Abrams et al v. RSUI Indemnity Company

Filing 66

OPINION AND ORDER re: 38 MOTION for Summary Judgment . filed by Robert S. Abrams Living Trust, Robert S. Abrams, 42 CROSS MOTION for Summary Judgment . filed by RSUI Indemnity Company. The Court has considered all of t he arguments raised by the parties. To the extent not specifically addressed, the arguments are either moot or without merit. For the foregoing reasons, the plaintiffs' motion for summary judgment is denied and the defendant's motion for summary judgement is granted. The Clerk is directed to close all pending motions and to enter judgment dismissing this action. SO ORDERED. (Signed by Judge John G. Koeltl on 8/10/17) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
ROBERT S. ABRAMS and ROBERT S.
ABRAMS LIVING TRUST,
16-cv-4886 (JGK)
Plaintiffs,
OPINION AND ORDER
- against –
RSUI IDEMNITY COMPANY,
Defendant.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
These are cross-motions for summary judgment in a dispute
between the plaintiffs, Robert S. Abrams (“Abrams”) and Robert
S. Abrams Living Trust (the “Trust”), and the defendant, RSUI
Indemnity Company (“RSUI”). The dispute concerns whether,
pursuant to a directors and officers liability insurance policy
(the “D&O Policy”), RSUI is required to pay for the plaintiffs’
defense expenses incurred before Abrams notified the defendant
that a lawsuit had been brought against him (the “pre-notice
defense expenses”).
The plaintiffs move for summary judgment under Rule 56 of
the Federal Rules of Civil Procedure. RSUI cross-moves for
summary judgment, seeking dismissal of the plaintiffs’ current
Complaint.

I.
The following facts are undisputed, unless otherwise
noted.
Abrams is a citizen of New York; Abrams is the sole grantor
and trustee of the Trust. (Second Am. Compl. ¶¶ 4-5; Docket No.
65 (letter to the Court).) During all relevant times, Abrams was
an officer and director, as well as the managing member of CVH
Holdings LLC (“CVH”). (Plaintiffs’ Rule 56.1 Statement of
Material Facts (“Pls.’ 56.1 Stmt.”) ¶ 1; Defendant’s Rule 56.1
Statement of Material Facts (“Def.’s 56.1 Stmt.”) ¶ 3.)

RSUI is

a New Hampshire corporation with its principle place of business
in Atlanta, Georgia. (Def.’s Answer to Second Am. Compl. ¶ 8.)
This Court has jurisdiction pursuant to 28 U.S.C. § 1332 based
on diversity of citizenship.
In August 2014, CVH purchased insurance coverage from RSUI
under a $3 million claims-made-and-reported D&O Policy, Policy
No. HP653628, for the policy period of August 11, 2014 through
August 11, 2015. (Pls.’ 56.1 Stmt. ¶¶ 4-5; Def.’s 56.1 Stmt.
¶ 1.) The plaintiffs are insured parties or third-party
beneficiaries under the D&O Policy. (Pls.’ 56.1 Stmt. ¶ 4.) On
January 29, 2015, CVH purchased an additional insurance policy
from the defendant, which updated some of the terms of the D&O
Policy and insured CVH through January 29, 2021 for claims

2

stemming from conduct occurring prior to January 29, 2015.
(Pls.’ 56.1 Stmt. ¶ 7; Def.’s 56.1 Stmt. ¶ 2.)
The D&O Policy provides that the defendant will pay for the
insureds’ loss “if a Claim for a Wrongful Act is first made
against any Insured Person during the Policy Period . . . and
reported in accordance with SECTION V. – CONDITIONS, C. Notice
of Claim or Circumstance of this policy . . . .” (D&O Policy
§ I(A) (available at Docket. No. 41-1) at 37 (emphasis in
original).) The D&O Policy’s “Notice of Claim or Circumstance”
provision provides that:
If, during the Policy Period or Discovery Period (if
applicable), any Claim is first made, it shall be a
condition precedent to the Insurer’s obligation to pay,
that the Insured give written notice of such Claim to
the Insurer (via certified mail at the address shown on
the Declarations Page), as soon as practicable after
such Claim is first made, but in no event shall such
notice be given later than thirty (30) days after either
the expiration date or any earlier cancellation date of
this policy.
(D&O Policy § V(C)(1) (emphasis in original).)
In addition, the D&O Policy’s “Duty to Defend” provision
provides that:
No Insured may incur any Defense Expenses, admit
liability for or settle any Claim or negotiate any
settlement without the Insurer’s prior written consent;
such consent not to be unreasonably withheld. Any
Defense Expenses incurred or settlements made without
the prior written consent of the Insurer will not be
covered under this policy.
(D&O Policy § V(A) (emphasis in original).)

3

The D&O Policy defines “Defense Expenses” as:
[R]easonable and necessary legal fees and expenses
incurred, with the Insurer’s consent, by any Insured
in defense of a Claim, including any appeal therefrom.
(D&O Policy § III(C) (emphasis in original).)
The D&O Policy also contains a “Governing Law Clause,” which
states that the D&O Policy should be construed in accordance
with the laws of the state in which the insured organization is
incorporated. (D&O Policy § V(S).) Because CVH was incorporated
under the laws of Delaware, the parties do not dispute that the
D&O Policy is interpreted in accordance with Delaware law.
(Def.’s Mem. of Law at 3; see also Pls.’ Mem. of Law at 8 n.4.)
On March 13, 2015, Southern Advanced Materials (“SAM”), an
investor in CVH, filed a suit against the plaintiffs in the
Supreme Court of the State of New York, alleging that Abrams
breached various contractual agreements, and that Abrams
breached his fiduciary duty as manager of CVH (the “SAM
Action”). (Pls.’ 56.1 Stmt. ¶¶ 14-17; Def.’s 56.1 Stmt. ¶¶ 6-7.)
More than a year later, in April of 2016, the plaintiffs
sent a letter of notice regarding the SAM Action to AON Risk
Solutions (“AON”), who then forwarded the letter to RSUI. (Pls.’
56.1 Stmt. ¶ 21; Defendant’s Counterstatement in Opposition to
the Plaintiffs’ 56.1 Stmt. (“Def.’s Counterst.”) ¶ 21.)

The

plaintiffs demanded that the defendant reimburse the plaintiffs
for defense expenses incurred prior to notice and provided
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attorney invoices to RSUI totaling more than $3.5 million.
(Def.’s 56.1 Stmt. ¶ 18, Plaintiffs’ Counterstatement in
Opposition to the Defendant’s 56.1 Statement (“Pls.’
Counterst.”) ¶ 18.) The aggregate limit on the policy, including
defense expenses, is $3 million.

(See D&O Policy Item 3,

§ V(B)(1).)
On May 17, 2015, RSUI denied all coverage, including for
all defense expenses pertaining to the SAM Action, because
notice to the defendant was late. (Pls.’ 56.1 Stmt. ¶ 22; Def.’s
56.1 Stmt. ¶ 11.)
On June 23, 2016, the plaintiffs brought this action
against RSUI alleging that the defendant breached the D&O
Policy. (Pls.’ 56.1 Stmt. ¶ 25.) The parties have since resolved
some of the issues pertaining to RSUI’s late notice defense.
(Pls.’ 56.1 Stmt. ¶ 32; Def.’s 56.1 Stmt. ¶ 13.) On December 9,
2016, the plaintiffs filed a Second Amended Complaint, claiming
that RSUI breached the D&O Policy by refusing to pay for the
plaintiffs’ pre-notice defense expenses incurred during the SAM
Action. (Pls.’ 56.1 Stmt. ¶¶ 35-36; Def.’s 56.1 Stmt. ¶ 18.)
RSUI maintains that because Abrams did not notify RSUI of the
SAM Action in accordance with the D&O Policy, the defendant is
not obligated to pay for any defense expenses incurred by the
plaintiffs prior to notification. Both parties now move for
summary judgment on the claim.
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II.
The standard for granting summary judgment is well
established. “The [C]ourt shall grant summary judgment if the
movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986); Darnell v. Pineiro, 849 F.3d 17, 22 (2d Cir.
2017). “[T]he trial court’s task at the summary judgment motion
stage of the litigation is carefully limited to discerning
whether there are genuine issues of material fact to be tried,
not to deciding them. Its duty, in short, is confined at this
point to issue-finding; it does not extend to issue-resolution.”
Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1224
(2d Cir. 1994).
The moving party bears the initial burden of “informing the
district court of the basis for its motion” and identifying the
matter that “it believes demonstrate[s] the absence of a genuine
issue of material fact.” Celotex, 477 U.S. at 323. The
substantive law governing the case will identify those facts
that are material and “[o]nly disputes over facts that might
affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

6

In determining whether summary judgment is appropriate, a
court must resolve all ambiguities and draw all reasonable
inferences against the moving party. See Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986) (citing
United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see
also Gallo, 22 F.3d at 1223. Summary judgment is improper if
there is any evidence in the record from any source from which a
reasonable inference could be drawn in favor of the nonmoving
party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d
Cir. 1994). If the moving party meets its burden, the nonmoving
party must produce evidence in the record and “may not rely
simply on conclusory statements or on contentions that the
affidavits supporting the motion are not credible . . . .” Ying
Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993);
see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998)
(collecting cases). If there are cross-motions for summary
judgment, the Court must assess each of the motions and, drawing
all reasonable inferences against the party whose motion is
under consideration, determine whether either party is entitled
to judgment as a matter of law. Law Debenture Trust Co. of New
York v. Maverick Tube Corp., 595 F.3d 458, 468 (2d Cir. 2010);
see also Two Farms, Inc. v. Greenwich Ins. Co., 993 F. Supp. 2d
353, 358 (S.D.N.Y. Jan. 7, 2014).

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III.
The plaintiffs contend that the defendant is liable for
pre-notice defense expenses because the D&O Policy does not
explicitly disclaim pre-notice defense expenses and that RSUI
should be required to show prejudice before denying the
plaintiffs’ claim for pre-notice defense expenses.
Under Delaware law, “the interpretation of contractual
language, including that of insurance policies is a question of
law.” O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 286
(Del. 2001).

An unambiguous contract is construed according to

its terms. See Citadel Holding Corp. v. Roven, 603 A.2d 818, 822
(Del. 1992) (“It is an elementary canon of contract construction
that the intent of the parties must be ascertained from the
language of the contract. Only when there are ambiguities may a
court look to collateral circumstances.” (internal citations
omitted)); see also Picture Patents, LLC v. Aeropostale, Inc.,
788 F. Supp. 2d 127, 137 (S.D.N.Y. Apr. 18, 2011).

“Clear and

unambiguous language in an insurance policy should be given its
ordinary and usual meaning.”

Rhone-Poulenc Basic Chemicals Co.

v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992).
“Absent some ambiguity, Delaware courts will not destroy or
twist policy language under the guise of construing it.”

Id.

When an insurance contract’s language is clear and unequivocal,
a party will be bound by its plain meaning, because creating an
8

ambiguity where none exists could in effect create a new
contract with rights, liabilities, and duties to which the
parties had not assented.

Id. at 1195-96. “Contracts are to be

interpreted in a way that does not render any provisions
illusory or meaningless.”

O’Brien, 785 A.2d at 287 (citation

and quotation marks omitted). 1
The plaintiffs argue that the D&O policy issued by the
defendant does not have a no-voluntary-payments provision
disclaiming coverage for payments voluntarily incurred,
emphasizing that the terms “voluntary” or “voluntarily” do not
appear in the policy.

But the substance of the policy plainly

requires the plaintiffs to notify the defendant before the
plaintiffs can incur any reimbursable defense expenses.

The

substantive provisions of the policy preclude coverage for
defense costs voluntary incurred prior to notice to the insurer.
The D&O policy explicitly provides that “[n]o Insured may incur
any Defense Expenses . . . without the Insurer’s prior written
consent,” and that “[a]ny Defense Expenses incurred . . .
without the prior written consent of the Insurer will not be
covered under this policy.” (D&O Policy § V(A) (emphasis in
original).) Moreover, the D&O Policy explicitly states that

1

Despite agreeing that Delaware law controls, both parties also
include arguments under New York law. Under both Delaware and New York
law, unambiguous contracts are interpreted in accordance with their
plain meaning. See Wisdom Imp. Sales Co., L.L.C. v. Labatt Brewing Co.
Ltd., 339 F.3d 101, 109 (2d Cir. 2003).

9

notice is a “condition precedent to the Insurer’s obligation to
pay” and unambiguously defines defense expenses as “expenses
incurred, with the Insurer’s consent.” (D&O Policy §§ V(C)(1) &
III(C)(emphasis in original).)

The clear import of these

repeated and unambiguous references to consent prior to coverage
is that any expenses incurred by the insureds prior to providing
notice would be voluntarily paid by the insureds and thus
properly disclaimed by the defendant.

Accordingly, the argument

that the policy does not contain a no-voluntary-payments
provision is without merit. 2
Here, it is plain that the plaintiffs failed to comply with
the unambiguous terms of the policy when they waited for over a
year and incurred over $3.5 million in legal fees before
notifying the defendant of the SAM Action.

Nevertheless, the

plaintiffs assert that Delaware law would likely require an
insurer to show prejudice before it could prevent recovery of
pre-notice defense expenses.

The argument is without merit.

2

The plain terms of the policy make this case distinguishable from
Consolidated Edison Co. of New York, Inc. v. Lexington Ins. Co., No.
14-CIV-6547 (CM)(JLC), 2015 WL 4611206, at *10 (S.D.N.Y. July 30,
2015). The policy at issue in Consolidated Edison did not appear to
have a no-voluntary-payments provision; the court affirmatively stated
that it reviewed the policy and could not locate a no-voluntarypayments provision and that the parties could not locate one either.
See id. It should also be noted that the policy at issue in
Consolidated Edison was examined pursuant to the laws of New York
rather than Delaware. See id.

10

A Delaware court has previously interpreted a largely similar
policy provision and concluded that an insurer “would not have
been required to provide a defense to” the insured until the
insured provided notice to the insurer.

Home Ins. Co. v. American

Ins. Group, No. CIV.A. 97C-04-024 (WLW), 2003 WL 22683008, at *45 (Del. Super. Ct. Oct. 30, 2003); compare id. at *4 (“No insured
will, except at their own cost, voluntarily make a payment, assume
any obligation, or incur any expense other than for first aid,
without our consent”) with D&O Policy § V(A) (stating that “[n]o
Insured may incur any Defense Expenses . . . without the Insurer’s
prior written consent,” and that “[a]ny Defense Expenses incurred
. . . without the prior written consent of the Insurer will not be
covered under this policy” (emphasis omitted).)

The Home Ins. Co.

court’s conclusion is consistent with the “general rule” that “an
insurer has no duty to defend until it receives notice of a claim
and thus is not responsible for pre-tender defense costs. . . .
Pre-tender

defense

recoverable

under

costs
an

consistently

insurance

clause

have

been

prohibiting

held

not

voluntary

payments made without the consent of the insurer. If the insured
makes no demand for a defense, there is no duty to defend and pretender defense costs are lawfully precluded by the no-voluntary
payment

provision.”

1

Barry

R.

Ostrager

&

Thomas

R.

Newman,

Handbook on Insurance Coverage Disputes § 5.01[c], at 332-33 (18th
ed. 2016) (citations and quotation marks omitted).
11

In concluding that the insurer was only obligated to pay for
defense expenses after notice –- and therefore had no obligation
to pay for pre-notice defense expenses -- the court in Home Ins.
Co. did not examine whether the insurer was prejudiced by the
delayed notice.

See generally, 2003 WL 22683008 at *4-5.

refraining

any

from

inquiry

into

whether

the

insurer

In
was

prejudiced, the court’s approach is consistent with the principle
that “an insurer is not liable for the pre-tender costs of defense
incurred

by

the

insured

irrespective

of

the

existence

of

prejudice.” 14 Couch on Insurance § 200:34 (3d. ed.) (West 2017)
(describing the effect of delayed notice and noting that “[u]nless
the insurance contract provides otherwise, an insurer is only
responsible for defense costs incurred after tender of the suit”).
Moreover,
provisions

Delaware

pursuant

to

courts
the

--

in

interpreting

principles

of

policy

contractual

interpretation of other jurisdictions -- have enforced without
issue the plain terms of insurance policies requiring insurer
consent prior to the payment of defense costs.

See, e.g., In re

Viking Pump, Inc., 148 A.3d 633, 675 (Del. 2016) (applying New
York law and concluding that insurer was obligated to pay defense
costs “provided the insurer consents” because policy provisions
“contemplate the payment of defense costs contingent upon the
consent of the [insurer]” (quotation marks omitted)); Mine Safety
Appliances Co. v. AIU Ins. Co., No. N10C-07-241 (MMJ), 2014 WL
12

605490,

at

*4-5

(Del.

Super.

Ct.

Jan.

21,

2014)

(applying

Pennsylvania law and determining that a policy was unambiguous to
“only require [the insurer] to pay the defense costs to which it
consents”); Liggett Grp. Inc. v. Affiliated FM Ins. Co., No. Civ.A
00C-01-207 (HDR), 2001 WL 1456818, at *4 (Del. Super. Ct. Sept.
12, 2001) (noting that “there is generally no duty to pay pretender defense costs” and that “under North Carolina law, an
insurer is not obligated to pay for pre-tender defense costs where
the policy language itself does not require the insurer to pay
such costs and the insurer had no opportunity to control the
expenses”).
In sum, Delaware law would enforce the plain terms of the D&O
Policy, and the plaintiffs’ argument that Delaware law would likely
require the defendant to show prejudice before disclaiming prenotice defense expenses is without merit.
The plaintiffs attempt to rely on Medical Depot, Inc., v.
RSUI Indemnity Co., No. N15C-04-133 (EMD), 2016 WL 5539879, at
*12-13 (Del. Super. Ct. Sept. 29, 2016), where the court
concluded that an insurer must show prejudice from late notice
before denying coverage altogether. 3

3

Id. at *13.

Such a

The plaintiffs also point to Sun-Times Media Grp., Inc. v. Royal &
Sunalliance Ins. Co. of Canada, No. 06C-11-108 (RRC), 2007 WL 1811265,
at *13 (Del. Super. Ct. June 20, 2007) and Allstate Ins. Co. v. Fie,
No. 03C-02-185 (CLS), 2006 WL 1520088, at *4 (Del. Super. Ct. Mar. 9,
2006), but both cases dealt only with the issue of prejudice with
respect to consent-to-settlement provisions, which are not at issue in
this case.

13

requirement is understandable because allowing an insurer that
was not prejudiced by untimely notice to avoid providing any
coverage whatsoever would be a draconian result.

However, it is

not draconian to enforce a policy –- like the one at issue here
-– that unambiguously states that an insured cannot incur
defense costs without the consent of the insurer.

This is

especially so when, as here, the plaintiffs waited over a year
and incurred over $3.5 million in legal fees prior to giving
notice to the defendant as required under the policy.
The plaintiffs claim that there is a “recent trend” in
courts finding coverage for pre-notice defense expenses unless
the insurer can establish prejudice, relying primarily on
Episcopal Church in S.C. v. Church Ins. Co. of Vermont, 53 F.
Supp. 3d 816, 830 (D.S.C. 2014) and CH Properties, Inc. v. First
Am. Tit. Ins. CO., 43 F. Supp. 3d 83, 97-98 (D.P.R. 2014). But
these cases are easily distinguishable.
The court in Episcopal Church applied South Carolina law
and made clear that the “[p]laintiff’s duty to provide notice of
a suit is a covenant under the [p]olicy, not a condition
precedent to [the insurer’s] duty to defend.”

53 F. Supp. 3d at

828; see also id. at 819 (describing the policy, which provided
only that “[i]f a claim is made or suit is brought, the insured
must: promptly send to [the insurer] copies of all legal papers,
demands, and notices”).

But the policy at issue in this case
14

states explicitly that “it shall be a condition precedent to the
Insurer’s obligation to pay, that the Insured give written
notice of such Claim to the Insurer.” D&O Policy
§ V(C)(1)(emphasis omitted).

The clear distinction in the

language of the policies makes it highly unlikely that a
Delaware court applying Delaware law would adopt the reasoning
of Episcopal Church in this case.
The plaintiffs’ reliance on CH Properties is also
misplaced.

There, the court acknowledged that it was departing

from the “majority view” in requiring an insurer to show
prejudice before disclaiming pre-notice defense expenses.
Supp. 3d at 95-96.

43 F.

There is no indication in any Delaware case

that Delaware would adopt the minority view and reject the plain
and unambiguous language of the insurance policy in this case.
In sum, this is a case where the “[c]lear and unambiguous
language in an insurance policy should be given its ordinary and
usual meaning.”
1195.

Rhone-Poulenc Basic Chemicals Co., 616 A.2d at

The policy repeatedly makes clear that any costs incurred

without the consent of the defendant are not covered under the
policy.

And the plaintiffs have failed to establish that

Delaware, as a matter of law, would stray from the wellestablished principle that pre-notice defense expenses are
generally not covered, irrespective of prejudice.

The defendant

is therefore not liable for any defense costs incurred by the
15

plaintiffs prior to being notified of the SAM action and are
entitled to judgment as a matter of law.
CONCLUSION
The Court has considered all of the arguments raised by the
parties. To the extent not specifically addressed, the arguments
are either moot or without merit. For the foregoing reasons, the
plaintiffs’ motion for summary judgment is denied and the
defendant’s motion for summary judgement is granted. The Clerk
is directed to close all pending motions and to enter judgment
dismissing this action.
SO ORDERED.
Dated:

New York, New York
August 10, 2017

_____________/s/_______________
John G. Koeltl
United States District Judge

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