Tile Shop Holdings, Inc. v. Allied World National Assurance Company
Filing
251
MEMORANDUM OPINION AND ORDER granting 71 Defendant's Motion for Summary Judgment; denying 120 Plaintiff's Motion for Summary Judgment (Written Opinion). Signed by Judge Ann D. Montgomery on 6/4/2019. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Tile Shop Holdings, Inc.,
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER
Civil No. 17-776 ADM/TNL
Allied World National Assurance
Company,
Defendant.
______________________________________________________________________________
Emily Unger, Esq., Jonathan Baker, Esq., Matthew T. Boos, Esq., and Richard D. Snyder, Esq.,
Fredrikson & Byron, PA, Minneapolis, MN, on behalf of Plaintiff.
Anthony J. Alt, Esq., Bradley M. Jones, Esq., and Jeffrey M. Thompson, Esq., Meagher & Geer,
PLLP, Minneapolis, MN, on behalf of Defendant.
______________________________________________________________________________
I. INTRODUCTION
On March 20, 2019, the undersigned United States District Judge heard oral argument on
cross motions for summary judgment of Defendant Allied World National Assurance (“Allied”)
[Docket No. 71] and Plaintiff Tile Shop Holdings, Inc. (“Tile Shop” or “TSH”) [Docket No.
120]. For the reasons set forth below, Allied’s motion is granted and Tile Shop’s motion is
denied.
II. BACKGROUND1
A. The Insurance Policies
Tile Shop Holdings, Inc. was incorporated on June 21, 2012. Ex. 39.2 In preparation for
offering public stock and securities for the new entity, Tile Shop purchased primary and excess
Directors and Officers (“D&O”) insurance policies. Tile Shop purchased its primary coverage
from a member company of American International Group, Inc. (“AIG”) (“Primary Policy”), and
an excess policy from Allied (“Excess Policy”). The effective date for both policies is August
20, 2012, for a term of one year. Both policies renewed for a second one-year period beginning
August 20, 2013, with the same policy terms.
Both policies include prior act exclusion clauses. The Primary Policy’s exclusion clause
is found in Endorsement #10:
In consideration of the premium charged, it is hereby understood and
agreed that the Insurer shall not be liable to make any payment for
Loss in connection with any Claim made against an Insured alleging
any Wrongful Act occurring prior to August 20, 2012 . . . . Loss
arising out of the same or related Wrongful Act shall be deemed to
arise from the first such same or related Wrongful Act.
Ex. 15-48 (emphasis in the original). Tile Shop paid $146,040 for the Primary Policy with the
Prior Acts Exclusion clause. Without the exclusion clause, the price would have been $220,000.
Exs. 28-3; 46-3.
1
On a motion for summary judgment, the Court views the evidence in the light most
favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). As
both parties have moved for summary judgment, any disputed facts are noted.
2
Def.’s Mem. Supp. Summ. J. [Docket No. 73] cited to numbered exhibits, which are
Docket Numbers 76-117. The court will cite to the exhibit numbers assigned by Allied, rather
than the exhibit’s Docket Number.
2
Allied’s Excess Policy follows form, referencing the Primary Policy and that policy’s $10
million dollar policy limit. Ex. 14-1. The Excess Policy’s exclusion language is found in Clause
II, Terms and Conditions, C., “Pending or Prior Exclusion,” stating “This Policy shall follow any
exclusion in the Primary Policy . . . .” Ex. 14-14. But, additional exclusion language is found in
Endorsement #2 of the Excess Policy. Allied “amended by adding the following exclusion”
terms:
Prior Acts Exclusion
This Policy shall not cover any Loss in connection with any claim
alleging, arising out of, based upon, or attributable to any wrongful
act(s) committed, attempted, or allegedly committed or attempted
prior to August 20, 2012 . . . .
Ex. 14-4 (Endorsement #2). Tile Shop paid $90,500 for the Excess Policy with the Prior Act
Exclusions language. Without the exclusion clause, the price would have been $135,000. Exs.
45-3; 47-2.
“Wrongful Act” is defined in the Primary Policy as:
(1) any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or act...:
(i) with respect to any Executive of an Organization, by such
an Executive in his or her capacity as such or any matter
claimed against such Executive solely by reason of his or her
status as such;
...
(2) with respect to an Organization, any actual or alleged breach of
duty, neglect, error, misstatement, misleading statement, omission or
act by such Organization, but solely in regard to a Securities Claim.”
Ex. 15-32. In turn, Organization means: (1) the Named Entity [Tile Shop]; (2) each Subsidiary .
. . . Ex. 15-28. Executive means any: (1) past, present and future duly elected or appointed
director, officer, trustee . . . (or equivalent position). Ex. 15-26. Subsidiary means: (1) any for-
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profit entity that is not formed as a partnership of which the Named Entity has or had
Management Control on or before the inception of the Policy Period . . . . Ex. 15-31. And,
finally, Management Control means: (1) owning interests representing more than 50% of the
voting, appointment or designation power for the selection of a majority of: the Board of
Directors of a corporation . . . . Ex. 15-28.
B. Formation of Tile Shop
On June 29, and July 31, 2012, Tile Shop filed registration statements with the Securities
and Exchange Commission (“SEC”). Exs 2-1, 6-1, 7-1. “Pursuant to the requirements of the
Securities Act of 1933,” the registration statements were signed,
Tile Shop Holdings, Inc.,
By: /s/ Robert A. Rucker
Name: Robert A. Rucker
Title: Director and Chief Executive Officer
Id. at 2-314, 6-22. Rucker “served as the sole member of the board of directors TS Holdings
[Tile Shop] since TS Holdings’ incorporation in June 2012.” Id. at 2-149. In June, the
registration statement omitted related-party transactions. Id. at 6-19. Tile Shop repeated these
omissions in the July 23, 2012 S-4 Registration Amendment No. 1. Id. at 7-17. The July
registration statement also included an invitation to JWC Aquisition Corp. Stockholders
(“JWCAC”) to a “special meeting” on August 16, 2012, where JWCAC stockholders would be
asked to “vote upon a proposal to adopt a contribution and merger agreement providing for the
business combination of JWCAC and the Tile Shop, LLC, which we refer to as ‘The Tile Shop,’
under a new holding company named Tile Shop Holdings, Inc., . . . .” Id. at 2-4. This vote
would make Tile Shop, LLC (“TSLLC”) a wholly owned subsidiary of Tile Shop.
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C. Advent of Claims
In November 2013, Tile Shop’s stock price fell after reports were issued “alleging,
among other things, that TSH used undisclosed relationships between the CEO’s brother-in-law
Fumitake Nishi (“Nishi”) and certain of TSH’s Chinese exporting agents and suppliers to
understate cost of goods sold and overstate earnings and profits; that TSH’s products were
contaminated by lead; and that TSH’s stock was overvalued.” Tile Shop’s Mem. Supp. Summ.
J. Mot. [Docket No. 122], at 4-5. Two lawsuits (the “Securities Actions”) followed, both
complaints of purchasers of Tile Shop stock, who bought stock between August 22, 2012 and
November 13, 2013 (the “Class Period”). The complaints were filed November 15, 2013
(Lagendyk complaint) and November 21, 2012 (Puerta complaint). The purchasers’ complaints
alleged undisclosed related-party transactions and improper accounting. Id. at 5. Lagendyk
alleged six misrepresentations/omissions in six public filings, all but one of which were alleged
to have occurred after August 20, 2012. Puerta alleged seventeen misrepresentations/omissions,
all of which were alleged to have occurred after August 20, 2012. Id.
The Securities Actions were consolidated under the caption Beaver County Employees’
Retirement Fund, et al. v. Tile Shop Holdings, Inc., et al., Case No. 0:14-cv-00786-ADM-TNL.
On May 23, 2014, the plaintiffs filed a Consolidated Amended Complaint (the “CAC”) which
superseded the Lagendyk and Puerta complaints. Ex. C [Docket No. 151-1] (the “Securities
Action”). The CAC described the “Nature of the Action.” Id. at 1-3. The Plaintiffs alleged that:
4.
Notwithstanding Rucker’s integral involvement in sourcing product and
managing the Company’s operations, Tile Shop failed to disclose several
material, related-party relationships. These relationships involved Fumitake Nishi
(“Nishi”), who is Rucker’s brother-in-law and was a purchasing supervisor
employed by Tile Shop, Jian Zhang, who is related to Rucker’s wife (to whom
Rucker has been married since 2003), and Pan Zhang, who is Jian’s son and
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Rucker’s nephew (together, the “Zhangs”). Despite the fact that these individuals
owned and/or controlled Beijing Pingxiu (“BP”), a Chinese export trading
company that conducted millions of dollars in business with Tile Shop from at
least fiscal years 2011 through 2013, the Company did not disclose these
relationships. Nor did the Company disclose that Nishi owned a majority interest
in Nanyang Helin Stone Co. Ltd. (“Nanyang”), which also sold millions of dollars
of stone accessory products to Tile Shop from at least fiscal years 2011 through
2013. Furthermore, Nishi had an undisclosed, indirect relationship during that
period with another supplier of Tile Shop, Best Cheer Stone Group LTD (“Best
Cheer Stone”).
5.
Tile Shop’s failure to disclose these related-party transactions and relationships
violated Item 404 of SEC Regulation S-K, Rule 4-08(k)(l) of Regulation S-X and
applicable accounting rules, which required such disclosure. The failure to
disclose these relationships also violated Item 303 of SEC Regulation S-K,
because the issues emanating from the relationships posed known trends,
uncertainties and risks that could adversely affect Tile Shop’s business. As such,
the Registration Statements, which did not disclose these relationships as required
by law, were negligently prepared by defendants. Moreover, Tile Shop
consciously or recklessly failed to disclose these relationships in other SEC
filings, as alleged below. In fact, Tile Shop did not even reveal the full truth about
these relationships in its January 27, 2014 press release, despite claiming to
announce the results of its “independent investigation” into the issues. It was not
until February 28, 2014, when Tile Shop filed its Form 10-K for the fiscal year
ended December 31, 2013, that the Company confirmed information regarding the
Zhangs and divulged Nishi’s connection to Best Cheer Stone.
6.
On November 14, 2013, investment firm Gotham City Research (“Gotham”)
issued a report exposing Tile Shop’s relationship and transactions with BP - a
captive supplier and export agent - and Rucker’s relationship with Nishi and the
Zhangs. Gotham reported that Tile Shop used BP to manipulate its costs and
profit margins during the Class Period, by purchasing significant amounts of
product from BP at artificially low prices. This arrangement allowed the
Company to capture higher profits for product that would have cost more to
purchase from independent suppliers.
Id. at 2-3.
In 2015, two derivative actions were filed against Tile Shop and its officers and directors,
and consolidated as In re Tile Shop Holdings, Inc. Stockholder Derivative Litigation (Del. Ch.
Ct.). Ex. 40 (the “Derivative Actions”). The Consolidated Derivative Action Complaint
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included allegations similar to that of the CAC, highlighting undisclosed related-party
transactions dating back to at least 2011. Id.
D. Settlement
Tile Shop settled both the Securities Action (January 2017) and the Derivative Actions
(August 2018). Tile Shop described the settlements as reasonable “in light of the risks of going
to trial, particularly where TSH had admitted violations of an SEC regulation requiring
disclosure of related-party transactions.” Tile Shop’s Mem. Supp. Summ. J. Mot. at 14.
E. Insurance Dispute
AIG paid $9.5 million of its Primary Policy limit (which was $10 million) toward the
settlement and defense costs. In a December 20, 2013 letter, AIG initially reserved its rights to
assert its prior act exclusion. Ex. 52-5. In November 2016, AIG maintained the need for a
“discount in respect of coverage issues remain[ing].” Ex. 53-1. Tile Shop agreed to pay the
remaining $500,000 to exhaust the Primary Policy and trigger the Excess Policy.
Unlike AIG, Allied invoked its exclusion clause immediately and denied coverage before
Tile Shop had reached its Primary Policy limit. Tile Shop here disputes Allied’s denial of
coverage and argues that the Excess Policy Prior Acts Exclusion clause does not justify denial of
coverage of the outstanding settlement and defense costs paid by Tile Shop.
III. DISCUSSION
A. Standard of Review
Federal Rule of Civil Procedure 56(c) provides that summary judgment shall issue “if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
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party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Insurance
coverage cases are “particularly amenable to summary judgment” because “the interpretation
and construction of insurance policies is a matter of law.” John Deere Ins. Co. v. Shamrock
Indus., 929 F.2d 413, 417 (8th Cir. 1991). As there is no genuine issue of material fact and the
issue is one of law, the matter is ripe for summary disposition.
B. Insurance Policy Interpretation
Minnesota law governs the insurance policies, and the federal district court has a duty to
“predict how the Supreme Court of Minnesota would rule if this issue came before it.” Jerry’s
Enters. v. United States Specialty Ins. Co., 845 F.3d 883 (8th Cir. 2017) (cleaned up). “Under
Minnesota law, the insured bears the initial burden of establishing that coverage exists, at which
point the insurer then carries the burden of demonstrating that a policy exclusion applies.”
Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 951 (8th Cir. 2012) (citing Travelers Indem. Co.
v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006)). If the insurer
succeeds, the burden shifts back to the insured to show that an exception to the exclusion applies.
Midwest Family Mut. Ins. Co. v. Wolters, 831 N.W.2d 628, 636 (Minn. 2013).
When interpreting an insurance policy, courts must ascertain and give effect to the intent
of the parties as reflected in the insuring contract. See St. Paul Fire & Marine Ins. Co. v. Futura
Coatings, 993 F. Supp. 1258, 1261 (D. Minn. 1998). The “insurance contract must be construed
as a whole, with unambiguous language given its plain and ordinary meaning.” Id. “Language
in a policy is ambiguous if it is susceptible to two or more reasonable interpretations.” Id. But
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courts must not read ambiguity into the plain language of an insurance policy. “The courts must
fastidiously guard against the invitation to create ambiguities where none exist.” Oakdale Mall
Assocs. v. Cincinnati Ins. Co., 702 F.3d 1119, 1122 (8th Cir. 2013).
The pivotal point of this case is whether admitted violations of an SEC regulation
requiring disclosure of related-party transactions arose out of wrongful acts prior to the policy
exclusion date of August 20, 2012.
The parties agree, absent the prior act exclusion clauses of the insurance policies,
coverage would have attached to the Securities and Derivative Actions. Therefore, the Court
next turns to the language of the exclusion clauses. Within the Primary Policy, the parties agreed
that “the Insurer shall not be liable to make any payment for Loss in connection with any Claim
made against an Insured alleging any Wrongful Act occurring prior to August 20, 2012.” And,
the agreement pegged the loss to the earliest occurrence of wrongdoing, stating “Loss arising out
of the same or related Wrongful Act shall be deemed to arise from the first such same or related
Wrongful Act.” Bearing in mind “the phrase ‘arising out of’ has been given broad meaning by
Minnesota courts,” Bethel v. Darwin Select Ins. Co., 735 F.3d 1035, 1039 (8th Cir. 2013)
(quoting Murray v. Greenwich Ins. Co., 533 F.3d 644, 649 (8th Cir. 2008)), this Court reads
“from the first such same or related Wrongful Act” to mean the exclusion applies to an ongoing
wrong, or wrongful conduct repeated, and is defined by the wrongful act’s or acts’ first instance,
not by instances of the same wrongdoing which came later. See W3i Mobile, LLC v.
Westchester Fire Ins. Co., No. 08-6370 (JNE/RLE), 2009 U.S. Dist. LEXIS 98061, at *8 (D.
Minn. Oct. 20, 2009) (“The term ‘arising out of’ requires only a causal connection; it does not
require proximate cause.”).
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The Excess Policy follows form, but “amended by adding” a broader exclusion, declining
coverage of “any Loss in connection with any claim alleging, arising out of, based upon, or
attributable to any wrongful act(s) committed, attempted, or allegedly committed or attempted
prior to August 20, 2012.” Following form, the Excess Policy also excludes wrongdoing
“arising out of” the earliest “same or related Wrongful Act,” but the Excess Policy also broadens
the definition of “arising out of” by adding the language “based upon, or attributable to” and
using the word any three times: any Loss, any claim, any wrongful act. Read as a whole, the
Excess Policy exclusion is broader than the Primary Policy, adding terms “based upon, or
attributable to” and “any” to weaken any direct liability causation requirement that may be read
into “arising out of” and to emphasize that prior acts leading to claims within the policy period
will not be covered. See Foster v. Summit Med. Sys., 610 N.W.2d 350, 353 (Minn. Ct. App.
2000) (finding the policies did not require Wrongful Acts to directly result in liability where the
policy excludes claims that “indirectly result[] from” wrongful acts); see also Leonard v. Exec.
Risk. Indem., Inc. (In re SRC Holding Corp.), 545 F.3d 661, 668 (8th Cir. 2008) (“The word
‘any’ when read naturally, has an expansive meaning.”) (cleaned up).
Under the terms of the Excess Policy’s prior acts exclusion, the post-August 20, 2012
omissions arose from the same nuclei of wrongful conduct as pre-August 20, 2012 omissions,
and therefore the Tile Shop is not entitled to coverage. In this case, the “nature of the action” for
both the Securities and Derivative Actions is the nuclei of wrongful conduct on which the cases
were based and to which the wrongful acts were attributable. The claims arose out of relatedparty transactions which the consolidated complaints alleged stretched back to at least 2011.
Tile Shop and its executives then omitted the related-family transactions from their disclosures
10
to the SEC while preparing to offer public securities. Tile Shop and its executives, particularly
Rucker, omitted this required information in June and July of 2012 (at least the “first such same
or related Wrongful Act”), before the August 20, 2012 exclusion date specified in the insurance
policies. Tile Shop continued to omit the required information until after the Gotham Report in
2013, during the second term of the renewed insurance policies. Neither consolidated action
asserted any claims that were not related to or attributable to the related-family transactions that
were repeatedly omitted from filings. The plain reading of the Excess Policy’s exclusion clause
is unambiguous and outcome determinative in this case. Tile Shop is not entitled to coverage.
Tile Shop argues the definition of “wrongful acts” in the Primary Policy, the definition of
which the Excess Policy follows form, prevents application of the exclusion because the CAC
claims only “wrongful acts” occurring after August 20, 2012, and the settlement only covered
these wrongful acts. Tile Shop argues that the related-party transactions were not “wrongful
acts” until they became omissions or misrepresentations as reflected in the in the CAC. Ex. C, at
37-49. This overly narrow reading is not supported by the plain language of the policy, which
defines “Wrongful Act” as: “any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission . . . .” Under a plain reading of the Primary and Excess Policy
language, the Court cannot ignore the “nature of the action,” that is, the acts to which the postAugust 20, 2012 omissions were related.
Tile Shop also argues that there are no pre-August 20 wrongful acts because Tile Shop
was a new entity and could not, by policy definition, have prior wrongful acts before it was fully
merged with TSLLC. That is, Tile Shop argues pre-August 20, 2012, all wrongful acts can only
be attributed to TSLLC. Similarly, Tile Shop argues that its executives and officers could not be
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connected to prior wrongful acts because only executives of Tile Shop, as opposed to TSLLC,
can act wrongfully under the policy. This argument is belied by the pre-public offering and prefull merger SEC filings by Tile Shop prior to August 20, 2012, which were signed by Rucker as
Tile Shop’s director and CEO. Rucker served as an executive of Tile Shop from June 2012,
while still serving as an executive for TSLLC. Therefore, wrongful omissions attributable to
Tile Shop and at least one of its executives occurred before August 20, 2012.
The policy definitions of Organization, Executive, and Subsidiary do not dictate
otherwise under a plain language reading. Organization is defined as: (1) the Named Entity [Tile
Shop]; (2) each Subsidiary; . . . .” Subsidiary means: (1) any for-profit entity that is not formed
as a partnership of which the Named Entity has or had Management Control on or before the
inception of the Policy Period . . . .” And, Executive means any: (1) past, present and future duly
elected or appointed director, officer, trustee . . . .” Tile Shop and Rucker fall within the
definition of Organization and Executive. Nevertheless, Tile Shop argues TSLLC did not
become a Subsidiary until the official merger and the related-party transactions were attributable
only to TSLLC and TSLLC executives. TSLLC was under Rucker’s management control, and
so, falls within the definition of Subsidiary under the policy language.
Furthermore, Tile Shop’s position seems to confuse what entities and persons are insured
with what wrongful acts, in this case wrongful omissions and underlying conduct, trigger the
exclusion clause. Nothing about the definitions of Organization, Subsidiary, or Executive
prevents exclusion of wrongful acts by entities and persons who later become the Insureds.
TSLLC became a subsidiary days before Tile Shop became publicly created, but Tile Shop
executive Rucker overlapped, signing documents as Tile Shop’s sole director, before TSLCC
12
was officially merged. Tile Shop executives became responsible at least upon failure to disclose
in June and July 2012. Tile Shop’s wrongful omissions began prior to August 20, 2012 and were
rooted in related-party transactions that dated back to at least 2011.
The plain language of the policies unambiguously excludes coverage of Tile Shop’s
Securities and Derivative Actions. Under the terms of the Excess Policy’s prior acts exclusion,
the court finds the post-August 20, 2012 omissions arose from the same nucleus as pre-August
20, 2012 omissions, and therefore, as a matter of law Tile Shop is not entitled to coverage.
Nonetheless, Tile Shop makes one additional argument that warrants attention. Tile Shop argues
that the duty to indemnify is “governed by the claims actually proven in the underlying case.”
Tile Shop’s Mem. Opp’n Def.’s Mot. Summ. J. [Docket No. 217] at 4 (citing Econ. Fire & Cas.
Co. v. Iverson, 445 N.W.2d 824, 826-27 (Minn. 1989)), and Remodeling Dimensions, Inc. v.
Integrity Mut. Ins. Co., 819 N.W.2d 602, 616 (Minn. 2012)). Where a case is settled, Tile Shop
argues, “the only question should be how the parties to the settlement viewed the relative merits
of the plaintiff’s claims at the time of the settlement . . .” Id. at 5 (citing 1 Windt, INSURANCE
CLAIMS AND DISPUTES § 6.31). Tile Shop argues that Minnesota courts follow this
approach, relying on five Minnesota cases. Gulf Ins. Co. v. Skyline Displays, Inc., 361 F. Supp.
2d 986, 990 (D. Minn. 2005); St. Paul Fire and Marine Ins. Co. v. National Chiropractic Mut.
Ins. Co., 496 N.W.2d 411, 415–16 (Minn. App. 1993); Zurich Reinsurance (UK) Limited v.
Canadian Pacific Ltd., 613 N.W.2d 760, 764-65 (Minn. App. 2000), rev. denied (Minn. 2000);
Convent of the Visitation Sch. v. Cont’l Cas. Co., 707 F. Supp. 412, 416-17 (D. Minn. 1989);
and, Piper Jaffray v. Nat’l Union Fire Ins. Co., 38 F. Supp. 2d 771, 777 (D. Minn. 1999). But,
none of these cases require the court to ignore the nature of the action, or the plain language of
13
the insurance policies, in favor of speculating about how the parties to the lawsuits viewed the
merits of the plaintiff’s claims at the time of settlement. This Court does not believe the
Minnesota Supreme Court would so hold, especially in light of the plain language of the Excess
Policy’s prior acts exclusion clause. Certainly, how the parties viewed the claims is relevant to
the issue of coverage. But to credit Tile Shop’s view of the settlement as only responding to the
post-August 20, 2012 claims made in the CAC would ignore the substance and nucleus of the
omissions and the nature of the action.
In many cases, settlement can make determining “the claims actually proven” difficult
because the case is concluded without submitting the fact questions to a jury. Here, Tile Shop
“had admitted violations of an SEC regulation requiring disclosure of related-party transactions.”
Tile Shop’s Mem. Supp. Summ. J. Mot. at 14. There are pre-August 20, 2012 SEC filings with
the same omissions as the post-August 20, 2012 filings. And, it also is undisputed that the
related-party transactions that required disclosure were developed prior to August 20, 2012.
IV. CONCLUSION
As a matter of law, the Excess Policy’s prior act exclusion clause applies to admitted
violations of SEC regulations requiring disclosure of related-party transactions, transactions that
were omitted from pre-August 20, 2012 SEC filings and continued to be omitted until Tile Shop
was sued in November 2013. Therefore, Tile Shop is not entitled to Allied’s coverage of loss
from any of the claims in the Securities or Derivative Actions, nor is Tile Shop entitled to
recovery of defense or investigation costs.
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Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Allied’s Motion for Summary Judgment [Docket No. 71] is
GRANTED; and Tile Shop’s Motion for Summary Judgment [Docket No. 120] is DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: June 4, 2019.
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