Maxum Indemnity Company v. Drive West Insurance Services, Inc./Mulberry Insurance Services. Inc. et al

Filing 88

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (Doc. 68 ), DENYING DEFENDANT NCAIG'S MOTION FOR SUMMARY JUDGMENT (Doc. 64 ), AND GRANTING DEFENDANT SHARP'S MOTION TO DISMISS (Doc. 81 ). Signed by Judge Timothy S. Black on 2/3/2015. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

MAXUM INDEMNITY COMPANY,

:
:
Plaintiff,
:
vs.
:
:
DRIVE WEST INSURANCE SERVICES, :
INC./MULBERRY INSURANCE
:
SERVICES, INC., et al.,
:
:
Defendants.
:

Case No. 1:13-cv-191

Judge Timothy S. Black

ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
(Doc. 68), DENYING DEFENDANT NCAIG’S MOTION FOR SUMMARY
JUDGMENT (Doc. 64), AND GRANTING DEFENDANT SHARP’S
MOTION TO DISMISS (Doc. 81)
This civil action is before the Court on the parties’ cross-motions: first,
Defendant National Condo & Apartment Insurance Group, Inc.’s (NCAIG) Motion for
Summary Judgment (Doc. 64), Plaintiff Maxum Indemnity Company’s (Maxum)
Response in Opposition (Doc. 73), Defendant NCAIG’s Reply (Doc. 80), and NCAIG’s
Notice of Supplemental Authority (Doc. 85); and second, Plaintiff Maxum’s Motion for
Summary Judgment (Doc. 68), Defendant NCAIG’s Response in Opposition (Doc. 75),
Defendant Norman-Spencer Agency Inc.’s Response in Opposition (Doc. 76), and
Plaintiff’s Reply (Doc. 79). Also before the Court is Defendant Sharp (Oakwood
Estates), Inc.’s Motion to Dismiss (Doc. 81), which is unopposed.

I. Background
This is an insurance coverage dispute in which Plaintiff Maxum Indemnity
Company (“Maxum”), an insurer, seeks rescission and declaratory relief with respect to a
policy it issued to Defendant Drive West Insurance Services, Inc./Mulberry Insurance
Services, Inc. (“Mulberry”)(Doc. 1). For purposes of Plaintiff’s instant summary
judgment motion, however, Plaintiff Maxum simply seeks a declaration that its policy
with Mulberry does not afford coverage to the Defendants and that Plaintiff owes no
obligation to Defendant National Condo and Apartment Insurance Group, Inc.
(“NCAIG”) or any other entity or individual in connection with the underlying actions
(Doc. 68). Defendants NCAIG and Norman-Spencer Agency, Inc. (“Norman-Spencer”),
in contrast, seek to establish that Plaintiff wrongly denied insurance coverage to its
insured Mulberry under the policy between Plaintiff and Mulberry (Docs. 64, 76).
The policy in question was a claims-made and reported professional liability
insurance policy issued by Plaintiff to Mulberry that was in effect from March 1, 2012 to
October 15, 2012 (Doc. 68). Defendant Mulberry is a wholesale insurance brokerage
agency that was involved in selling insurance policies on a commercial habitational
insurance program. Id. Apparently, a “rogue” insurance agent, Michael Ward (“Ward”),
sold and collected premiums for policies on behalf of Mulberry that he completely lacked
authority to sell. As a result, NCAIG wired to Mulberry $457,516.62 in premium funds
collected from clients who thought they were buying insurance. Mulberry purportedly
bound $122,000,000 in policy limits on behalf of AIX Specialty Insurance Company
(“AIX”) and Swiss Re – but these entities that did not authorize Mulberry to issue

policies on their behalf. Claims and litigation ensued against Mulberry by NCAIG and
Norman-Spencer, primarily accusing Mulberry of negligence and breach of fiduciary
duties in collecting premiums when Mulberry had no authority to issue the policies it
purported to sell. 1
In Plaintiff Maxum’s view, Exclusion J.2 in its contract with Mulberry justifies
Plaintiff’s denial of coverage for claims related to the premiums Mulberry collected.
Such exclusion provides:
This insurance does not apply to. . .[a]ny “claim” arising out of or resulting
from any “wrongful act” . . .[y]ou had knowledge of or information related
to, prior to the first inception date of the continuous claims-made coverage
with us, and which may result in a “claim.”
(Doc. 3, Ex.2.)
Plaintiff Maxum contends that because Mulberry received cease and desist letters from
AIX and Swiss Re before Mulberry’s policy with Maxum took effect, Mulberry had
information related to wrongful acts such that any related claim would not be covered. 2
In contrast, in Defendant NCAIG’s view, none of the cease and desist letters
provided knowledge of a “claim” as defined under the policy, and Mulberry had no
knowledge of any potential claims by insureds or that NCAIG would seek damages from
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Defendant NCAIG’s clients, including Defendant Sharp (Oakwood Estates), Inc. (“Sharp”), began filing
lawsuits in 2012, alleging breach of contract, negligence and breach of fiduciary duty, seeking to impose
liability against NCAIG and Norman-Spencer for “their complete failure to conduct due diligence
required of the commercial insurance it sold.” Exhibit H. NCAIG and Norman-Spencer filed third-party
claims against Mulberry in certain of these lawsuits.
2

In addition to the insurance companies’ cease and desist letters, the Illinois Department of Insurance,
after an investigation, advised Mulberry that Mulberry had issued binders of insurance that may not
constitute legally valid insurance (Doc. 68).
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Mulberry (Doc. 64). Defendants further argue there are uncertainties and ambiguities
relative to the policy that should be construed in favor of coverage. Id.
The parties have filed cross-motions for summary judgment, contending there are
no genuine issues of material fact. This matter is ripe for the Court’s consideration.
II.

STANDARD OF REVIEW
A motion for summary judgment should be granted if the evidence submitted to

the Court demonstrates that there is no genuine issue as to any material fact, and that the
movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 247-48 (1986). The moving party has the burden of showing the absence of genuine
disputes over facts which, under the substantive law governing the issue, might affect the
outcome of the action. Celotex, 477 U.S. at 323. All facts and inferences must be
construed in a light most favorable to the party opposing the motion. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
A party opposing a motion for summary judgment “may not rest upon the mere
allegations or denials of his pleading, but . . . must set forth specific facts showing that
there is a genuine issue for trial.” Anderson, 477 U.S. at 248 (1986).
III. ANALYSIS
Before addressing the parties’ cross motions, the Court notes that Defendant
Sharp, due to settlement of a separate action, has filed an unopposed motion to dismiss

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(Doc. 81). Sharp contends it is no longer a real-party-in-interest, and therefore should be
dismissed. The Court finds Sharp’s motion well-taken and hereby GRANTS it.
As for the cross motions, as an initial matter, the parties raise the issue of standing.
While there is no dispute any of the Defendants have standing to defend against
Plaintiff’s action for declaratory action, there is a dispute as to whether NCAIG has
standing to assert a claim for recovery of insurance proceeds. Plaintiff contends none of
the Defendants are judgment creditors of Mulberry. Since the time of their briefing,
however, NCAIG has advised the Court (Doc. 85) that NCAIG has obtained default
judgment against Mulberry in the Southern District of Ohio, in Amwins Brokerage of
Texas, Inc., et al. v. Mulberry Insurance Services, Inc. et al., Case No. 1:12-cv-358,
(J. Beckwith). As such, the Court finds the standing dispute resolved, and the Court will
proceed to the merits.
The parties agree that there is no genuine issue of material fact -- they simply
disagree as to whom is entitled to judgment as a matter of law. Defendants attempt to
frame this matter as whether Mulberry should have had prior knowledge of actual legal
claims as opposed to wrongdoing, whether the language “may result” mandates a
subjective determination of the insured’s knowledge, and whether the exclusion is
ambiguous (Doc. 64). Defendants further encourage the Court to read the exclusion in
conjunction with the policy application. Id.
In contrast, in Plaintiff’s view, the policy language in the four corners of the
agreement is adequate to resolve this matter. (Doc. 73, citing Potti v. Duramed Pharms.,
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Inc., 938 F.2d 641, 647 (6th Cir. 1991)). Plaintiff contends that Exclusion J.2, on its
face, shows that any claim by Defendants related to Ward’s wrongdoing is barred,
because the cease and desist letters were directed to Defendant Mulberry before the
insured time period. Id. As such, Plaintiff argues, Mulberry knew of wrongful acts that
may have resulted in claims. Id.
Defendant NCAIG contends that California law controls, while Plaintiff contends
that the choice of law issue makes no difference inasmuch as California and Ohio law are
the same on this issue of contract interpretation. The Court agrees. In both California
and Ohio, contract terms are unambiguous where they have a plain and ordinary
meaning, but are ambiguous when subject to two or more reasonable interpretations. See,
e.g., Meridian Leasing, Inc., 409 F.3d 342, 346 (6th Cir. 2005) (applying California law
to contract interpretation); Mosser Construction, Inc. v. The Travelers Indemnity Co., 430
Fed. Appx. 417, 420 (6th Cir. 2011).
Although the briefing in this matter is voluminous, in the Court’s view, the entire
outcome of this dispute turns on whether Exclusion J.2 is ambiguous, or whether its
language, on its face, indicates who should prevail. The Court finds that despite
Defendants’ arguments to the contrary, Exclusion J.2 is clear on its face. The claims
Defendants seek to assert arise from Ward’s wrongful acts of which Mulberry had related
information prior to the insured time-period. Any other interpretation of the exclusion is
strained.

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The Court therefore concludes that Plaintiff Maxum is entitled to the declaratory
relief that it seeks: to wit, that Maxum owes no obligation to any entity or individual in
connection with the underlying actions. As such, Defendants’ motion seeking coverage
under the policy is DENIED.
IV.

CONCLUSION

Having reviewed this matter, the Court finds as a matter of law that Exclusion J.2
in the contract between Plaintiff Maxum and Defendant Mulberry unambiguously denies
coverage over the losses at issue in the underlying lawsuits. Such exclusion clearly
applies to claims arising from wrongful acts, about which Defendant Mulberry had
notice, due to cease and desist letters that arrived prior to the insured time-period of
March 1, 2012 to October 15, 2012.
Accordingly, for the foregoing reasons, the Court GRANTS Plaintiff’s Motion for
Summary Judgment (Doc. 68) and DECLARES that the insurance contract between
Plaintiff and Mulberry does not afford coverage and Plaintiff owes no obligation under
such contract to Defendants or any other entity or individual in connection with the
underlying actions. The Court further DENIES Defendant NCAIG’s Cross-Motion for
Summary Judgment (Doc. 64), and GRANTS Defendant Sharp’s unopposed Motion to
Dismiss (Doc. 81).
The Clerk shall enter judgment accordingly, whereupon this case is CLOSED in
this Court.
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IT IS SO ORDERED.
Date: 2/3/15

s/ Timothy S. Black
Timothy S. Black
United States District Judge

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