IMG Worldwide, Inc. et al v. Westchester Fire Insurance Company

Filing 153

Memorandum Opinion and Order For all of the reasons set forth in the Order, The Defendant's Motion for Directed Verdict Pursuant to FRCP 50(a) or for JNOV Pursuant to FRCP 50(b), (ECF # 120 ) is, denied; Plaintiff's Motion for Judg ment in Favor of IMG on Westchester's Duty to Defend, (ECF# 116 ), is denied; Defendant's Motion for Leave to File a Third-Party Complaint, (ECF # 112 ), is denied at Moot; Defendant's Motion for Declaratory Judgment, (ECF # 136 ), is denied as Moot; and, Plaintiff's Motion for Prejudgment Interest (ECF # 117 ) is granted, in part. Signed by Judge Donald C. Nugent on 5/13/2013.(K,K)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

IMG WORLDWIDE, INC., et al.,
Plaintiffs,
v.
WESTCHESTER FIRE INSURANCE
COMPANY,
Defendant.

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CASE NO. 1:11 CV 1594

JUDGE DONALD C. NUGENT

MEMORANDUM OPINION
AND ORDER

This matter is before the Court on the parties’ post-trial motions. The following motions
are currently pending and will be addressed in this Opinion: (1) Defendant’s Motion for Directed
Verdict and Judgment as a Matter of Law (ECF #120, 121)(Response at ECF #140; Reply at
ECF #144); (2) Plaintiff’s Motion for Award of Prejudgment Interest (ECF #117)(Response at
ECF #133; Reply at ECF #142); (3) Plaintiff’s Motion for Judgment in Favor of IMG on
Westchester’s Duty to Defend (ECF #116)(Response at ECF # 132, 135; Reply at ECF # 141);
(4) Defendant’s Motion for Leave to File Third-Party Complaint Against Great Divide (ECF
#112)(Responses at ECF #130, 147. 150; Reply at ECF # 138); and, (5) Defendant’s Motion for

Declaratory Judgment with Respect to Reimbursement from Great Divide or in the Alternative a
Set-off Based on the Settlement Agreement Between Great Divide and IMG (ECF
#136)(Response at ECF #145; Reply at ECF #149). The Court heard oral arguments on each of
these matters on April 11, 2013. The issues have now been fully briefed and argued, and are
ready for disposition.

Procedural and Factual History
This case was brought to determine whether the Defendant, Westchester Fire Insurance
Company (“Westchester”) is obligated to pay the Plaintiffs, IMG Worldwide, Inc. and IMG
Academies, LLP (collectively “IMG”) for reimbursement of a settlement payment they made,
and defense costs they incurred, in connection with the lawsuit Gastaldi, et al v. Sunvest
Communities USA, LLC, et al., Case No. 08-62076-CIV (S.D. Fla., Miami 2009)(“the Gastaldi
suit”). Defendant, Westchester is an excess insurance provider. Westchester and IMG entered
into four separate year long Commercial Umbrella Liability Policies beginning on August 10 of
2005 and running through August 10 of 2009. The parties have not agreed on which policy or
policies apply to the claims raised in the Gastaldi litigation, although they both agree that at least
one policy would have been in effect during the relevant time period.1

1

At trial evidence was presented as to the existence of all four policies, and there was
agreement that one of the policies covered the claims at issue. However, there was no
evidence that the language relating to indemnity differed in any significant manner
between the policies. As such, neither the parties nor the jury were required to pinpoint a
policy in order to determine Westchester’s liability for indemnification. The duty to defend
language in the 2005/2006 and 2006-2007 policies is substantively different than the
language contained in the 2007-2008 and 2008-2009 policies, however, and the Court will
have to determine which policy applies in order to determine the defense issue.
-2-

The Gastaldi lawsuit stemmed from allegations that Sunvest and a co-developer, Cay
Clubs International sold the Plaintiffs undeveloped properties with the promise that they would
be upgraded and developed into high end condominiums. IMG allegedly made representations
that it was in partnership with these developers and promised to build an IMG sports center in
the development once it was built. IMG did not have any contractual obligation to actually
develop the condominiums or the development property. Nonetheless, the Gastaldi court found
that IMG could potentially be liable for some form of damages because it allegedly
misrepresented its relationship with the developers in advertising and marketing materials in
violation of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”).
The Gastaldi Plaintiffs originally sued IMG, Sunvest Communities USA, LLC and
Sunvest Development, LLC (the Gastaldi developers) for fraud, conversion, civil theft, and
violations of FDUTPA.. (ECF #1-1). The fraud, conversion, and theft claims were dismissed
prior to the summary judgment stage and a Second Amended Complaint was filed alleging only
the FDUTPA claim(s). Once the lawsuit was filed, IMG sought coverage from its primary
carrier, Great Divide Insurance Company (“Great Divide”), and from its excess carrier,
Westchester Fire Insurance Company (“Westchester”) for defense and indemnity from any
judgment. Both carriers denied coverage and refused to provide a defense for IMG. Prior to
trial, IMG settled the Gastaldi case for nearly five million dollars ($5,000,000.00), after having
incurred defense costs of over eight million dollars ($8,000,000.00).2 Following the Gastaldi
settlement, IMG continued to seek coverage for indemnity of the settlement amount, and the cost
of defense from both carriers.
2

Westchester does not contest the reasonableness of the defense costs.
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IMG’s primary insurer, Great Divide, originally denied coverage. However, after the
settlement of the underlying case, and following a protracted period of negotiations, it agreed to
pay the policy limits under its 2005-2006 policy. Great Divide also agreed to pay two hundred
and fifty thousand dollars ($250,000.00) toward IMG’s defense costs. (ECF #146-2). In
exchange, IMG released Great Divide from any further liability under any and all Great Divide
policies for any matters relating to the Gastaldi matter, including indemnity and defense costs.
(ECF #146-2).

Westchester continued to deny coverage, and this lawsuit followed, culminating

in a jury trial on the question of coverage.
At trial IMG presented evidence supporting its position that the Gastaldi settlement
resolved any liability IMG may have had for damages suffered by the Gastaldi Plaintiffs due to
“property damage” resulting from a “loss of use” of the properties they had purchased. IMG also
argued that the loss of use of the properties was caused by an “occurrence” as defined in the
Westchester policies. IMG argued throughout the trial, and again at oral argument on the posttrial motions, that the alleged “occurrence” was a downturn in the economy leading to the
developers’ abandonment of the project. Westchester, on the other hand, argued that the
damages sought by the Gastaldi Plaintiffs were not “property damage” as that term was defined
by the policies, but rather a “loss on investment,” which was not covered under the policies.
Westchester also argued that the only possible “occurrence” that could have led to damages
attributable to IMG in this case, was the alleged misrepresentation(s) made by IMG in violation
of the FDUTPA laws. As such, Westchester took the position that there was no insurable
“occurrence” because under the policy language and relevant Ohio insurance law, a
misrepresentation cannot be an “accident.” In turn, if there is no accident, there cannot be an

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“occurrence” that triggers coverage under the Westchester policies. Based on the relevant Ohio
law, and the arguments of the parties, the Court included a jury instruction at trial informing the
jury that a misrepresentation could not be an “occurrence” under the policy.
Following deliberations, the jury found: (1) that IMG had proven by a preponderance of
the evidence that Westchester breached its contract with IMG by not paying on the policy; (2)
that IMG proved by a preponderance of the evidence that there was an “occurrence;” (3) that
there was “property damage;” and, (4) that Westchester had not proven by the requisite burden
of proof that the “expected or intended injury” exclusion applied. (ECF #110, 111). Therefore,
the jury returned a verdict in favor of IMG, finding that Westchester was responsible for
indemnification of the Gastaldi settlement in the amount of three million, nine hundred thousand
dollars ($3,900,000.00).3 (ECF #111).

The Court retained the question of whether Westchester

is also liable for reimbursement of IMG’s defense costs over and above the two hundred and
fifty thousand dollars ($250,000.00) contributed by Great Divide in its settlement with IMG.

ANALYSIS
I. Directed Verdict / JNOV
Defendant Westchester now seeks to overturn the jury’s finding of liability for
indemnification and has moved the Court for a directed verdict and for judgment as a matter of

3

This amount equals the cost of the Gastaldi settlement amount minus the one million
dollars ($1,000,000.00) paid by Great Divide pursuant to their settlement agreement with
IMG, and a two hundered and fifty thousand dollar ($250,000.00) deductible IMG owed
under the Great Divide policy.
-5-

law pursuant to Fed. R. Civ. P. 50(a) and 50(b).4 The testimony and the policy language
establish that the policies covered “property damage” caused by an “occurrence.” The policy
language, and the Court’s instructions to the jury define an “occurrence” as an “accident.” The
parties agree, however, that under the policy language, there is no coverage for “property
damage” caused by an “occurrence,” if the damage is “expected or intended from the standpoint
of the insured.” (Crowdis Testimony, ECF #103).
Westchester claims that there was no “occurrence” or “property damage” as a matter of
law. It also contends that even if the alleged “occurrence” and “property damage” could have
triggered coverage as a matter of law, IMG failed to produce sufficient evidence at trial to prove
that an “occurrence” caused the alleged “property damage,” in fact. Plaintiffs oppose
Westchester’s motion maintaining that there was a sufficient legal and factual basis upon which
the jury could, and did find in favor of IMG on their breach of contract claim.
Fed. R. Civ. P. 50(a) states in relevant part:
If a party has been fully heard on an issue during a jury trial and
the court finds that a reasonable jury would not have a legally
sufficient evidentiary basis to find for the party on that issue, the
court may:
(A) resolve the issue against the party; and
(B) grant a motion for judgment as a matter of law against
the party on a claim or defense . . .

Fed. R. Civ. P. 50(b) provides that if a court does not grant a motion for judgment as a matter
of law made after the close of all the evidence and the party renews its request after a verdict is
4

Defendant moved for judgment as a matter of law pursuant to Fed. R. Civ. P. 50(a) at the
close of Plaintiffs’ case and renewed the motion at the close of all evidence. The Court
reserved ruling on the motion at that time.
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returned, the court may (1) allow the judgment to stand, (2) order a new trial, or (3) direct entry
of judgment as a matter of law. The “standard for granting a renewed motion for judgment as a
matter of law under Rule 50(b) is precisely the same as the standard for granting the presubmission motion.” Wright & Miller, Federal Practice and Procedure: Civil 2d § 2537, p.
347 (footnote omitted).
A court should grant a motion under Fed. R. Civ. P. 50 only if “there is a complete
absence of pleading or proof on an issue material to the cause of action or when no disputed
issues of fact exist such that reasonable minds would not differ.” Watts v. United Parcel Serv.,
378 F.App’x 520, 525 (6th Cir. 2010). On a Rule 50 motion, a court must “review all evidence
and draw all reasonable inferences in the light most favorable to the non-moving party, without
making credibility determinations or weighing the evidence.” Id. at 524; see also K & T
Enters., Inc. v. Zurich Ins. Co., 97 F.3d 171, 175-76 (6th Cir. 1996).
A. “Occurrence”
In order for there to have been coverage in this case, the jury had to find that there was
an “occurrence,” as defined by the policies. The policies define “occurrence” as “an accident.”
(ECF #33-3 at 22; #33-2 at 44). The jury instructions defined an “accident” as “an event that is
unexpected, unintended and fortuitous.” (Jury Instructions, ECF #128 at 407).5
The parties not only disagree on whether there was an “occurrence,” as defined by the
policies, they also disagree on what the “occurrence” is alleged to have been. The trial
testimony of Amanda Crowdis, the claims adjuster for Westchester in the IMG matter,
5

The jury instructions state: “Occurrence is defined in the Westchester policies. An
‘accident’ is an event that is unexpected, unintended, and fortuitous. . . and fortuitous
means happening by chance.”
-7-

indicated that based on the allegations in the Gastaldi complaint and the scope of the settlement
for which IMG sought indemnification, the only potential “occurrence” was IMG’s alleged
misrepresentation that it was in a partnership with Cay Clubs, one of the project’s developers.
(Crowdis Testimony, ECF #103 at 63). On the other hand, IMG defined the “occurrence” as
“the real estate market downturn that apparently rendered the real estate project not feasible
and Cay Clubs’ and the Sunvest Defendants’ inability or unwillingness to proceed with the
project as a result.” (IMG Trial Ex. 28, p. 28-6; Trial Transcript, ECF #128 at 327; see also
Crowdis Testimony, ECF #103 at 58). Both parties have held steadfast to their own perception
of what constituted the “occurrence”during all pre-trial, trial, and post-trial arguments.
1. Misrepresentations
Westchester has argued, correctly, that if the alleged “occurrence” was IMG’s
knowing and intentional misrepresentation that it was in partnership with Cay Clubs, there
would be no coverage under the policy. A knowing and intentional misrepresentation is not an
accident as defined by the jury instructions, because “knowing and intentional” behavior is
neither unexpected nor unintended. Ohio courts have recognized this premise, finding that
knowing and intentional misrepresentations do not constitute an “accident.” See, e.g,
Cincinnati Ins. Co. v. Anders, 99 Ohio St.3d 156, 789 N.E.2d 1094 (2003). Following Ohio
law, this district has further held that even a negligent misrepresentation does not constitute an
“accident” for purposes of insurance coverage. See, e.g., Valley Ford Truck, Inc. v Phoenix
Ins. Co., 813 F.Supp.2d 859, 864 (N.D. Ohio 2011).
The only claim that remained against IMG at the time of it’s settlement with the
Gastaldi Plaintiffs was a claim for deceptive representations under FDUTPA. (ECF #32-2).

-8-

The parties agree that if the jury based its finding of an “occurrence” on the misrepresentations
allegedly made by IMG, the verdict could not be reconciled with the legal instructions provided
to the jury in this case.6 The jury instructions specifically stated that if the jury found “IMG or
IMGA made a misrepresentation to the Gastaldi Plaintiffs in the marketing or promoting of the
Cay Clubs real estate project,” and this misrepresentation “caused the alleged loss,” there
would be “no occurrence or accident under the Westchester policies.” Therefore, the jury’s
finding of an “occurrence” could not have been based on these alleged misrepresentations.
Nonetheless, the jury did find by a preponderance of the evidence that there was an
“occurrence” that triggered coverage under the policies. (Trial Transcript, ECF #128 at 407).
A trial court is required to reconcile the answers a jury gives to interrogatories with the
applicable law if possible under any view of the evidence presented in the case. Waggoner v.
Mosti, 792 F.2d 595, 596-97 (6th Cir. 1986). As there was evidence presented of other events
that could have constituted an “occurrence” in the mind of the jurors, the court is bound to
presume that the jurors did follow the jury instructions provided, and that they found the
“occurrence” that caused the loss in this case was something other than the
misrepresentation(s) alleged by the Gastaldi Plaintiffs.
2. Downturn in the Economy
Westchester contends that the only other “occurrence” that could have been considered
by the jury was a downturn in the economy coinciding with a collapse of the Florida real estate
market. IMG has consistently espoused the theory that the loss sought to be covered was

6

IMG has argued, however, that a misrepresentation under FDUTPA could be an
“accident” under Ohio law, and that the provided jury instruction was incorrect.
-9-

caused by a series of events starting with a downturn in the economy. They have also argued
that this economic downturn was unexpected and unintended by IMG, and that it, therefore, fits
the definition of an “accident,” as contemplated by the Westchester policies. IMG further
argued that the downturn in the economy caused the project to become infeasible, which
caused the developers, Cay Clubs and Sunvest, to be unable or unwilling to continue the
project. Consequently, the purchased properties became essentially worthless, causing the
investors to suffer a loss of use of their property. Westchester argues, however, that IMG did
not present any actual evidence that would support this chain of causation. Further,
Westchester contends that the downturn in the economy is not an accident or “occurrence” as
contemplated by the policies, and that holding otherwise could have devastating effects on the
entire insurance industry.
Westchester is correct that IMG did not present any actual evidence at trial showing
there was an economic collapse during the policy periods or that any such collapse was the
reason the developer’s failed to complete the Gastaldi project. Further, there was nothing in
the record of the underlying Gastaldi case that would indicate the Gastaldi court had made a
determination that the economic downturn was directly connected to the abandonment of the
Gastaldi project.7 Therefore, IMG has presented no evidence to support its theory that an
economic downturn was the actual “occurrence” that caused the Gastaldi Plaintiffs’ alleged
losses.
7

The Gastaldi court did appear to accept that Florida suffered from a collapse in the real
estate market, as indicated in its opinion on a motion in limine regarding the admissibility
of expert testimony. However, the court disallowed the expert testimony that could have
established this fact, and the court made no direct correlation between the presumed
collapse and the abandonment of the Gastaldi project. (ECF #32-7).
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Westchester also argues that a downturn in the economy cannot, as a matter of law, be
the “occurrence” that triggered coverage under the Westchester policy. IMG seeks coverage of
the amounts it paid to settle the claims brought against it by the Gastaldi Plaintiffs. The
settlement amount represents compensation for damages that could have been caused by IMG’s
actions as alleged in the Gastaldi Second Amended Complaint. The Gastaldi court, however,
had determined before the settlement occurred that IMG was not liable for any damages
resulting from a downturn in the economy.8 (ECF #32-7; #140 at 17). Even IMG, in an
argument that seems contradictory to its ultimate and persistent position that a downturn in the
economy was the accident or occurrence triggering the loss at issue,9 admits that the settlement,
for which it now seeks coverage, was not paid to address damages arising from the real estate
collapse, and that such a position is “totally wrong and unsupportable.” (ECF #140). Based
on these arguments and admissions, and the holding of the Gastaldi court that disallowed any
evidence of damages attributable to the downturn in the real estate market, Westchester’s

8

Westchester also argued in its Reply brief that the contract limited coverage to “those
sums in excess of the ‘retained limit’ which the ‘[I]nsured’ by reason of liability imposed
by law ...shall become legally obligated to pay as damages for ... Property Damage ...
arising out of an ‘Occurrence’.” (ECF #144). This contract language, however, was
contained in the 2005/2006 and 2006/2007 policies and is not found in the 2007/2008
policy. (ECF #8-3, 33-2, 33-3). If the “occurrence” at issue was the downturn in the
economy, the 2005/2006 policy would not have been the applicable policy as the economic
downturn was argued to have occurred during 2007. There is no evidence before the Court
that would allow it to determine whether the alleged downturn in the economy occurred
during the 2006/2007 policy or the 2007/2008 policy.
9

IMG argued this was the “occurrence” in its pre-trial motions, closing arguments at trial,
post-trial briefings, and again, unequivocally, upon direct query by the Court during oral
arguments on post-trial motions. The Court asked IMG if their premise is “that it was the
market forces that was the occurrence, and that that’s compensable.” IMG responded:
“Absolutely.”
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argument that the economic downturn cannot, as a matter of law, be the “occurrence” that
triggers coverage under the policy is well taken.
3. Other Events Satisfying the Definition of “Occurrence”
If the alleged misrepresentation(s), and the downturn in the economy were the only
possible events that could constitute an “occurrence” under the policy, based on the evidence
presented at trial, the Court would have no choice but to grant the Defendant’s motion under
Fed. R. Civ. P. 50. However, the evidence presented at trial supports another event that could
have served as the “occurrence” or accident that triggered coverage in the jurors’ minds. As
stated above, trial courts may not overturn a jury’s verdict unless there is no view of the
evidence that would support their decision consistent with the court’s instructions. Courts
“must attempt to reconcile the jury’s findings, by exegesis if necessary, before we are free to
disregard the jury’s special verdict. . . .” Gallick v. Baltimore & Ohio R.R. Co., 372 U.S. 108,
199 (1963); c.f. United States v. Alpine Industries, Inc., 352 F.3d 1017, 1026 (6th Cir. 2003).
In this case, IMG argued during trial that the “occurrence” was the downturn in the
economy which through a series of consequences led the developers to abandon the project.
As set forth above, the causal connection between the alleged downturn in the economy and the
abandonment of the project was unproven at trial, and damages arising from the downturn in
the economy were barred from recovery in the Gastaldi case. However, the end result of the
string of events argued by IMG, the actual abandonment of the project by the developers, has
not been questioned and could have been the basis of the jury’s determination that there was an
“occurrence” under the policy.
There was evidence presented at trial, as well as a determination by the Gastaldi court,

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that the developers abandoned the Gastaldi project in the fall of 2007. Cay Clubs, the primary
developer abandoned the project around October of 2007. The remaining developers had
discussions to determine whether they or IMG were willing to put up the money to complete
the project, but none of the remaining parties were either willing or able to do so. The project
was “officially” terminated by November of 2007. (ECF #32-2, at 41).
Further the Gastaldi court found that the damages sought by the Gastaldi Plaintiffs
were based on losses related to IMG’s alleged misrepresentation that it was in partnership with
the developers. The court held that if IMG’s representations had been true, it was possible that
they would have stepped up to add financial backing to the project when Cay Clubs abandoned
the project. The court reasoned that if IMG really had been in partnership with the developers
it might have been more willing to add funds to the development when Cay Clubs went under,
and this could potentially have resulted in a continuation of the project by Sunvest and/or IMG,
itself. (ECF #32-7). Thus, IMG’s failure to provide financial backing when Cay Clubs
abandoned the project, even though it had no contractual duty to do so, and the consequential
abandonment of the project by the remaining developers, was the theoretical basis for IMG’s
financial liability under the FDUTPA cause of action.
As such, the jury could have found that the abandonment of the project was the cause of
the alleged “property damage” by the Gastaldi Plaintiffs. The jurors could also have
determined that, under the Gastaldi courts prior holdings, IMG was potentially liable for these
damages and that this potential liability was resolved by the Gastaldi settlement. Finally, there
was no evidence presented at this trial, nor any indication in the opinions of the Gastaldi court,
that the developers’ abandonment of the project, even in the absence of any financial

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investment by IMG, was anything other than an unintended and unexpected event from IMG’s
perspective.10
Therefore, based on the evidence and arguments presented at trial, as well as the case
history provided to the jury, the jury could have easily found that the developers’ abandonment
of the project was the “occurrence” that caused the Gastaldi Plaintiffs’ loss, and triggered
coverage under the Westchester policy. Further, the developers’ abandonment of the project is
the only identifiable event proven at trial that could fit the policy definition of “occurrence”
and reconcile with the legal instructions provided to the jury at trial. Westchester’s motion for
directed verdict, or judgment not withstanding the verdict based on the lack of an “occurrence”
must, therefore, be denied because: (1) there was at least some evidence upon which the jury
could find that the abandonment of the project by the developers caused the alleged loss to the
Gastaldi Plaintiffs; (2) there was sufficient evidence to show that, from IMG’s perspective, this
event was an “accident” as defined by the jury instructions, and therefore an “occurrence” as
defined by the Westchester policy language; and, (3) this conclusion is consistent with all of
the jury instructions provided by the Court.
B. “Property Damage”
Westchester also contends that the jury could not reasonably have concluded that there
was “property damage” as defined by the policies and that a directed verdict or judgment not

10

IMG elicited testimony showing that Westchester understood the Gastaldi court had found
that IMG “acted in good faith regarding its obligations to th[e] project,” and that “IMG
believed the project would be a success.” (Crowdis Testimony, ECF #103 at 64). This
evidence was sufficient to support the jury’s finding that the abandonment of the project
was an accident from IMG’s perspective, and that the expected or intended injury
exclusion did not apply.
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withstanding the verdict is warranted on this basis. Coverage in this case was for
indemnification of losses associated with “property damage” as that term was defined in the
policies. One of the definitions of “property damage” under the policies is “[l]oss of use of
tangible property that is not physically injured.” The policies also state that loss of use shall be
deemed to occur at the time of the ‘occurrence’ that caused it. (ECF #33-3 at 23; #33-2 at 45).
The Court gave a jury instruction stating that “property damage” is defined in the Westchester
policies, and that it “includes ‘loss of use of tangible property that is not physically injured.’”
(Jury Instructions, ECF #128 at 272).
Before trial, both parties moved for summary judgment. Westchester’s motion made
virtually the same arguments that are asserted in the pending motion regarding the element of
“property damage.” The Court denied Defendant’s summary judgment motion as to the
coverage and defense issue after finding that there were genuine factual issues that could only
be resolved by a finder of fact. The Court determined at that time that there was some evidence
to support both parties’ positions. Westchester’s motion for reconsideration was also denied
with the further finding that the Westchester policies contained latent ambiguities as they
would be applied to the facts at issue in this case. As such, it was left to the jury to determine
whether there was “property damage” as defined by the Westchester policies.
At trial both parties submitted evidence and presented arguments addressing whether
the Gastaldi Plaintiffs suffered “property damage” as defined by the policies. Westchester
articulated all of the reasons presented in the pending motion to the jury in support of its
assertion that there was no “property damage” compensable under the policy. The Court gave
nearly all of the jury instructions requested by Westchester with little or no change to the

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language Westchester submitted. Further, special interrogatories, requested and approved by
Westchester, were submitted to the jury on the core insurance coverage issues. The jury
answered the special interrogatory on whether IMG had proven “property damage” in favor of
IMG.
The Court finds that there was sufficient evidence presented at trial to support the jury’s
finding of “property damage” based on a loss of use of tangible property under the Westchester
policies.

Westchester’s claim representative, Ms. Crowdis, testified that the units would be

considered “tangible property” under the policies, and that it was “not unreasonable for IMG to
read [the Gastaldi allegations] as alleging ‘property damage.” (Crowdis Testimony, ECF #126
at 96, 129). Further, Westchester did not dispute that the condominium units in their
undeveloped state were “in deplorable condition” and could not be rented, “or not in a
meaningful way.” (ECF #128 at 369). In addition, Ms. Crowdis testified that the Gastaldi
complaint sought damages including the “difference between the value of the units that were
delivered to them and the value of the units as they should have been delivered.” (Crowdis
Testimony, ECF #127 at 180).
The jury could and did reasonably disagree with Westchester’s argument that any loss
suffered by the Gastaldi plaintiffs was purely economic loss sought to compensate a diminished
return on investment, and was therefore, not covered by the policy. The damages alleged in the
Gastaldi Second Amended Complaint, and addressed by the settlement in that case, could
properly have been viewed as damages stemming from a loss of use of tangible property. The
damages recoverable under FDUTPA are not compensation for a loss on investment, but rather
seek to compensate a buyer for the difference between the value of the product they thought

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they had purchased and the actual value of that product at the time of purchase. Although the
damages request in the Second Amended Complaint also presented a calculation that could
resemble a loss of investment approach, no determination was made as to what the exact
damages were, or how they should be calculated because the case was settled before trial.
Certainly, under the FDUTPA allegations either a partial or entire refund of the purchase price
of the properties, or a loss of the rental value expected from renovated units could be possible
measures of the damages in the Gastaldi case, which would be consistent with the types of
damages awarded in “loss of use” cases.
The fact that the damages sought could be considered to be “economic damages” also
fails to preclude coverage under the Westchester policies. Because the policies include
coverage for loss of use of tangible property, and do not require an actual injury to the property
at issue, economic damages are contemplated under the coverage language. See, Hartzell
Industries, Inc. v. Federal Insurance Co., 168 F.Supp.2d 789, 796 (S.D. Ohio 2001)(“the Court
cannot conceive of damages for the loss of use of tangible property that is not physically
injured being anything other than ‘purely economic losses.’”). Therefore, having carefully
reviewed all of the briefing submitted by the parties, as well as all of the evidence presented at
trial, the Court finds that there is a legally sufficient evidentiary basis for a reasonable jury to
find that the Gastaldi Plaintiffs suffered “property damage” as defined in the Westchester
policies. The Defendant’s Motion for Judgment as a Matter of Law Pursuant to FRCP 50(a) or
for JNOV Pursuant to FRCP 50(b) is, therefore, denied.

II. Duty to Defend

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A. The Applicable Policy
The duty to defend language in the 2005/2006 and 2006/2007 policies is substantively
different than the language contained in the 2007/2008 and 2008/2009 policies.11 Therefore, in
order to decide the question of Westchester’s duty to defend, this Court must determine which
policy provides coverage in this case. The parties have both been woefully inconsistent in their
arguments on this issue, and have seemed determined to avoid addressing the actual policy
language when making their respective arguments.
IMG originally tendered its request for coverage under the 2008/2009 policy. (Crowdis
Testimony, ECF #104 at 11). It settled with Great Divide under the 2005/2006 policy. In its
motion in limine seeking admission of the settlement with Great Divide, IMG argued in part
that admission of the agreement was necessary to show that the date of the “occurrence”
triggering coverage was within the 2005/2006 policy year. (ECF #71). However, at trial IMG
refused to accept Westchester’s stipulation that the 2005/2006 policy applied. During trial and
post-trial arguments, IMG argued primarily that the 2007/2008 policy was the easiest path to
coverage, even though it continued to insist that the “occurrence” triggering coverage was
IMG’s misrepresentation of partnership, a series of events that occurred in 2006 and early

11

The language in the 2005/2006 and 2006/2007 policies provides Westchester with an
easier argument in support its position that Westchester is not liable for defense costs, as
there is no direct language requiring “drop down” coverage when a primary insurer refuses
to provide defense coverage. In fact, there is a specific disclaimer of liability for defense
coverage when the primary improperly denies coverage. The relevant language states:
“We will not be obligated to ... defend any “Claim”, “Suit” or trial . . . when . . . the
‘Underlying Insurance’ is not available or collectible because of . . . failure to comply with
any of its policy obligations of the underlying insurer(s)....”
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2007.12 (ECF #83). Despite these arguments, IMG also introduced evidence of the 2005/2006,
2006/2007, and 2008/2009 policies at trial, (Crowdis Testimony, ECF #103), and has since
refused to commit to any single policy year. At trial and in post-trial briefings and argument,
IMG left open the possibility that any one of the policy years could have been applied to the
coverage of the Gastaldi claims.
Westchester has been no more direct. Westchester’s original denial of claims was
based on a review of the 2008/2009 policy. Following this denial, IMG asked for a review of
all four policies, and Westchester reviewed each of the four policies and again denied IMG’s
claim for coverage. When the trial began Westchester offered to stipulate that coverage, if
available at all, would have been available under the 2005/2006 policy. In its post-trial
motions, Westchester also sites to language from the 2005/2006 policies while simultaneously
arguing that the “occurrence” that led to coverage was an event that began in 2007.
As the parties seem unable or unwilling to determine which policy applies in this case,
the Court has turned to the language within the policies to make that determination. Under the
2005-2006 and the 2006-2007 policies coverage is triggered by property damage “arising out of

12

According to the District Court’s summary judgment opinion in the Gastaldi case, IMG
participated in the marketing of the project in 2006 and 2007. (ECF #32-2, at 4). In
March of 2006 sales associates for the properties were notified that IMG and the
developers were completing a joint venture, and the developers made public statements
about a joint venture with IMG. (ECF #32-2, at 10). IMG was aware of these
representations, and created some of the language used in marketing materials that
described IMG and the developers as being in “partnership.” (ECF #32-2, at 10). In
March 2007 IMG created some materials that described a collaborative relationship with
the developed and referenced that it expected to influence sports–training offerings at
future developments, including the one at issue in this case. (ECF #32-2, at 7). Between
March and June 2007 a version of these materials was posted to IMG’s website. (ECF
#32-2, at 7).
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an occurrence during the policy period.” (ECF #8-2, 8-3). Under the 2007-2008 policy,
coverage is triggered by an “occurrence” that takes place in the coverage territory, resulting in
“property damage” that “occurs during the policy period.” The “property damage” alleged and
proven at trial was the Gastaldi Plaintiffs’ loss of use of the property, which they claimed was
rendered valueless by the developers’ failure to renovate the property. Under all four policies
“property loss” arising from loss of use is deemed to have occurred “at the time of the
‘occurrence’ that caused it.” (ECF #8-2 through8-5). The Court has determined that the
jury’s finding of an “occurrence” must have been based on the abandonment of the Gastaldi
development project, which happened in the fall of 2007. Therefore, the 2007/2008 policy,
which was in effect in the fall of 2007 when the project was abandoned, is the policy that shall
be applied in determining whether Westchester is liable for reimbursement of IMG’s defense
costs in the Gastaldi action.
B. Duty to Defend Under the 2007-2008 Policy
The 2007/2008 policy provides that Westchester
will have the right and duty to defend the insured against any “suit” seeking
damages for ... “property damage” when the “underlying insurance” does not
provide coverage or the limits of “underlying insurance” have been exhausted.

(ECF #33-3 at 9). This duty is limited, however, by restrictions outlined in the “Other
Insurance” section of the policy. In that section the policy confirms that Westchester’s
insurance is “excess over, and shall not contribute with any of the other insurance ....” In
addition, the policy specifically states that
[w]hen this insurance is excess, we will have no duty ... to defend the insured
against any “suit” if any other insurer has a duty to defend the insured against
that “suit.” If no other insurer defends, we will undertake to do so, but we will
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be entitled to the insured’s rights against all those other insurers.
(ECF #33-3 at 19).
Based on the language of this policy, there are two independent reasons why
Westchester is not liable for reimbursement of defense costs related to the Gastaldi action.
First, Westchester’s promise to undertake defense of the Gastaldi action expired when Great
Divide provided coverage for indemnification and certain defense costs following its settlement
with IMG. Second, Westchester’ s promise to provide coverage in the event another insurer
fails to defend was conditioned on its retention of subrogation rights allowing it to recover
those costs from the other insurer. IMG, by releasing Great Divide from any further liability
for defense costs in their settlement agreement, eliminated Westchester’s subrogation rights
and violated one of the conditions required for Westchester’s “drop down” coverage.
Great Divide, the primary insurer in this case, was originally asked to cover the defense
costs and any liability arising in the Gastaldi action. Great Divide refused coverage throughout
the underlying litigation and settlement process and did not contribute any money towards
indemnification or defense costs until it settled with IMG in September of 2010. (ECF #147 at
7). Through that settlement, Great Divide agreed to pay one million, two hundred and fifty
thousand dollars ($1,250,000.00), exhausting the one million dollar “Each Occurrence” sublimit set forth in the 2005/2006 policy for “property damage” caused by an “occurrence,” and
settling all liability for defense costs associated with the Gastaldi action. (ECF #146 -2). In
exchange, IMG released Great Divide from “any and all Claims based upon or arising out of
(1) the Gastaldi Action, and (2) the Releasees’ handling of the company’s claims for insurance
coverage based upon the Gastaldi Action.” (ECF #146-2 at 3). The Agreement included a

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release from any obligation or liability to indemnify or defend, and covered Claims that could
have arisen under any of the Great Divide policies. (ECF #146-2 at 2,3). Further, although
Great Divide did not admit liability in the Settlement Agreement, the Agreement did
acknowledge that the Gastaldi settlement included “payment of sums that IMGA became
legally obligated to pay,” and that the Agreement exhausted the Great Divide policy “due to a
payment for ‘property damage’ caused by an ‘occurrence’ under the Policy.” (ECF #146-2 at
1, 3).
IMG has repeatedly argued to this Court that the Great Divide settlement constituted a
coverage determination by Great Divide and that Great Divide, through the settlement,
acknowledged coverage of the Gastaldi settlement costs. (ECF #28-1 at 22-23; ECF #40 at 14,
17; ECF #71 at 1-4; ECF #76 at 9-10). 13 IMG has also pointed the Court to the deposition
testimony of Great Divide’s assistant secretary, wherein he stated that Great Divide, through
the Settlement Agreement, agreed there was “property damage” caused by an “occurrence”
13

The parties took contradictory positions in their motions in limine with regard to the
admissibility and meaning of the settlement agreement between IMG and Great Divide.
At the trial on indemnity, IMG sought to introduce the settlement agreement as evidence
that Great Divide acknowledged its coverage obligation to defend and indemnify for the
property damage at issue in the Gastaldi action. This position undercuts IMG’s ability to
prove that Westchester owed a duty to defend under its excess policy, because if Great
Divide was liable for defense costs, its contract with IMG makes it clear that it is to pay
all defense costs incurred prior to the point in time when it “used up the applicable limit
of insurance in the payment of judgments or settlements.” (ECF #33-1 at 43). In this
case, that would equate to all of the defense costs incurred. Further, the Great Divide
contract makes clear that as the primary carrier, its “obligations are not affected [by the
existence of other policies] unless any other insurance is also primary.” (ECF #33-1 at
16). On the other hand, Westchester, who now argues that Great Divide’s settlement
constituted coverage of the Gastaldi claims and triggered Great Divide’s full duty to
defend, argued against the admission of the settlement agreement at the trial on
indemnity, and contended that the settlement did not acknowledge any coverage
obligation or any duty to pay IMG’s defense costs.
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under the Great Divide policy. (ECF #40 at 14; Apx. Ex. X at 69). Further, IMG has cited
Elliott Co. v. Liberty Mut. Ins. Co., 434 F. Supp. 2d 483, 499-500 (N.D. Ohio 2006) for the
proposition that an insurer/insured’s agreement that policy limits were exhausted is
presumptive evidence, if not conclusive evidence, that there was coverage under the settled
policy.
A Court may take a settlement agreement with a third party primary insurer into
account when determining how to calculate the amount of damages remaining and the amount
of coverage owed by an excess carrier, after the excess insurer has been found liable for
indemnity on the available admissible evidence. See Hooters of Augusta v. American Global
Ins. Co., 272 F.Supp. 2d 1365 (S.D. Ga. 2003), aff’d 157 F.App’x 201 (11th Cir. 2005); see
also, Elliott Co. v. Liberty Mut. Ins. Co., 434 F.Supp.2d 483, on reconsideration, 239 F.R.D.
479 (N.D. Ohio 2006)

Accepting that the Great Divide Settlement is evidence of an

acceptance of coverage under the Great Divide policy, the Court must look to what obligations
existed under the Great Divide policy.
The IMG/Great Divide Settlement paid the maximum occurrence limits of one million
dollars ($1,000,000.00) for indemnity, which everyone agrees is the policy limit. However,
Great Divide paid out only two hundred and fifty thousand dollars ($250,000.00) in defense
costs. Under its policy, Great Divide had the contractual duty to defend IMG until “we have
used up the applicable limit of insurance in the payment of judgments or settlements.”
Because, Great Divide did not use up the applicable limits of the policy until at least September
of 2011, when the settlement was executed and presumably paid, and because all of the defense
costs associated with the Gastaldi action were incurred prior September of 2011, Great Divide

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had the duty to cover all of IMG’s defense costs at the time of the settlement.
Westchester’s policy provides that it has “no duty ... to defend the insured against any
“suit” if any other insurer has a duty to defend the insured against that “suit.” Therefore,
pursuant to this provision, Westchester had no duty to defend because Great Divide had the
duty under its own contract terms to provide coverage for the full amount of defense costs
associated with the Gastaldi action. (ECF #33-3 at 19).14 IMG, however, argues that
Westchester has a duty to pay the remaining defense costs, under a separate but related clause
providing that Westchester would provide “drop down” defense coverage if no other insurer
steps in to defend. As part of this provision, Westchester promises that “[i]f no other insurer
defends, we will undertake to do so, but we will be entitled to the insured’s rights against all
those other insurers.” (Id.).
The promise contained in this clause, however, does not create an acceptance of the
ultimate responsibility for defense coverage by Westchester in the event of a dispute with the
primary carrier. Rather, it is dependent on the fulfillment of two conditions: (1) that no other
insurer defends, and (2) that Westchester maintains subrogation rights against the primary

14

Had Great Divide paid its liability limits before the end of the Gastaldi lawsuit, and
additional defense costs had been incurred after that payment, these would have been the
primary responsibility of the excess carrier, Westchester. However, IMG settled with
Great Divide for the policy limits and $250,000 in defense costs, after all defense costs in
the Gastaldi lawsuit had already been incurred. Therefore, Great Divide’s duty to defend
and/or to cover the cost of defense did not expire until the settlement was finalized.
There were, therefore, no additional defense costs incurred that were the primary
responsibility of Westchester, the excess carrier.
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insurer.15 At the inception of the Gastaldi lawsuit, both carriers claimed that there was no
coverage under their policies. Great Divide later released its defense of no coverage and settled
for its policy limits, and a portion of the defense costs. At this point, upon releasing any
defense to coverage, and actually providing coverage up to their full policy limits, they became
obligated to pay the full amount of defense costs under the terms of their policy. Further, by
paying some amount of the defense costs, Great Divide undertook to cover defense costs, albeit
in a negotiated discounted amount. Therefore, by the time IMG brought suit against
Westchester, Great Divide had provided defense coverage. Therefore, the “no other insurer
defends” condition in the Westchester policy was no longer met, and Westchester was no
longer obligated to “drop down” to provide coverage. Thus, once IMG settled with Great
Divide, any duty Westchester may have had to provide “drop down” defense coverage
effectively expired.16
In addition, by the time IMG filed suit against Westchester it had violated the second

15

In retrospect, based on the jury’s ultimate decision in this case, at the time Great Divide
refused to provide coverage, Westchester probably should have stepped up and provided
that coverage until a determination of Great Divide’s liability could be made. However,
Westchester also contested coverage under its policy and made a reasonable, good faith,
decision not to provide coverage under the policy.
16

The Court makes no determination as to whether a delay in providing “drop down”
coverage by an excess carrier who denies coverage could ever lead to liability following a
settlement on defense costs with the primary insurer. However, in this case, the Court has
made a finding that Westchester’s original position denying coverage was reasonable, and
made in good faith. In addition, IMG did not file suit against Westchester until after it had
settled with Great Divide, including a settlement on defense costs. Further, IMG has
provided no evidence that the delay in recovery caused by Westchester’s failure to provide
defense coverage upon first request caused any monetary loss over and above the actual
defense costs incurred.
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condition required for “drop down” defense coverage. Under the 2007/2008 Contract,
Westchester’s promise to provide “drop down” defense coverage was explicitly conditioned on
a right of subrogation that would have allowed Westchester to recover those costs, in full, from
Great Divide if coverage under the Great Divide policy was later established.17

There is no

dispute that the IMG/Great Divide Settlement released Great Divide from all further liability to
IMG for defense costs arising from the Gastaldi lawsuit. (ECF #146). This extinguished any
further right IMG may have had to defense costs attributable to Great Divide. However,
because an insurer’s rights as a subrogee are derivative of the insured’s rights and cannot
extend further than the rights of the insured, by releasing those rights on its own behalf, it also
released any subrogation rights Westchester would have had to recover defense costs on IMG’s
behalf. See, Warmack v. Arnold, 961 N.E.2d 1165, 1168 (Ohio 1st Dist. 2011). Therefore,
IMG’s release of Great Divide precluded satisfaction of the second condition for Westchester’s
“drop down” coverage of defense costs. See, One Beacon America Ins. Co. v. American
Motorist Ins. Co., 679 F.3d 456 (6th Cir. 2012).
IMG has implied that Westchester could still recover defense costs from Great Divide
under various equitable principles if it were found liable under the “drop down” provision in its
contract. Some courts applying Ohio law, however, have limited an excess carriers ability to
seek contribution or other equitable remedies from a primary carrier after it has settled with the
insured. These cases cite the importance of promoting and protecting the finality of settlements

17

“If no other insurer defends, we will undertake to do so, but we will be entitled to the
insured’s rights against all those other insurers.” (ECF #33-3 at 19).
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and place that value above the equitable contribution rights of an excess carrier.18 See, One
Beacon America Ins. Co. v. American Motorist Ins. Co., 679 F.3d 456 (6th Cir. 2012); Bondex
Int’l Inc. v. Hartford Acc. And Indemn. Co., 2007 WL 405938, *5 (N.D. Ohio, Feb. 1, 2007);
GenCorp, Inc. V. AIU Ins. Co., 297 F. Supp. 2d 995, 1007 (N.D. Ohio 2003), aff’d 138 Fed.
Appx. 732 (6th Cir. 2005).
The courts in the above cases also make it clear that the insured may not shift the risk of
settling for a reduced amount with the primary carrier to the excess carrier. See, Id. It was
IMG who accepted the risk of obtaining a reduced recovery for defense costs from Great
Divide through settlement, rather than choosing to go to trial to obtain the full amount of
defense costs. IMG cannot pass that risk onto Westchester by requiring it provide “drop down”
coverage even after Great Divide, who had primary liability for all defense costs, has paid its
policy limits on coverage and settled for a minuscule portion of the defense costs. This is
especially true when IMG has destroyed Westchester’s ability to seek reimbursement or
contribution from Great Divide by eliminating any subrogation rights Westchester should have
maintained under the terms of its contract with IMG.
In short, Westchester owed no duty to provide defense costs because Great Divide was
the primary carrier and as such, was liable for all defense costs incurred up until it had
exhausted its policy limits. In this case, all defense costs were incurred before the Great Divide
18

Even if equitable contribution or subrogation were allowed, IMG may have skewed the
equities of the situation by attesting in the Settlement Agreement with Great Divide that
no right of recovery belonged to any other entity in connection with the matter. If IMG
had intended to seek defense costs from Westchester on the premise that Westchester had
rights against Great Divide, as it has argued here, this statement would have been
knowingly false at the time it was made. As between Great Divide and IMG, IMG should
bear the consequences of that misrepresentation.
-27-

policy was exhausted, therefore, Westchester’s duty to provide defense costs was never
triggered. Further, by the time IMG filed suit against Westchester neither of two conditions
required for “drop down” coverage existed. Through the IMG/Great Divide Settlement, Great
Divide covered defense costs and Westchester’s subrogation rights had been released. Both of
these events precluded IMG from satisfying the conditions required for Westchester to provide
“drop down” coverage under the policy terms. Further, the Settlement with Great Divide was a
compromise in which IMG accepted the risk of accepting less than they were owed. That risk
was undertaken by IMG and cannot be transferred to Westchester. Therefore, Westchester
owes no duty under the 2007/2008 policy to cover the remainder of IMG’s defense costs from
the Gastaldi action.
As the Court finds that Westchester is not liable for defense costs in this case,
Defendant’s Motion for Leave to File a Third-Party Complaint Against Great Divide (ECF
#112) and Defendant’s Motion for Declaratory Judgment with Respect to Reimbursement from
Great Divide or in the Alternative a Set-off Based on the Settlement Agreement Between Great
Divide and IMG (ECF #136) are both denied as moot.

III. Pre-Judgment Interest
Pursuant to O.R.C. § 1343.03, IMG is entitled to pre-judgment interest, calculated at the
rates established by O.R.C. § 5703.47, from the date the $3.9 million indemnity payment
became due until the date of the final judgment in this case. Landis v. Grange Mut. Ins. Co., 82
Ohio St.3d 339, 341 (Ohio 1998). Although Plaintiffs have submitted a brief addressing the
amounts owed under the statutory schedules, Defendant did not submit a substantive response

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to these calculations.

Defendants have until May 28th, 2013 to submit any objections they

may have to the Plaintiff’s calculation of pre-judgment interest. If no response is received, the
Court will award the amounts set forth in the Plaintiff’s brief with regard to the indemnification
payment.

IV. Conclusion
For all of the reasons set forth above, The Defendant’s Motion for Directed Verdict
Pursuant to FRCP 50(a) or for JNOV Pursuant to FRCP 50(b), (ECF # 120) is, denied ;
Plaintiff’s Motion for Judgment in Favor of IMG on Westchester’s Duty to Defend, (ECF
#116), is denied; Defendant’s Motion for Leave to File a Third-Party Complaint, (ECF #112),
is denied at Moot; Defendant’s Motion for Declaratory Judgment, (ECF #136), is denied as
Moot; and, Plaintiff’s Motion for Prejudgment Interest (ECF # 117) is granted, in part.
IT IS SO ORDERED.

/s/Donald C. Nugent
DONALD C. NUGENT
United States District Judge
DATED: May 13, 2013

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