PAPALIA v. ARCH INSURANCE COMPANY

Filing 59

OPINION. Signed by Judge John Michael Vazquez on 8/1/17. (cm, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Not for Publication

ANGELO MARK PAPALIA,

Plaint iff
Civil Action No. 2:15-cv-02$56
V.

ARCH INSURANCE COMPANY,

OPINION

Defendant.

John Michael Vazguez, U.S.D.J.

The present matter comes before the Court on three motions: (1) Defendant Arch Insurance
Company’s (“Arch” or “Defendant”) motion for partial summary judgment on its declaratory
judgment counterclaim and the limits of liability under the policies; (2) Plaintiff Angelo Mark
Papalia’s (“Plaintiff’ or “Papalia”) motion for partial summary judgment on the issue of collateral
estoppel; and (3) Plaintiffs motion for partial summary judgment on Arch’s duty to defend. All
three motions are brought pursuant to Federal Rule of Civil Procedure 56.1 This action concerns

Defendant’s brief in support of its motion for partial summary judgment will be referred to
hereinafter as “Def. Br.” (D.E. 43); Plaintiffs opposition to Defendant’s motion will be referred
to as “P1. Opp’n” (D.E. 49); and Defendant’s reply brief will be referred to as “Def. R.Br.” (D.E.
52).
Plaintiffs brief in support of his motion for partial summary judgment on the issue of
collateral estoppel will be referred to hereinafter as “P1. Est. Br.” (D.E. 44); Defendant’s opposition
to Plaintiffs motion will be referred to hereinafter as “Def. Est. Opp’n” (D.E. 47); and Plaintiffs
reply brief will be referred to “P1. Est. R.Br.” (D.E. 50).
Plaintiffs brief in support of his motion for partial summary judgment on the issue of
Arch’s duty to defend will be referred to hereinafter as “P1. Defend Br.” (D.E. 45); Defendant’s

Arch’s denial of insurance coverage for matters that Plaintiff alleges are “Related Claims,” as set
forth in the relevant policy provision, and therefore subject to coverage. These motions were
decided without oral argument pursuant to Federal Rule of Civil Procedure 78 and Local Civil
Rule 78.1. The Court considered the parties’ submissions, and for the reasons stated below, denies
Defendant’s motion for summary judgment. The Court also denies Plaintiffs motion for summary
judgment on the issue of collateral estoppel. The Court grants Plaintiffs motion for summary
judgment on the issue of Arch’s duty to defend but denies Plaintiffs motion to the extent that he
is seeking the reimbursement of specific amounts through his motion. Arch is entitled to further
discovery concerning the actual amounts claimed by Papalia.
I.

BACKGROUND

Plaintiff is a former life insurance agent and certified financial planner.
Statement of Material Facts (“PSOMF”) (D.E. 45-2)
Mark Papalia (“Papalia Decl.”) (D.E. 45-3)

¶ 1; August 24, 2016 Declaration of Angelo

¶ 2. Plaintiff also served as a life insurance agent for

Columbus Life Insurance Company (“Columbus”).
Material Facts (“DSOMF”) (D.E. 43-37)

Plaintiffs

PSOMF

¶ 2; Defendant’s Statement of

¶ 8. Through Columbus, Plaintiff purchased errors and

omissions (professional liability) insurance from Arch. September 2, 2016 Declaration of Eric
Jesse (“Jesse DecI.”) (D.E. 45-11)

¶ 2. This case stems from two groups of former clients who

asserted claims against Plaintiff. The first group of claimants, the “Benefit Plan Claimants,” allege
that Plaintiff made misrepresentations in connection with the establishment of welfare benefit
plans. PSOMF ¶ 16-34. The second group, the “Life Settlement Claimants,” allege that Plaintiff
made misrepresentations in connection with the sale of universal life insurance products. Id.

¶J

opposition to Plaintiffs motion will be referred to hereinafter as “Def. Defend Opp’n” (D.E. 46);
and Plaintiffs reply brief will be referred to “P1. Defend R.Br.” (D.E. 51).
2

3 5-47. for each group of claimants, Arch covered some claims but not others. Plaintiff brought
suit seeking coverage in the claims that were denied.
The Arch Policies
Arch sold three relevant policies to Papalia: the 2010 Arch Policy, the 2011 Arch Policy,
and the 2012 Arch Policy (“the Arch Policies”). Jesse Decl. Exs. 5, 6, 7. Under the Arch Policies,
an agent could select his or her own limits of liability, up to $4,000,000. Id. Ex. 5 at ARCH 14682,
Ex. 6 at ARCH15141, Ex. 7 at ARCH16176. Plaintiff chose to purchase the $4,000,000 limit of
liability for himself under each of the Arch Policies and paid the appropriate premium each year.
Papalia Decl.

¶ 3; Jesse Deci.

Ex. 3 at RFAs Nos. 1-3.

Under the Arch Policies, Arch committed to pay, on behalf of Plaintiff, all “Loss” in
connection with certain “Claims” alleging “Wrongful Acts” in the rendering of “Professional
Services”:
The Insurer shall pay on behalf of the Insured all Loss which the
Insured shall become legally obligated to pay because of a Claim
first made against the Insured during the Policy Period
for a
Wrongful Act committed on or after the Retroactive Date by the
Insured solely in the rendering or failing to render Professional
Services.
.

.

.

Jesse Decl. Ex. 5 at ARCHY4684, Ex. 6 at ARCH15 143, Ex. 7 at ARCH16178. “Loss” under the
Arch Policies means “Defense Costs, monetary judgments, awards or settlements that an Insured
is legally obligated to pay on account of a covered Claim.” Id. Ex. 5 at ARCH 14687, Ex. 6 at
ARCH15146, Ex. 7 at ARCH16I81. A “Claim” includes, in relevant part, “a written demand for
monetary damages received by an Insured or the Sponsoring Company” as well as “a civil
proceeding commenced by the service of a complaint or a similar pleading in which monetary
damages are sought.” Id. Ex. 5 at ARCHI46$5, Ex. 6 at ARCH15 144, Ex. 7 at ARCH16I79. A
“Wrongful Act” is defined as “a negligent act, error or omission or Personal Injury committed by
3

an Insured.” Id. Ex. 5 at ARCH146$9, Ex. 6 at ARCH15148, Ex. 7 at ARCH161$3. Lastly,
“Professional Services” includes, but is not limited to, “1. the solicitation, sale or servicing of: a.
life insurance

.

.

.

b. variable insurance products”; “2. the solicitation, sale or administration of

employee benefit plans”; and “3. financial planning, advice and consultation solely in connection
with any of the products listed in paragraphs 1 and 2 above.” Id. Ex. 5 at ARCH146$7-$$, Ex. 6
at ARCH15146-47, Ex. 7 at ARCH161$1-$2.
Additionally, the Arch Policies provide that Arch “shall have the right and duty to defend
any Claim against the Insured seeking sums payable under this Policy, even if the allegations of
the Claim are groundless or false.” Id. Ex. 5 at ARCH14684, Ex. 6 at ARCH15143, Ex. 7 at
ARCH 1617$. The Arch Policies are “claims made” policies but also include coverage for claims
made after the expiration of the policy period if they are “Related Claims.”
Specifically, the policies provide as follow:
All Related Claims shall be deemed a single Claim, subject to a
single Each Claim Limit of Liability, if covered, and such Claim
shall be considered first made on the date the earliest such Related
Claim is first made against an Insured, regardless of whether such
date is before or during the Policy Period.
Id. Ex. 5 at ARCH14693, Ex. 6 at ARCH15152, Ex. 7 at ARCH16187. “Related Claims” are

defined as follows:
[A]ll Claims, whether made against more than one Insured or by
more than one claimant, arising out of a single Wrongful Act or
Wrongful Supervision or Termination Act or a series of Wrongful
Acts or Wrongful Supervision or Termination Acts that have as
common nexus any fact, circumstance, situation, event, transaction,
cause or series of causally connected facts, circumstances,
situations, events, transactions or causes.

4

Id. Ex. 5 at ARCHY468$, Ex. 6 at ARCH15147, Ex. 7 at ARCH16182. As noted previously,

“Claim” and “Wrongful Act” are defined under the policies. However, “common nexus” is not a
defined term, and the parties disagree as to its meaning.
The Benefit Plan Claims
From 2003 until 2010, Plaintiffs services included helping clients establish welfare benefit
plans under Section 419 and later Sections 79 and $3 of the Internal Revenue Code (“IRC”).
Papalia Decl.

¶ 4. These welfare benefit plans were established through Larry Cronin of Cronin

Insurance Services, Inc., an insurance broker (the “Cronin Benefit Plans”). Id. The Cronin Benefit
Plans were cash value life insurance policies purchased through Plaintiff. Id.

¶ 5. The premiums

for the plans were determined by an actuary based on the death benefit and age of the participants.

‘a.
In 2007, the IRS changed the rules governing the tax deductibility of contributions plans
established under Section 419, which limited the plans’ tax advantages, including the ability to
deduct certain contributions for the life insurance policies. Id.

¶ 6. following the IRS’s rule

change, Plaintiffs clients tenuinated the plans they had established under Section 419. Id. Some
clients, through Plaintiff, established new Cronin Benefit Plans under Sections 79 or 83. Id. In
doing so, these clients continued to receive similar tax advantages that they previously had under
Section 419. Id. In 2010, the IRS began to audit employers and employees that participated in
welfare benefit plans established under Section 419. Id. Subsequently, the Benefit Plan Claimants
were audited by the IRS due to their participation in the Cronin Benefit Plans. PSOMF

¶ 23. The

audits resulted in tax liability and penalties for the participants. The claimants, in turn, sued
Plaintiff. Id.

5

The Benefit Plan Claimants consist of the Jesta,2 Tuscano, Polo Development, Wilson,
Ruggerio, Pharmacy Group, and the Rolling in the Dough claimants. Id. Plaintiff asserts that
these claims are related to prior claims of Villagra, Toplin, and Bryan. Pursuant to the relevant
policies, Arch defended and indemnified Plaintiff in the Villagra, Toplin, and Bryan actions.3
Plaintiff alleges that the Benefit Plan Claimants have numerous similarities with each other
and with the Villagra, Toplin, and Bryan matters, including that the claimants (1) relied on Plaintiff
as their financial advisor; (2) were convinced by Plaintiff to create a Cronin Benefit Plan under
Section 419 of the IRC; (3) obtained life insurance policies that funded the Cronin Benefit Plan;
and (4) received representations from Plaintiff that the Cronin Benefit Plans were a legitimate
retirement investment, that virtually all of the contributions to the plans would qualify for
advantageous tax treatment, and that participants in the plans could withdraw funds on a tax-free
basis. Id. ¶ 24. Plaintiff further alleges the following common allegations: the IRS never approved
a plan similar to the Cronin Benefit Plans; since 1995 the IRS had issued notices that the benefits
of plans like the Cronin Benefit Plan would be disallowed and result in penalties, including a notice
in 2007 that stated the Section 419 Plans were “listed transactions;” Plaintiff represented to the
claimants that they had the option to roll over Section 419 plans into a plan established under
Sections 79 or 83 of the IRC and Plaintiff encouraged the claimants to do so; and claimants were
audited by the IRS as a result of their participation in the Cronin Benefit Plans and faced liability
as a result. Id. Defendant agrees that these commonalities exist, but alleges that the claims are

2

The Jesta Action was initially called the “Smeeding” Action when it was asserted by the Jesta
Claimants, who were joined by the Tuscano, Polo Development, Wilson, and Ruggerio Claimants.
Id. All the claimants except for the Jesta Claimants withdrew from the action and re-filed their
claims in the Tuscano Action, which was joined by the Pharmacy Group claimants.
In the Bryan case, Arch settled with Plaintiff in lieu of full indemnification.
6

premised on separate life insurance policies and individualized plans sold to the claimants at
different times for varying needs. DSOMF

¶J 92-199.

Plaintiff also notes that the same law firm, the Harris Law Firm, represents the Bryan, Jesta,
Tuscano, Wilson, Polo Development, Ruggiero, Pharmacy Group and Rolling in the Dough
claimants. See Papalia Decl. Exs. 7, 12, 13, 14. Onbehalfofthese claimants, the Harris Law Fini
sent a demand letter on August 27, 2013, which stated, in part:
Although each of the Plaintiffs’ facts vary slightly, all Plaintiffs will
testify that Papalia marketed and sold the [Cronin Benefit] Plans as
“safe investments” that were “tax deductible” and were authorized
by Congress and the Internal Revenue Service. All Plaintiffs will
testify that Papalia provided them with materials that highlighted the
purported tax benefits of setting up the Plans. All Plaintiffs will
testify that Paplia told them that the Plans provided a guaranteed
minimum rate of return on their investment of at least 5%. All
Plaintiffs will testify that Papalia told Plaintiffs that they could exit
the Plan after so many years and access their initial investment, as
well as their return on investment.
Papalia Decl. Ex. 14 at AMP 160.
As noted, Arch provided coverage in the Villagra, Toplin and Bryan Actions, subject to a
reservation of rights. PSOMF ¶J] 30, 31; Jesse Deci. Ex. 3 at RFA Nos. 74, 86, 105. Arch adopted
a “no coverage” position for the remaining “Benefit Plan Claimants,” asserting that they are not
covered because the claims were made after the end of the Arch policy periods and were not
“Related Claims” vis-a-vis the Villagra, Toplin, or Bryan Actions. PSOMF ¶ 32. Plaintiff alleges
that he has already paid a total of $793,718.38 to defend himself in the Jesta, Tuscano and Rolling
in the Dough actions. Defendant also argues that sufficient discovery has not yet been taken to
determine the reasonableness of the claimed amount of defense costs expended.
Defendant’s Responsive Statement of Material F acts (“DRSOMF”) (D.E. 46)
The Life Settlement Claims

7

¶ 33.

Id.

¶

33;

The Life Settlement Claimants are former clients of Plaintiff who purchased universal life
insurance products through him. PSOMF

¶

35. The life insurance policies were subject to a

statutory contestability period, usually two years, during which life insurer could rescind the
policy. Id.

¶ 36. Afier the contestability period, the policy could not be rescinded, but the owner

could try to sell the policy in the secondary market. Id. According to Plaintiff, the claimants allege
that due to changes in the market, they were unable to sell their policies on the secondary market
or could only do so for an amount substantially less than what they paid for the policy. Id.

¶ 37.

The Life Settlement Claimants consist of the Meisinger, Malloy, Bingman, and Kratz
Claimants. Id.

¶ 38. Plaintiff alleges that these claims relate to an earlier claim by Liebowitz.

Plaintiff sets forth the following common allegations between the claimants and Leibowitz: (1)
they relied on Plaintiff as their life insurance agent and financial advisor; (2) they purchased a life
insurance policy based on Plaintiffs advice; (3) the life insurance policies they purchased were
from John Hancock Life Insurance Company and/or Lincoln National Life Insurance Company;
(4) Plaintiff misrepresented their ability to resell their policies on the secondary market and made
other related misrepresentations; (5) they were subsequently unable to sell their life insurance
policies on the secondary market or could do so only at a significant loss; (6) Plaintiff was
motivated by large up-front commissions; (7) life insurance was not a suitable investment for the
claimants; (8) Plaintiff committed fraud against them; and (9) they are seeking return of the
premiums paid for the life insurance policies. Id.

¶ 39. Defendant disputes that these allegations

are the grounds for the Life Settlement Plan claims. DRSOMF ¶ 39; DSOMF ¶ 33-91. Defendant
characterizes the Life Settlement Claimants’ allegations as divergent; one claimant was allegedly
unable to resell her policy because Plaintiff backdated the inception dates of coverage while others

8

suffered due to a misrepresentation of their life expectancies, among other varying reasons.
DRSOMF

¶ 37; DSOMF ¶ 43.

Plaintiff received a demand letter dated february 7, 2011 from the Liebowitz’s attorneys
and subsequently notified Arch. PSOMF

¶ 42. Arch, in a letter dated April 22, 2011, “accepted

coverage” under the 2010 Arch Policy. Id.

¶ 43; DSOMF ¶ 32. Subsequently, the Life Settlement

Claimants made their demands. PSOMF

¶ 45. On April 3, 2015, Arch denied coverage for these

claims, asserting that the claims were made after the end of Arch’s policy periods and that they
were not “Related Claims” as to the Liebowitz claim. PSOMF

¶ 45. Plaintiff alleges that, as of

August 2016, Plaintiff had paid a total of $195,612.53 in defense costs related to the Life
Settlement Claims. Id.

¶ 46. In addition to contesting coverage, Defendant also argues that

sufficient discovery has not yet been taken to determine the reasonableness of the amount of
defense costs incurred paid by Plaintiff. DRSOMF ¶ 46.
II. PROCEDURAL HISTORY

Plaintiff initiated the current action on April 22, 2015. D.E. 1. Defendant answered
Plaintiffs Complaint and asserted a counterclaim on June 30, 2015. The counterclaim sought a
declaratory judgment finding that the relevant Arch policies did not provide coverage. D.E. 6.
Plaintiff answered Arch’s counterclaim on July 21, 2015. D.E. 12. Thereafter, pursuant to the
Court’s pre-trial scheduling orders, the parties engaged in written discovery. After the close of
written discovery, each party moved for summary judgment. D.E. 43, 44, 45. Both parties oppose
each other’s motions. D.E. 46, 47, 49.
III. STANDARD OF REVIEW

A moving party is entitled to summary judgment where “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.”

9

Fed. R. Civ. P. 56(a). A fact in dispute is material when it “might affect the outcome of the suit
under the governing law” and is genuine “if the evidence is such that a reasonable jury could return
a verdict for the non-moving party.” Anderson v. Liberty Lobby, inc., 477 U.S. 242, 248 (1986).
Disputes over irrelevant or unnecessary facts will not preclude granting a motion for summary
judgment. Id. “In considering a motion for summary judgment, a district court may not make
credibility determinations or engage in any weighing of the evidence; instead, the non-moving
party’s evidence ‘is to be believed and all justifiable inferences are to be drawn in his favor.”
Marino v. Indus. Crating Co., 358 f.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at
255)). A court’s role in deciding a motion for summary judgment is not to evaluate the evidence

and decide the truth of the matter, but rather “to determine whether there is a genuine issue for
trial.” Anderson, 477 U.S. at 249.
The showing required to establish that there is no genuine issue of material fact depends
on whether the moving party bears the burden of proof at trial. On claims for which the moving
party does not bear the burden of proof, the movant must demonstrate “that there is an absence of
evidence to support the nonmoving party’s case.” Cetotex Corp. v. Catrett, 477 U.S. 317, 325
(1986). In contrast, “[w]hen the moving party has the burden of proof at trial, that party must
show affirmatively the absence of a genuine issue of material fact.” In re Bressman, 327 F.3d
229, 238 (3d Cir. 2003) (quoting United States v. four Parcels ofReal Prop., 941 F.2d 1428, 143$
(11th Cir. 1991)). This affirmative showing requires the moving party to show that “on all the
essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could
find for the non-moving party.” Id.
Once the moving party satisfies its initial burden, the burden shifts to the nonmoving party
to “go beyond the pleadings and by her own affidavits, or by the depositions, answers to

10

interrogatories, and admissions on file, designate specific facts showing that there is a genuine
issue for trial.” Celotex Corp., 477 U.S. at 324 (internal quotation marks omitted). To withstand
a properly supported motion for summary judgment, the nonmoving party must identify specific
facts and affirmative evidence that contradict the moving party. Anderson, 477 U.S. at 250. “[I]f
the non-movant’s evidence is merely ‘colorable’ or is ‘not significantly probative,’ the court may
grant summary judgment.” Messa v. Omaha Prop, & Cas. Ins. Co., 122 F. Supp. 2d 523, 528
(D.N.J. 2000) (quoting Anderson, 477 U.S. at 249-50)).
IV. CHOICE OF LAW
In an action based on diversity of citizenship, a federal court generally applies the choiceof-law rules of the jurisdiction in which it sits. Kiaxton Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496 (1941). New Jersey applies the “most significant relationship” test to determine the choice of
law. Amica Mut. Ins. Co. v. fogel, 656 F.3d 167, 171-72 (3d Cir. 2011). The first step in the
analysis is to determine whether an actual conflict exists between the laws of the two states, which
is done “by examining the substance of the potentially applicable laws to determine whether there
is a distinction between them.” Carrow v. Fedex Ground Package Sys., Inc., No. 16-3026, 2017
WL 1217119, at *4(D.N.J. Mar. 30, 2017) (quotingP. V. exre TV v. Camp Jaycee, 197 N.J. 132,
143 (2008)). If no conflict exists, then the court applies the law of the forum state and ends the
conflicts inquiry. See Rowe v. Hoffman—La Roche, Inc., 189 N.J. 615, 621 (2007).
Here, both parties agree that Pennsylvania and New Jersey law are substantially similar on
the relevant issues. See Def. Br. at 6; P1. Opp’n at 11. The Court agrees. Therefore, the Court
will apply New Jersey law since it is the forum state. The Court notes that the neither the Supreme
Court of New Jersey nor that of Pennsylvania has addressed the issue presented here, specifically,
the interpretation of the “Related Claims” provisions.

11

V. DISCUSSION
1.

Insurance Contract Law
Generally, the interpretation of an insurance policy is a question of law for the court.

Frazier Indtts. Co. v. Navigators Ins. Co., 149 F. Supp. 3d 512, 516 (D.N.J. 2015) (citing Selective
Ins. Co. ofAm. v. Thcdson E. Pain Mgmt. OsteopathicMed., 210 N.J. 597, 605 (2012)). The burden
rests with the insured to demonstrate that the claim at issue is within the scope of the policy.
Polarorne Int’l, Inc.

Greenwich Ins. Co., 404 N.J. Super. 241, 258 (App. Div. 200$). “An

insurance policy is a contract that will be enforced as written when its terms are clear in order that
the expectations of the parties will be fulfilled.” Flomerfelt v. C’ardiello, 202 N.J. 432, 441 (2010).
When interpreting language in an insurance policy, the words used should be given their plain and
ordinary meaning. Memorial Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 525 (2012).
Courts often use dictionary definitions to determine a word’s meaning when the policy does not
otherwise define it. Cypress Point Condo. Ass ‘n, Inc. v. Adria Towers, LL.C., 226 N.J. 403, 426
(2016). If a word or tern-i is ambiguous, then the ambiguity is resolved in favor of the insured.
Memorial Props., LLC, 210 N.J. at 525; Cypress Point Condo. Ass ‘n, Inc., 226 N.J. at 416; see
also Butler v. Bonner & Barnewell, Inc., 56 N.J. 567, 575 (1970) (“As to insurance contracts
specifically, ‘the general rule of construction [is] that if the controlling language of a policy will
support two meanings, one favorable to the insurer and the other to the insured, the interpretation
favoring coverage should be applied.”).
Concerning a duty to defend, “[a]n insurer is contractually obliged to provide the insured
with a defense against all actions covered by the insurance policy.” Abouzaid v. Mansard Gardens
Assocs., LLC, 207 N.J. 67, 79 (2011). The duty to defend is broader than the duty to indemnify.
State Nat. Ins. Co. v. Cty. of Camden, 10 F. Supp. 3d 568, 577 n.8 (D.N.J. 2014). Thus, the duty

12

to defend is triggered “when the complaint states a claim constituting a risk insured against.”
Liberty Ins. Corp. v. Tinpiate Purchasing Corp., 743 F. Supp. 2d 406, 411 (D.N.J. 2010) (quoting
Danek v. Hommer, 28 N.J. Super 68, 77 (App. Div. 1953)). In other words, if “the complaint

comprehends an injury which may be within the policy, a duty to defend will be found.” Abouzaid,
207 N.J. at $0 (internal quotation marks omitted). Therefore, all “potentially coverable” claims
require a defense. Id.
The policies at issue are “claims made” rather than “occurrence” insurance policies. Under
an “occurrence” policy, “it is the ‘occurrence’ of the peril that is insured, and so long as that peril
occurred during the life of the policy, coverage attaches.” Templo Fuente Dc Vida Corp. v. Nat ‘1
Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 201 (2016). Claims made policies, on the other
hand, are only triggered upon the making of the claim. Id. (quoting Zttckerman v. Nat ‘1 Union

Fire Ins. Co., 100 N.J. 304, 311 (1985)). Thus, a difference between the two types of policies is
that “claims made” insurance policies by definition, cover claims that are actually made by the
insured during the policy period. Timely notification by the insured of the claim is part and parcel
of the policy itself. Zuckerman, 100 N.J. at 324 (“[T]he event that invokes coverage under a
‘claims made’ policy is transmittal of notice of the claim to the insurance carrier.”).

By

comparison, “occurrence” insurance covers pertinent events that occur while the policy is in effect,
even if the insured does not learn of the claim until after the policy has expired. Id. at 310.
ii.

Relevant Case Law
While the parties cite numerous cases, they repeatedly refer to a select few throughout their

briefing. The Court will therefore address these cases.4 As noted, neither the highest court of New
Jersey nor the highest court of Pennsylvania have definitively ruled on the issue.

Like the policies at issue here, the cited cases all involve “claims made” insurance policies.
13

The first case is Columbus Life Insurance Co. v. Arch Insurance Co., No. 14-01659, 2016
WL 2865952, at *1 (N.D. md. May 17, 2016), which arose from the same underlying allegations
of Papalia’s misconduct regarding the Benefit Plan Claimants, and Arch’s denial of coverage for
one of those claims. Afier Arch defended Papalia in the Villagra Action under the Arch 2011
Policy, it subsequently denied coverage for Columbus Life in the Jesta Action.

Id. at *3

Columbus sued Arch, alleging that Arch improperly denied Columbus’ claim for vicarious liability
coverage under the policy.5 Id. Columbus argued that, since Arch had previously granted coverage
for the Villagra Claim, it was required to provide coverage for the Jesta Claim since the two were
“Related Claims” under the policy. Id. at *7 The court consideredthe issue pursuant to Ohio law.
Id. at *2830
Looking to the plain language of the “Related Claims” provision, the court ruled that it was
“broadly defined” in the policy. Id. at *9 In so finding, the Columbus Life court first relied on
the dictionary definition of “nexus,” finding that it was also broad, and included “a connection or
link, ofien a causal one.” Id. at *7 (citing Black’s Law Dictionary (10th ed. 2014)). Thus, the
judge rejected Arch’s argument that “Related Claims” required the source of the underlying claims
or the party pursuing such claims to be identical. Id. at *9 Instead, the court in Columbus Life
observed that the “Related Claims” provision “explicitly includes claims involving more than one
claimant and more than one event.” Id. at *7 Analyzing the two actions at issue there (Villagra
and Jesta), the Columbus Life court found that “[b]oth actions arose out of Papalia’s alleged
recommendation[s]

.

.

.

[and] misrepresent[ations]

.

.

.“

Id. at *9 Further, both actions “allege

that following Papalia’s recommendations resulted in IRS audits, unpaid taxes, penalties, early

As noted, Columbus is the “Sponsoring Company” under the Arch Policies. Therefore,
Columbus was insured for vicarious liability of the acts of its agents, specifically Papalia.
14

termination fees, and other damages.

.

.“

Id. Given these similarities, the court found a “common

nexus” between the underlying claims, and therefore concluded that they met the definition of
“Related Claims” under the Arch policy. Id6
The parties also cite to Lehigh Valley Health Network v. Executive Risk Indemnity, Inc.,
No. 99-5916, 2001 WL 21505 (E.D. Pa Jan. 10, 2001). There, plaintiffs brought a declaratory
judgment action, asking the court to determine which of the defendant insurance companies was
obligated to provide a defense and indemnification for two lawsuits brought against a hospital. Id.
at *1. The three defendant insurance companies had issued successive policies to the hospital
covering July 1993 to July 1999. Id. at *4• The underlying claims were filed by two different
doctors, Dr. Toonder and Dr. Angelico, against the hospital. Dr. Toonder filed one lawsuit, while
Dr. Angelico later sued in federal court followed by a state action. Id. at *23.. Dr. Toonder alleged
that he could not meet the hospital’s quotas without filling a vacant position and requested that the
hospital consider a candidate (who, it turned out, was Dr. Angelico) for the vacant position. Id. at
*2. The hospital agreed to consider a surgeon for the post but ultimately did not act on Dr.
Angelico’s application. Id. Dr. Angelico then sued the hospital and other health care providers in
federal court, alleging that the defendants conspired to keep him out of the relevant surgical

6

The court in Columbus Life also concluded that Arch had a duty to defend Columbus in the Jesta
Action. Id. at *11. The court rejected Arch’s argument that the Jesta Action was not covered
because it sought to hold Columbus directly liable rather than vicariously liable as contemplated
by the policy. Id. The court responded that the breadth of the duty to defend and the language of
the policy “anticipated and accepts a duty to defend where a claim includes both covered and
uncovered allegations.” Id. at * 10. Therefore, as long as there were some colorable claims of
vicarious liability, the duty to defend was triggered although Arch would not have to defend the
uncovered portions of the case. Id. The Columbus Lfe court further found that once an insurer
breaches its duty to defend, it cannot later contest coverage. Id. at *12. Thus, it held that since
“Arch wrongfully breached its duty to defend Columbus in the Jesta Action; it is estopped from
denying coverage under the Policy.” Id.
15

market. Id. The next year, Dr. Angelico only sued the hospital in state court, asserting many of
the same allegations as found in his federal complaint. Id. at *3•
The issue facing the court in Lehigh Valley was which insurance policy covered Dr.
Angelico’s lawsuits. The relevant language in the policy was substantially similar to the “Related
Claims” provisions here, but it was listed as an exclusion so that the burden of proof fell on the
insurance company. Id. at *8. In interpreting the exclusion, the Lehigh Valley court had to
determine whether Dr. Toonder’s suit qualified as a related claim to Dr. Angelico’s actions.

Id.

at *7
Applying Pennsylvania law, the Lehigh Valley judge concluded that the exclusion, as
applied to the facts of the case, was “ambiguous and should be construed against the[] drafter.”
Id. at *$• Analyzing the claims of Dr. Toonder with those of Dr. Angelico, the court found that
the claims were “too dissimilar and the nexus between them too attenuated for coverage to be
barred as related to a prior claim or litigation.” Id. at *9• Thus, the claims “differ[ed] to a sufficient
degree that they are not reasonably related to preclude coverage.” Id. While the disputed claims
concerned the same vacant position at the hospital, the court in Lehigh Valley noted that one suit
involved considering a qualified surgeon for the vacant position while the other involved the
placement of a particular physician in that position. Id. The court continued that the former suit
was narrow, alleging an inability to meet the hospital’s surgery quota without filling the vacancy,
while the second suit broadly claimed that several healthcare providers conspired to keep Dr.
Angelico out of the position. Id. Since two separate plaintiffs asserted two separate injuries and
each reflected distinct interests, the judge held that the claims were not related claims pursuant to
the exclusion. Id.

16

The next case, Connect America Holdings, LLC v. Arch Insurance Co., 174 F. Supp. 3d
894 (E.D. Pa. Mar. 31, 2016), involved an “interrelated wrongful acts” exclusion in an Arch policy.
The exclusion contained language similar to the provisions at issue here and also stated that
“claims for wrongful acts that are related to wrongful acts that occurred before the policy’s
inception date are not covered.” Id. at 902 (emphasis added). Thus, if the claims were not related,
it inured to the plaintiffs, not Arch’s, benefit. Arch took the position that the claims were, in fact,
related. Id.
The central issue in Connect America was whether claims asserted in a 2013 lawsuit were
“interrelated to claims that had been asserted in a [2009] lawsuit,” such that they would be
excluded from coverage. Id. at $97. Both suits involved the same parties and alleged that plaintiff
engaged in wrongful acts involving trademark infringement and unfair competition. Id. at 898.
The underlying cases were brought by Life Alert, a medical alert response systems company
famous for its trademark, “Help, I’ve Fallen and I Can’t Get Up.” Id. at 897-98. The plaintiff in
Connect America (defendant in the underlying suits) was a competitor of Life Alert. In the 2009

matter, Life Alert alleged that the plaintiff had engaged in wrongdoing through the use of website
“metatags.” In 2013, Life Alert asserted that the plaintiffs misconduct was effected through a
telemarketing scheme. Id. at 897-99. When the plaintiff sought coverage from Arch in the 2013
action, Arch denied coverage, citing the policy’s exclusion for interrelated claims, among others.
Id. at $99.

As noted, the interrelated wrongful acts exclusion was nearly identical to the “Related
Claims” provisions in the present action. The policy defined “Interrelated Wrongful Acts” as
“Wrongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction,
cause or series of causally connected facts, circumstances, situations, events, transactions or

17

causes.” Id. at 902. As is the case here, the parties disputed the meaning of “common nexus.” Id.
Arch, contrary to its current position, took the position that the term “common nexus” is interpreted
broadly.

ía.

Ultimately, the Connect America court found that the meaning of “common nexus”

was not clear, and, given the ambiguity, construed the provision against the insurer, Arch. Id.
Thus, the judge concluded that a “common nexus” required “a link between the acts.” Id.
Comparing the 2009 and 2013 actions, the court in Connect America noted several
similarities, namely that the parties were the same and that the cases asserted many of the same
causes of action with the same goal.

id. at 902-03.

Nonetheless, the judge found several

distinctions salient to its determination of whether coverage was excluded. first, the Connect
America court observed that the alleged means varied, with the 2009 case involving a website
scheme as opposed to the telemarketing strategy employed in 2013. id. at 903. Moreover, the
court continued, the two underlying actions were not temporally related: “The time that transpired
after the [2009] scheme ended and the [2013] scheme began, and the different conduct forming
the basis of the 2009 action and that complained of in the 2013 amended complaint militate against
a finding of a nexus.” Id. at 903. Accordingly, the Connect America court held that the 2013
claims were not adequately “interrelated” with the 2009 action to exclude coverage because they
did not “share a sufficient-connection or link” with the earlier matter. Id. at 904.
Another case cited by both parties is Cont’l Cas. Co. v. Wendt, 205 f.3d 1258 (11th Cir.
2000). In Wendt, two different lawsuits were filed against an attorney, with each alleging that he
gave inaccurate legal advice and made false and misleading statements regarding the legality of

As discussed below, the Court concludes that the relevant language is not ambiguous.
However, the Court agrees with the ultimate conclusion reached by the judge in Connect
America. The fact that two different schemes were employed (website metatags as opposed to
telemarketing) coupled the break in time between the two schemes militates in favor of finding
that the schemes were not related even though each had the same goal.
‘

18

certain securities investments. Id. at 1260. The allegations related to the attorney’s sale of
promissory notes on behalf of a Canadian corporation. Id. at 1259-60.
The lawsuits implicated the attorney’s professional liability insurance policy. Id. The
policy stated, in relevant part, that “the limit of liability stated for ‘each claim’ is the maximum we
will pay for all claims and claim expenses arising out of, or in connection with, the same or related
wrongful acts.” Id. (emphasis added). Employing Florida law, The Eleventh Circuit adopted a
broad definition of “related” as a “logical or causal connection between two events.” Id. at 1262.
Applying this definition, the court in Wendt found the two actions “related” because they were
“tied together because all were aimed at a single particular goal” of encouraging investment. Id.
at 1264. Thus, the Eleventh Circuit concluded, the two actions “comprised a single course of
conduct designed to promote investment.” Id. In so holding, the court found that the policy’s
language was not ambiguous. Id. at 1263.

The Wendt court further pointed to the factual

similarities between the two cases: the attorney appeared at seminars and indicated that he was a
securities law expert; the lawyer vouched for, and made representations as to, the legality of the
transactions; and the attorney performed various unethical activities aimed at securing investors in
the notes. Id. The Eleventh Circuit expressly rejected the attorney’s argument that the cases were
not related because they involved different individuals, the individuals were also different because
some were the lawyer’s clients, and the individuals were each affected differently by the attorney’s
actions. Id.
iii.

Arch’s Position in Other Matters
As discussed, Arch advocated for a broad reading of substantially the same language in

Connect America. There, the provision at issue was an exclusion, and therefore it inured to Arch’s

benefit to have the claims be related. 174 F. Supp. 3d at 902. Arch took the position that “nexus”

19

was broadly defined, and simply required “any fact, circumstance, situation, event, transaction,
cause or series of causally connected facts, circumstances, situations, events, transactions or causes
in common between wrongful acts.” Id. Arch has also taken this position in at least one other
case.
In Lafayette Life Insurance Co. v. Arch Insurance Co., 784 F. Supp. 2d 1034 (N.D. md.

2011), an affiliate of Columbus, Lafayette Life Insurance Company, sought coverage under
insurance policies with the same “Related Claims” definition as in this case. There, an insurance
agent, Gerald Kioppe, was alleged to have deceived dozens of people into spending money to swap
or buy life insurance policies through misleading statements and representations. Id. at * 1035.
One issue in the case involved whether a set of claimants’ allegations regarding Mr. Kioppe were
related to previous claims that involved Mr. Kioppe but were covered by a different life insurance
company, AmerUS Life Insurance Company (“the AmerUS Claims”). The ArnerUS Claims were
made before the Arch Policy was effective and therefore, if the current claims related to the
AmerUS Claims, they would not be covered by the Arch policy due to the “Related Claims”
provisions. Arch again took the position that “common nexus” should be given an expansive
definition, defined as “a connection, tie or link between individuals of a group, members of a
series, etc.” Jesse Decl. Ex. 8 at 16. Arch went on to conclude that the two sets of claimants had
related claims because they “encompasse[dj the common theme of [Mr. Kloppe] misrepresenting
the nature of the policy.

.

.

for his benefit and the benefit of his sponsoring company.” Id.

Defendant attempts to distinguish its prior arguments supporting a broad interpretation of
“nexus,” by alleging that the facts and circumstances of those cases were different and inapplicable
to the present action. Def. Defend Opp’n at 8. Yet, Arch provides no information or analysis

20

distinguishing the facts or the law. As a result, the Court finds Arch’s attempts to distinguish its
conflicting positions dubious at best.
iv.

Arch’s Duty to Defend Papalia
The Court now turns to interpreting the “Related Claims” provisions, determining whether

the relevant claims are related, and deciding whether Arch has a duty to defend Papalia. Plaintiff
points to the term “all” in the “Related Claims” definition and the broad definition of “nexus” to
argue that “Related Claims” should be interpreted broadly to focus on similarities, not differences,
between claims. P1. Defend Br. at 22-25. Defendant responds that “Related Claims” includes
“only claims with a direct and substantial nexus of facts, such as those by the same persons who
suffered losses by the same harm.” Def. Defend Opp’n at 8.
Looking to the plain meaning of the Arch Policies, the “Related Claims” definition is
extraordinarily broad, applying to “at! Claims

.

.

.

that have as common nexus any fact,

circumstance, situation, event, transaction, cause or series of causally connected facts,
circumstances, situations, events, transactions or causes.” Jesse Deci. Ex. 5 at ARCH 14688, Ex.
6 at ARCH15Y47, Ex. 7 at ARCHY6182 (emphases added). First, the provision uses the word
“all.” No exceptions are listed. See Estate of Picon v. FBR Gip., No. A-2305-12T3, 2013 WL
5610862, at *3 (N.J. Super. Ct. App. Div. Oct. 15, 2013) (finding the terms “any and all” to be
“quite broad”). Second, the provision applies to “any” fact, situation, circumstance, transaction,
event, cause or a causally related series thereof. The policy uses the word “any” as opposed to a
word of limitation such as, for example, “substantial,” or “significant.” Id.
As to “nexus,” since it is not defined in the policy, the Court will rely on its dictionary
definition in deciding its ordinary meaning. See Cypress Point Condo. Ass ‘n, mc, 226 N.J. at 425
(relying on dictionary definition of a term to determine its ordinary meaning in an insurance

21

contract). As a result, the Court agrees with Columbus Lfe court’s interpretation. There, the court
looked to the following dictionary definitions of “nexus”:
The Merriam-Webster on-line dictionary defines “nexus” as “a
relationship or connection between people or things,” and a
“connection, link; also: a causal link; a connected group or series;
center, focus.” Black’s Law Dictionary defines “nexus” as “a
connection or link, often a causal one.”
Columbtts L(fe Ins. Co., 2016 WL 2865952, at *7 (internal citations omitted). The Court adopts
the same definition. Id. The Court notes that Arch, in prior cases, has advocated for a similarly
broad interpretation. Thus, “claims can be related if they arise from a nexus of logically or causally
related facts.” Id. at *8.
Moreover, the Court agrees with the determination made in Columbus Lfe and finds the
language of the Arch Policy to be clear and unambiguous. While the Lehigh Valley court found a
similar related claims provision ambiguous, it did not explain why it reached that conclusion.

8

In

fact, the Lehigh Valley decision did not have a detailed analysis of the relevant policy language.
Even if this Court were to agree with the Lehigh Valley court and find the policy ambiguous, the
ambiguity would be resolved against Arch as the insurance company. See Memorial Props., LLC,
210 N.J. at 525 (finding that ambiguities must be resolved in favor of the insured); see also Lehigh
Valley Health Network, 2001 WL 21505 at *9 (resolving ambiguity in favor of insured).
The Court must next determine whether the Benefit Plan Claimants and the Life Insurance
Claimants are “Related Claims” as to the prior relevant actions covered by Arch. Plaintiff asserts

8

In the cases discussed, the courts have been split as to whether similar language is ambiguous.
Besides Lehigh Valley, the court in Connect America also found the language to be ambiguous.
However, like Lehigh Valley, Connect America ruled that the language was ambiguous without
explanation except to note that the parties disagreed as to its meaning. On the other hand, the
Wendt court did not find any ambiguity. In the Court’s view, the judge in Columbus Lfe performed
a more substantive analysis of the language and the Court finds the reasoning to be persuasive.
22

that the Villagra, Toplin, and Bryan Actions “share common allegations and arise from the same
set of circumstances as the

[] Benefit Plan Claims,” making them “Related Claims” under the 2011

and 2012 Arch Policies. P1. Defend Br. at 22. Similarly, Plaintiff argues that the Life Settlement
Claims “share commonalities with and arise from the same circumstances as the Liebowitz Claim,”
making them “Related Claims” under the 2010 Arch Policy. Id. Additionally, Plaintiff asserts
that the fact that the many of the claimants had the same attorney is an indicator that they are
“Related Claims.” Id. at 27 (pointing out that the Benefit Plan Claimants are all represented by
the Harris Law Firm). Further, the fact that the attorney demand letter stated that the claimants
would assert common issues also indicates that the claims are related, according to Plaintiff. Id.
at 12.
Defendant advances numerous arguments in support of its motion for summary judgment
and in opposition to Plaintiffs motions. The Court will address each argument in turn.
Defendant first argues that since the Arch Policies are claims made policies, Plaintiff
caimot “demand[] coverage for claims first made and reported after [the] expiration of the
Policies.” Def. Br. at 8. Arch misstates the central issue here. The issue is not whether the policy
is a claims made or occurrence policy. Both parties admit the Arch Policies are claims made
policies. Rather, the issue is whether the “Related Claims” provisions bring the contested claims
within the purview of the Arch Policies.
Defendant then argues that it is immaterial that many of the claimants in the Benefit Plan
Claimants have the same attorney. Def. Defend Opp’n at 12. The Court agrees and does not
consider counsel relevant in deciding whether the claims are related. However, Defendant also
argues that “[a]llegations about anticipated common testimony contained in a demand letter

.

.

likewise has no bearing on whether these claims are related.” Id. Defendant argues that the Court

23

should “disregard” an attorney demand letter because it is “self-serving” and “designed to
intimidate an insurer.” Id. at 12-14. Plaintiff responds that, among other things, the demand letter
is a “claim,” which Arch has a duty to defend. P1. Defend R.Br. at 2 n.l The Court disagrees with
Arch as to the relevance of the demand letter. First, the demand letter is a “Claim” under the Arch
policies. Moreover, the demand letter indicates the same allegations to which all claimants will
attest, and these similarities support a finding that the claims are related. See Connect America,
174 F. Supp. 3d at 904 (finding that while the opinion of counsel in the underlying case is not
dispositive, it is probative to the relatedness of the claims). Finally, while it claims the demand
letter to be self-serving, Arch fails to point to any inaccuracies or misstatements in the letter.
Arch additionally argues that the “Related Claims” provision applies the date a claim is
reported. Def. R.Br. at 2. But this contention is easily refuted by the actual language of the
“Related Claims” provision. The language clearly states that any related claims date back to the
first related claim.

See Jesse DecI. Ex. 5 at ARCH14693, Ex. 6 at ARCHI5152, Ex. 7 at

ARCH 16187 (“All Related Claims shall be deemed a single Claim

.

.

.

and such Claim shall be

consideredfirst made on the date the earliest such Related Claim is first made against an Insured,
regardless of whether such date is before or during the Policy Period.” (emphasis added)). See
also Columbus Life Ins. Co., 2016 WL 2865952, at *9 (finding that the post-policy claim was
considered to have been made on the date its “related” claim was first reported). Thus, the Court
finds Defendant’s argument unpersuasive.
Arch also argues that the claims are not related because they involve different parties. Def.
Defend Opp’n at 9-10. This assertion, again, is easily refuted by the express language of the policy,
which defines “Related Claims” as “all Claims, whether made against more than one Insured or
by more than one claimant...” Jesse Decl. Ex. 5 at ARCH14688, Ex. 6 at ARCH 15 147, Ex. 7 at

24

ARCHI6182 (emphasis added); see also Columbtts Life Ins. Co., 2016 WL 2865952, at *9
(holding that the Arch Policy’s “Related Claims” provision does not require that “the source of the
claims be identical,” but rather allows for claims made “by more than one claimant”). The Court
therefore finds that separate parties can bring “Related Claims” under the Arch Policies.
Lastly, Arch argues that the Benefit Plan Claims and Life Settlement Claims do not share
a connection or “nexus” with their predecessor claims, and therefore they are not related under the
Arch Policies. Def. Defend Opp’n at 11-20. However, Arch does not analyze the terms of the
“Related Claims” provision in making this argument. Also, Arch trivializes the similarities cited
by Plaintiff, comparing them to “both claims being for money damages, both being made by
American citizens, both being made on Wednesdays.” id. at 11. This comparison is, at best, an
inaccurate depiction of the numerous and central commonalities shared by the Benefit Plan
Claimants and the Life Settlement Claimants.
The Court finds that the Benefit Plan Claims are, under the policies, related to the claims
in the Villagra, Toplin, and Bryan actions. The Court further finds that the Life Insurance Claims
are “Related” to the Liebowitz claim. Therefore, Arch has a duty to defend the Benefit Plan and
Life Insurance Claims.
Here, Papalia is alleged to have engaged in two distinct schemes: (1) the Benefit Plan
scheme; and (2) the Life Insurance scheme.9 In the Benefit Plan scheme, the claimants allege that
Papalia misrepresented that the Cronin Benefit Plans were a legitimate retirement investment,
virtually all of the contributions to the plans would qualify for advantageous tax treatment, and
participants in the plans could withdraw funds on a tax-free basis. Initially, Papalia advised clients

The Court would be sympathetic to Arch’s position if Papalia asserted that the Benefit Plan
Claims were related, under the policies, to the Life Insurance claims. But Papalia does not make
that argument.
25

to establish plans under Section 419 of the IRS Code. Subsequently, the IRS changed the rules
governing the tax deductibility of contribution plans established under Section 419 and the IRS
had also provided prior warnings concerning such plans. In response, Papalia advised clients to
establish new Cronin Benefit Plans under Sections 79 or 83, which Papalia represented had similar
tax benefits as Section 419 Plans. Soon thereafter, the IRS audited the Benefit Plan Claimants
resulting in tax liability and penalty to the participants. These commonalities are true of both the
Benefit Plan Claimants as well as the Villagra, Toplin and Bryan Actions.
The Court agrees with the following analysis by the court in Columbus Life held when
comparing the Villagra and Jesta Actions:
Both actions arose out of Papalia’s alleged recommendation that the
Villagras and the Jesta Rx Group create the same type of taxadvantaged plan funded by Columbus insurance policies. In both
actions, Papalia allegedly misrepresented the tax advantages of the
plans, and concealed the truth about the plans. Both actions allege
that following Papalia’s recommendations resulted in IRS audits,
unpaid taxes, penalties, early termination fees and other damages to
the plaintiffs.
2016 WL 2865952, at *9 While in this case, the plans were funded by insurance policies that
were not issued by Columbus, the Court does not find that difference to be material. The source
of the insurance policies had no impact on the success of the scheme. To be sure, the scheme
depended on life insurance policies but it did not matter who issued them. The claims here involve
the same misrepresentations, the same types of welfare benefit plans, and the same result.
Importantly, they all relate to Papalia’s overarching scheme

—

to financially benefit from selling

welfare benefit plans by misrepresenting the policies as tax-deductible investments. See, e.g.,
DSOMF ¶ 92-105 (describing how Papalia urged the Villagra Claimants to place their funds in a
Section 419 Plan, told them the contributions would be tax deductible, and the claimants suffered
as a result), Id.

¶J

146-150 (explaining how Papalia solicited the Tuscano Claimants to establish
26

Section 419 Plans, misrepresented the conditions of the plan and subsequently the Tuscano
Claimants incurred large fees as a result).
In Wendt, the Eleventh Circuit found that an attorney’s false and misleading statements to
various clients regarding the legality of securities investments were “tied together because all were
aimed at a single particular goal” of encouraging investment. 205 f.3d at 1264. The Wendt Court
concluded that the attorney engaged in a “single course of conduct designed to promote
investment.” Id. Similarly, here, Papalia had a single particular goal: to have his clients invest,
through life insurance, in the same plan that would not provide the promised tax benefits.
The same analysis applies to the Life Settlement Claims and the Liebowitz Claim. Once
again, Papalia had a single overarching goal: to sell unsuitable life insurance policies to the
claimants so that Paplia could collect large commissions. All claimants were unable to later sell
their policies on the secondary market, or sold them at a loss, despite Papalia’s advice to the
contrary.
Again, these commonalities demonstrate that each client was part of an overall plan and
that Papalia had a common goal. Also, the Life Settlement Claims and the Liebowitz Claim share
the same recommendations and misrepresentations made by Papalia, and the same consequences
as a result. See, e.g., Def. Br. at 14 (stating that Papalia recommended Liebowitz purchase life
insurance that “exceeded Mr. Liebowitz’s particular financial needs” and then Liebowitz “was
unable able to sell several of the new policies [on the] secondary market”); DSMOF

¶J 70-77

(describing how Papalia convinced the Bingman Claimants to purchase a policy that he said could
be resold for a profit on the secondary market, and then “resale of the policy for any profit [became]
impossible”). Therefore, the Life Settlement Claims share a “common nexus” with the Liebowitz
claim and thus are “Related Claims” for the purpose of the Arch Policies, with one exception.

27

Arch’s duty to defend the Meisinger claim does not extend to the allegations concerning back
dating, which is an allegation unique to Meisingert°
Since the Benefit Plain Claims are “related” to the Villagra, Toplin and Bryan actions, and
the Life Settlement Claims are “related” to the Liebowitz action, Arch has a duty to defend the
related claims pursuant to the relevant policies. See Abouzaid, 207 NJ. at $0.
Plaintiff further asks this Court to require Arch to reimburse Papalia for the past defense
costs he paid in connection with the Benefit Plan and Life Settlement Claims. P1. Defend Br. at
35. The Court denies Plaintiffs request for the reimbursement of specific amounts at this time

because full discovery on the issue has not been taken. Following complete discovery, the parties
can seek any relief which they deem appropriate.
v.

Limit of Liability under the Arch Policy
The final issue raised by Defendant is Papalia’s limit of liability under the Arch Policy.

Specifically, Arch argues that the limit is shared with Columbus as the “Sponsoring Company.”
Def. Br. at 27-2$. The Arch Policies provide that “each Agent” has his or her own limit of liability:
“Limit of Liability Each Agent: The Limit of Liability of the Insurer for all Loss for all Claims
first made Against each Agent during the Policy Period.

.

.

shall not exceed the amount stated in

Item 4 of the Declarations as Aggregate Each Agent.” Jesse Deci. Ex. 6 at ARCH15 152. Agents

The letter written by Ms. Meisinger’s attorneys states that “[t]he fundamental reason why the
Papalia had back-dated the Policy.” See Papalia
Trust had depleted its assets was because
Decl. Ex. 24 at AMP6O2. Additionally, the letter discusses new calculations that dramatically
increased Ms. Meisinger’s life expectancy calculation and “[t]he effect of the increase life
expectancies was to decimate the ‘re-sale’ value of the Policy on the life settlement market.” Id.
at AMP6O6. It therefore appears that both the back-dating and the change in Ms. Meisinger’s life
expectancy calculations contributed to the de-valuing of her policy and subsequent inability to sell
it in the secondary market. The Leibowitz claim does not address alleged back-dating nor do the
allegations of the other Life Insurance Claimants. As a result, Arch’s duty to defend does not
encompass Meisinger’ s allegations of back-dating.
10

.

.

.

28

could choose among four different limits of liability, with each option resulting in a different
premium.

Id. at ARCH15Y4O-41.

Mr. Papalia selected “Option 4,” providing him with a

$4,000,000 limit of liability for “Each Claim” and “Aggregate Each Agent for the Policy Period.”
Id. at ARCH15 141. There is no dispute that Papalia paid the necessary premiums.
The Sponsoring Company, Columbus, is only covered for vicarious liability under the
policy. Id. at ARCH 15143

§ I.C. The limits of liability for the Sponsoring Company are set forth

as follows:
3. Limit of Liability Sponsoring Company. .: No Additional Limits
of Liability are provided to the Sponsoring Company under Section
I.C.
[.1 The Limit of Liability of the Insurer for Loss for all
during the
Claims first made against the Sponsoring Company.
of Liability applicable to the
shall be the Limit
Policy Period
gave rise to the Claim
Agent whose Wrongful Act
[.j If a
the Sponsoring Company includes covered and
Claim made against
uncovered allegations or Loss or both, the Sponsoring Company and
the Insurer agree to use their best efforts to allocate such amounts
based on the relative exposure of the parties to covered and
uncovered Loss or Defense Costs or both.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

Id. at ARCH 15152. This provision does not expressly limit or reduce the limit of liability for the
Agent. Rather, it provides that the limit of liability for the Sponsoring Company cannot be greater
than, or “additional” to, the limit selected by the Agent. In other words, Columbus could not select
an amount higher than that selected by the Agent. Here, Papalia selected the maximum coverage
and paid for it. There is no language indicating that the limit of liability is “shared” between the
Agent and Sponsoring Company. Thus, this provision is unambiguous and does not provide for a
shared limit of liability between Papalia, as the Agent, and Columbus, as the sponsoring company.
This interpretation is buttressed by other provisions in the policy, for example, the CPA
endorsement, provides as follows:
tt]he Limits of Liability Available to a CPA by virtue of this
endorsement shall be part of and not in addition to, that Limit of
29

Liability that is applicable to the Agent for whom the CPA is
allegedly vicariously liable. No separate Limit of Liability is
afforded to a CPA, and this endorsement in no way serves to
increase the Limits of LiabilTh’ of an Agent(’s,) as stated in the
Declarations.
Id. at ARCH 15167 (emphases added). This endorsement makes clear that the limits of liability as
to CPAs (1) are “part of, and not in addition to,” an agent’s limit of liability; and (2) do not increase
an agent’s liability coverage. The language in the CPA provision stands in stark contrast to that
in Sponsoring Company section. The drafter of the policies, Arch, used materially different
language in the two sections. Arch argues that the Sponsoring Company provision says that same
thing as the CPA provision. P1. Defend R.Br. at 11-12 (“{B]oth the shared Limit of Liability
provision and CPA endorsement express the same concept..

.

.

Although using different ordinary

words, the provision and endorsement say the say same thing.”). It doesn’t.
If the Court accepted Arch’s argument, then the Court would conclude that the important
differences between these two provisions would render the limit of liability provisions ambiguous.
See Cypress Point Condo. Ass ‘n, Inc., 226 N.J. at 416 (“The court’s responsibility is to give effect

to the whole policy, not just one part of it.”). Thus, the Court would construe the provision against
the insurance company, Arch, and find that Papalia has an individual limit of liability of
$4,000,000, not shared with Columbus. See Memorial Props., LLC, 210 N.J. at 525 (finding that
ambiguities must be resolved in favor of the insured))’
Therefore, the Court denies Defendant’s motion for summary judgment on limiting
Plaintiffs liability.
Moreover, when contract language is ambiguous, courts look to the reasonable expectation of
the insured. See Flomerfelt, 202 N.J. at 441 (“If the terms are not clear, but instead are ambiguous,
they are construed against the insurer and in favor of the insured, in order to give effect to the
insured’s reasonable expectations.”).

30

vi.

Collateral Estoppel12
Plaintiff moves separately for partial summary judgment on the issue of collateral estoppel.

P1. Est. Br. at 5. He argues that because the Columbus Life Opinion held that the Jesta and Villagra
actions are “Related Claims” under the Arch Policy, Arch is collaterally estopped from re-litigating
the issue of whether these two actions are “Related Claims” under the Arch Policies. Id.
“Issue preclusion, or collateral estoppel, prevents parties from re-litigating an issue that has
already been actually litigated.” Fresh Prepared foods, Inc. v. farm Ridge foods LLC, No. 10-

63 10, 2013 WL 4804816, at *7 (D.N.J. Sept. 9, 2013). “The prerequisites for the application of
issue preclusion are satisfied when: ‘(1) the issue sought to be precluded [is] the same as that
involved in the prior action; (2) that issue [was] actually litigated; (3) it [was] determined by a
final and valid judgment; and (4) the determination [was] essential to the prior judgnient.”
Burlington N. R.R. Co. v. Hyundai Merch. Marine Co., 63 F.3d 1227, 123 1—32 (3d Cir. 1995)

(quotingln re Graham, 973 F.2d 1089, 1097 (3d Cir. 1992)).
Defendant argues that the issues presented in Columbus Life and in the current action are
not identical. Def. Est. Opp’n at 3. In particular, Arch points out that “all issues presented by
Colum bits Lfe were decided under Ohio law.” Id. at 3. Since this case is being decided under

New Jersey Law, Arch contends that the issues are not truly “identical.” Id.
The Court finds this argument dispositive and therefore does not reach the remainder of
the parties’ arguments on the issue of collateral estoppel. “For issue preclusion to apply, the issue
decided in the prior adjudication must have been identical to the one presented in the later action.”
Hitchens v. Cty. ofMontgomery, 9$ F. App’x 106, 111—12 (3d Cir. 2004). In Columbus LiJ, the

A Federal Court applies federal law to determine the preclusive effects of a prior judgment.
ParamountAviation Corp. v. Agusta, 17$ f.3d 132, 145 (3d Cir. 1999).
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court applied Ohio law. 2016 WL 2865952, at *4

Here, the Court has applied New Jersey law.

Although the Court concluded that New Jersey law would ultimately be applied in the same
manner as Ohio law in Cotttnthits Life, this conclusion was reached after an independent review of
New Jersey law.
Since the issues presented in Columbus Lfe and this action are not identical, specifically
different states’ law apply, the Court declines to give the prior issue preclusive effect.

See

Koshatka v. Phila. Newspapers, Inc., 762 f.2d 329, 337 (3d Cir. 1985) (finding a federal Section
301 action distinct from a common law oral contract claim and therefore not giving the former
preclusive effect). Nonetheless, as noted, the Court finds the reasoning and conclusion of the
Columbus Life Court persuasive and equally applicable under New Jersey law. The Court denies

Plaintiffs motion as to collateral estoppel.
3. CONCLUSION

F or the reasons set forth above and for good cause shown, the Court DENIES Defendant’s
motion for summary judgment as to limits of liability and Arch’s request for a declaratory
judgment. The Court DENIES Plaintiffs motion for summary judgment with respect to the issue
of collateral estoppel and GRANTS Plaintiffs motion for summary judgment as to Arch’s duty
to defend but denies Plaintiffs request (to the extent he is making it) for payment of specific
amounts. Arch is entitled to additional discovery on the amounts allegedly paid by Plaintiff. An
appropriate Order accompanies this Opinion.

Date: August 1, 2017

JOHN MICHAEL ZJJIEZ
UNITED STATES DISfRICT JUDGE

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