Park West Galleries Inc et al v. Illinois National Insurance Company

Filing 74

ORDER denying 55 Motion for Summary Judgment; granting 57 Motion for Summary Judgment; finding as moot 69 Motion for Leave to File; finding as moot 72 Motion to Strike. Signed by District Judge Arthur J. Tarnow. (MLan)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
PARK WEST GALLERIES, INC., ET AL.,
Case No. 11-15047

Plaintiffs,

SENIOR UNITED STATES DISTRICT JUDGE
ARTHUR J. TARNOW

v.
ILLINOIS NATIONAL INSURANCE
COMPANY,

MAGISTRATE JUDGE MICHAEL J. HLUCHANIUK

Defendant.
/
ORDER DENYING PLAINTIFFS’ MOTION FOR SUMMARY
JUDGMENT [55], GRANTING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT [57], GRANTING DEFENDANT’S MOTION FOR LEAVE TO
FILE SUR-REPLY BRIEF [69], FINDING MOOT DEFENDANT’S
MOTION TO STRIKE [72], AND CLOSING THE CASE
Introduction
Before the Court are Plaintiffs’ Motion for Summary Judgment [55] and
Defendant’s Motion for Summary Judgment [57]. Also before the Court are
Defendant’s Motion for Leave to File Sur-Reply Brief [69] and Defendant’s Motion
to Strike [72] Plaintiffs’ Response [71] to the Motion for Leave to File Sur-Reply
Brief [69].
Plaintiffs filed its Complaint [1] in the Western District of Washington.
Defendant’s Motion to Transfer Venue was granted by that court, and the case was
transferred to this District on November 15, 2011. Plaintiffs’ filed its Motion for

Summary Judgment [55] on May 31, 2013. Defendant filed its Motion for Summary
Judgment [57] on the same day. Defendant filed its Motion for Leave to File
Sur-Reply Brief [69] and its Sur-Reply [70] on August 14, 2013. On September 3,
2013, Plaintiffs filed a Response [71] to the Motion for Leave to File Sur-Reply Brief
[69]. Defendant then filed a Motion to Strike [72] Plaintiffs’ Response [71] on
September 4, 2013. Plaintiff filed a Response [73] to this Motion to Strike [72] on
September 13, 2013.
On October 4, 2013, the Court held a hearing on these matters.
For the reasons stated below, Plaintiffs’ Motion for Summary Judgment [55]
is DENIED, Defendant’s Motion for Summary Judgment [57] is GRANTED,
Defendant’s Motion for Leave to File Sur-Reply Brief [69] is GRANTED, and and
Defendant’s Motion to Strike [72] is MOOT.
Background
Defendant issued a “Miscellaneous Professional Liability Policy” to Plaintiff
Park West Galleries, Inc. with a policy period of October 31, 2008 to October 31,
2009, and limits of up to $10,000,000 per wrongful act, or $10,000,000 in the
aggregate, subject to a $100,000 retention per wrongful act. The policy covers
amounts, in excess of the retention, that the insureds “are legally obligated to pay as
damages resulting from a claim first made . . . and reported . . . during the policy
period” based on a “wrongful act in rendering or failing to render professional
2

services for others, but only if such wrongful act first occurs on or after the retroactive
date and prior to the end of the policy period.” The policy defines “professional
services” as “art auctioneer and appraisal services for others for a fee.”
The policy defines a “claim” as “a demand for money or services, including a
suit, arising from your wrongful act.” The policy includes a duty to defend “a suit
brought against you alleging a wrongful act even if the suit is groundless, false or
fraudulent.” The policy defines a “suit” as “a civil proceeding for monetary, nonmonetary or injunctive relief, which is commenced by service of a complaint or
similar pleading.” The policy defines “wrongful act” as “any actual or alleged
negligent act, error or omission, misstatement or misleading statement, committed
solely in your performance of professional services.” Moreover, the policy obligates
Defendant to defend suits “arising out of a dishonest, fraudulent, criminal or malicious
act, error or omission, or any intentional or knowing violation of the law, or gaining
of any profit or advantage to which you are not legally entitled.”
The portion of the policy governing class-actions increases the retention
amount for class-actions to $500,000 for each wrongful act resulting in a class-action
claim, which is defined as “any claim brought on behalf of a class or putative class of
plaintiffs (whether or not certified as such)” or arising from a series of “continuous,
repeated, or related wrongful acts” as any claim brought on behalf of a class.

3

Plaintiffs allege that at the time it sought to purchase insurance from Defendant,
Plaintiffs made all previous or ongoing litigation known to Defendant. Plaintiffs
further allege that at the time the policy began, Defendant specifically knew of no
fewer than four class-action claims filed against Plaintiffs by consumers claiming
Plaintiffs acted wrongfully in connection with the sale and appraisal of artwork. These
class-actions included Beegal filed in New Jersey, Bautista filed in California,
Blackman filed in Florida, and Bouverat filed in Washington state.
Plaintiffs now claim that during the policy period and/or the Extended
Reporting Period, numerous claims or suits were first made or brought against one or
more of the Plaintiffs by individuals and putative class members. Six of the underlying
suits were eventually consolidated into a multi-district class-action litigation entitled:
In Re: Park West Galleries, Inc., Marketing and Sales Practices Litigation, Case No.
09-MD-02076-RSL. These six cases are Bouverat, Blackman, Bohm, Hatter, Mullen,
and Alleman. These are the six cases at issue in the matter now before the Court.
The total costs of defense in these six cases was $1,741,934.13, and Plaintiffs
ultimately settled the cases as a unit for a payment of $1,154.435.47, which included
attorney fees. The issue now before the Court is whether the claims made against
Plaintiffs within the six cases of the multi-district litigation are covered by Plaintiff’s
policy with Defendant.

4

Standard of Review
A motion for summary judgment is granted under Fed. R. Civ. P. 56(c) when
there is no genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. Summary judgment is also proper where the moving
party shows that the non-moving party is unable to meet its burden of proof. Celotex
Corp. v. Catrett, 477 U.S. 317, 326 (1987). Facts and inferences must be viewed in
the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574 (1986). However, the non-moving party must
present "specific facts showing that there is a genuine issue for trial" that demonstrate
that there is more than "some metaphysical doubt as to the material facts." Moore v.
Philip Morris Cos., Inc., 8 F.3d 335, 339-40 (6th Cir. 1993) (internal citations
omitted).
Analysis
Michigan law governs the interpretation of the insurance policy in question.
Under Michigan law, the court must first examine whether the allegations against the
insured fall within the scope of coverage provided by the policy. Heniser v.
Frankenmuth Mut. Ins., 449 Mich. 155, 172 (Mich. 1995). If the court determines that
coverage exists, the court must then examine whether the matter comes within a
specific policy exclusion. Id. Although the insured bears the burden of proving
coverage, the insurer must prove the applicability of an exclusion. Id. at n.6.
5

In interpreting insurance policies, the court is to give the language contained
within the policy its ordinary and plain meaning. DeFrain v. State Farm Mut. Auto.
Ins. Co., 817 N.W.2d 504, 509 (Mich. 2012). While “the court cannot create an
ambiguity in an otherwise clear policy, if the policy contains an ambiguity, the
ambiguity will be construed in favor of the insured.” Fire Ins. Exch. v. Diehl, 545
N.W.2d 602, 606 (Mich. 1996)(citation omitted). The Court “strictly construes against
the insurer exemptions that preclude coverage for the general risk.” Id.(citation
omitted). If there is an ambiguity in the policy, “under the rule of reasonable
expectation, the court grants coverage under the policy if the policyholder, upon
reading the contract language is led to a reasonable expectation of coverage. Id.
(internal quotation marks and citation omitted); see also Wilkie v. Auto-Owners Ins.
Co., 664 N.W.2d 776, 786-88 (Mich. 2003).
Of the six separate cases that were consolidated in the multi-district
litigation–Bouverat, Blackman, Bohm, Hatter, Mullen, and Alleman–Defendant first
focuses its arguments on Bouverat, Blackman, and Bohm. Defendant argues that the
claims within these three cases were not first-made and reported to Defendant within
the policy period, as required by the policy.
The parties concede that Bouverat and Blackman were filed prior to the
coverage date. The parties also concede that the Bohm litigation was filed during the
coverage period. However, Defendant argues that the plaintiffs in Bohm presented
6

claims to Plaintiff prior to filing litigation, and that therefore, these claims were made
prior to the coverage date. As such, Defendant argues that the claims in Bohm were
not “first-made” during the coverage period.
As discussed under Exclusion R below, Plaintiffs argue that the claims of
putative class members in all three cases– Bouverat, Blackman, and Bohm–bring these
claims within the coverage period. See infra at 8-10. Plaintiffs also argue that the
communication between Plaintiffs and the Bohm plaintiffs prior to the filing of that
litigation does not constitute a claim within the meaning of the insurance policy.
Defendant then argues that policy Exclusions R and N bar coverage of the
remaining three cases– Hatter, Mullen, Alleman–and in the alternative, also bar
coverage of Bohm. Specifically, Defendant argues that the claims are barred by the
“arising out of” clause of Exclusion R, which bars coverage of claims that arise from
wrongful acts that occurred prior to the coverage date. Defendant also argues that the
claims in the consolidated case are related to the “same essential facts” of claims firstmade prior to the coverage date or that were pending at the time coverage began,
which would exclude these claims under Exclusion N.
A. Exclusion R
Exclusion R provides that the Policy will not cover claims “arising out of any
wrongful act which occurred prior to the retroactive date.” In this case, the retroactive
date of coverage is the same day the policy started–October 31, 2008. Plaintiffs claim
7

that this exclusion is inapplicable because putative class members could allege
wrongful acts that occurred after the coverage date. Plaintiffs argue that if any putative
class member alleges harm covered by the insurance policy, then Defendant must
defend Plaintiff against the entire class action lawsuit. See Hartford Accident and
Indem. Co. v. Beaver, 466 F.3d 1289 (11th Cir. 2006); Lenscrafters Inc. v. Liberty
Mut. Fire Ins. Co., 2005 WL 146896 (N.D. Cal. 2005); see also Auto-Owners Ins. Co.
v. Tax Connection Worldwide, LLC, 2012 WL 6049631 (Mich. Ct. App. 2012)
(holding that an insurer had a duty
to defend a class action claim where coverage possibly existed as to the putative class
members’ claims). As such, Plaintiffs contend that Defendant’s willfully ignored the
claims of putative class members that could have occurred within the coverage dates.
In contrast, Defendant argues that the putative class members’ claims “arose
from” the named plaintiff’s claims, which are based on wrongful acts occurring prior
to the coverage date. Defendants then argue that all claims made within the class
action are therefore barred from coverage. Specifically, Defendant argues that the
class action alleges a fraudulent scheme that began before October 21, 2008, and that
each named plaintiff identified specific acts in furtherance of the scheme.
Defendant’s argument here is unpersuasive. The policy language clearly links
“arising out of” to a specific “wrongful act” and not to the factual basis of any
previous claim of a named plaintiff. Therefore, Exclusion R does not bar coverage of
8

the claims made within the class action lawsuit.
B. Exclusion N
Exclusion N provides that the policy does not cover a claim “first made against
you prior to, or pending as of, the first inception date, or relating to the essential facts,
circumstances or situation underlying such claim.”
In asserting the application of Exclusion N, Defendant relies on Plaintiffs’
pleadings to the Multidistrict Panel. In those pleadings, Plaintiffs assert that the
Bouverat and Blackman lawsuits –filed prior to the coverage period–are related to
Bohm, and have the same essential facts, circumstances, or arise from the same
underlying situation. The pleadings highlight identical fact situations and similar
questions of fact and law. Defendant then summarily asserts that these similarities also
exist between the remaining three cases–Hatter, Mullen, and Alleman. As such,
Defendant attempts to assert that all six cases are related to Bouverat and Blackman,
which were filed prior to the policy coverage period.
The term “relating to” has been interpreted very broadly in this context. For
example, the Eleventh Circuit Court has held that:
[t]hough clearly this course of conduct involved different types of acts,
these acts were tied together because all were aimed at a single particular
goal. The fact that these acts resulted in a number of different harms to
different persons, who may have different types of causes of action
against [defendant] does not render the ‘wrongful acts’ themselves to be
‘unrelated’ for the purposes of the insurance contract.
Continental Cas. Co. v. Wendt, 205 F.3d 1258, 1263-1264 (11th Cir. 2000)
9

It is clear from the record that Defendant would not cover Plaintiffs’ damages
in Bouverat and Blackman because these claims were filed prior to the coverage
period. While under Exclusion R, additional putative class members appear to be
covered, Exclusion N trumps Exclusion R’s coverage of these class members within
Bouverat and Blackman. That is, putative class members’ claims are “related to” those
claims of the named plaintiffs. Therefore, Plaintiffs’ Motion for Summary Judgment
[55] is DENIED as to Bouverat and Blackman. For the same reasons, Defendant’s
Motion for Summary Judgment [57] is GRANTED as to Bouverat and Blackman.
Moreover, prior to the coverage period, plaintiffs in Bohm sent correspondence
to Plaintiffs stating that they were unable to sell the paintings they bought from
Plaintiffs at a good price and that they wanted to settle the matter in a fair way. The
Bohm plaintiffs also stated that they had attorneys and would most likely sue Plaintiffs
for damages. Again, under the policy a “claim” is a “demand for money or services,
including a suit, arising from your wrongful act.” Therefore, the communication
between the Bohm plaintiffs and Plaintiffs constitutes a claim. And because this claim
was made prior to the coverage period it is excluded fro coverage. Therefore,
Plaintiffs’ Motion for Summary Judgment [55] is also DENIED as to Bohm and
Defendant’s Motion for Summary Judgment [57] is GRANTED as to Bohm..
The remaining cases–Hatter, Mullen, and Alleman– involve similar facts and
circumstances as Bouverat and Blackman. It is clear from the consolidation of these
10

cases that the claims present similar issues of fact and law, as required by the
Multidistrict Panel. As such, Hatter, Mullen, and Alleman are excluded from coverage
under the insurance policy.
Therefore, Plaintiffs’ Motion for Summary Judgment [55] is DENIED as to
Hatter, Mullen, and Alleman and Defendant’s Motion for Summary Judgment [57] is
GRANTED as to Hatter, Mullen, and Alleman.
Conclusion
For the reasons stated above, Plaintiffs’ Motion for Summary Judgment [55]
is DENIED and Defendant’s Motion for Summary Judgment [57] is GRANTED. In
addition, Defendant’s Motion for Leave to File Sur-Reply Brief [69] is GRANTED
and Defendant’s Motion to Strike [72] is now MOOT.
Therefore,
IT IS HEREBY ORDERED that Plaintiffs’ Motion for Summary Judgment
[55] is DENIED.
IT IS FURTHER ORDERED that Defendant’s Motion for Summary
Judgment [57] is GRANTED.
IT IS FURTHER ORDERED that Defendant’s Motion for Leave to File
Sur-Reply Brief [69] is GRANTED.

11

IT IS FURTHER ORDERED that Defendant’s Motion to Strike [72] is
MOOT.
IT IS FURTHERED ORDERED that this case is CLOSED.
SO ORDERED.

s/Arthur J. Tarnow
ARTHUR J. TARNOW
SENIOR UNITED STATES DISTRICT JUDGE
DATED: November 20, 2013

12