Philadelphia Indemnity Insurance Company v. Providence Community Action Program, Inc. et al
OPINION AND ORDER denying 20 Motion for Summary Judgment; granting 23 Cross-Motion for Summary Judgment. So Ordered by Chief Judge William E. Smith on 1/24/2017. (Jackson, Ryan)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
PROVIDENCE COMMUNITY ACTION
PROGRAM, INC; THOMAS HEMMENDINGER; )
FRANK CORBISHLEY; and
C.A. No. 15-388 S
OPINION AND ORDER
WILLIAM E. SMITH, Chief Judge.
Before this Court is a declaratory judgment action brought
(collectively, “Defendants”). Plaintiff has filed a Motion for
Summary Judgment, and Defendants have filed a Cross-Motion for
objections. For the reasons set forth below, Plaintiff’s Motion
for Summary Judgment is DENIED, and Defendants’ Cross-Motion for
Summary Judgment is GRANTED.
I. Summary Judgment Standard
“The court 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.
whether either of the parties deserves judgment as a matter of
law on facts that are not disputed.” Barnes v. Fleet Nat'l Bank,
N.A., 370 F.3d 164, 170 (1st Cir. 2004) (quoting Wightman v.
Springfield Terminal Ry., 100 F.3d 228, 230 (1st Cir. 1996)).
Questions of law may be appropriately resolved on a motion for
summary judgment. Littlefield v. Acadia Ins. Co., 392 F.3d 1, 6
construction of an unambiguous contract. See Lloyd's of London
v. Pagan-Sanchez, 539 F.3d 19, 22 (1st Cir. 2008).
Providence Community Action Program, Inc. (“ProCAP”) is a
insurance policy (“D&O Policy” or “Policy”) from Philadelphia
Indemnity Insurance Company (“PIIC”).
Soon thereafter, ProCAP
As this is an order on a motion for summary judgment, the
Court recounts the undisputed facts from the record.
receivership. The temporary receivership order was signed by the
Rhode Island Superior Court on December 14, 2011, appointing
Receiver. (Parties’ Agreed Statement of Facts Ex. B, ECF No. 182.)
Hemmendinger was appointed as the permanent Receiver. (Id. Ex.
E, ECF No. 18-5.)
The Rhode Island Superior Court’s appointing order provides
the Receiver various powers, including as follows:
The Receiver is hereby authorized to collect all the
debts due the Defendant, to prosecute and defend,
suits in its name or in the Receiver’s name and
capacity as Receiver or to intervene in any action,
suit, or proceeding relative to the estate or effects
of the Defendant . . . and generally do any other act
which might be done by the Defendant or that may in
the judgment of the Receiver be necessary or desirable
for the protection, maintenance and preservation of
the property and assets of the Defendant.
(Id. Ex. E ¶ 4, ECF No. 18-5.)
Having been granted these powers, the Receiver brought a
breach of fiduciary duty claim in Rhode Island Superior Court
against two former2 ProCAP officers, Frank Corbishley and William
The Rhode Island Secretary of State revoked ProCAP’s
“Certificate of Incorporation/Authority” as of February 18,
2015. (Hemmendinger Aff. Ex. D, ECF No. 24-4.)
Bentley. The Receiver then sent a demand letter to PIIC for
payment under the Policy. PIIC denied that claim, explaining
that the Policy does not cover lawsuits brought by the Receiver
“on behalf of” ProCAP. (Id. Ex. K, ECF No. 18-11.)
The D&O Policy3 purchased by ProCAP from PIIC is entitled
“Flexi Plus Five.” (Compl. 36, ECF No. 1.) This sort of D&O
liability policy is fairly common, and its purpose is to protect
organizations against the wrongful acts of their management. To
that end, Part 1 of the “Flexi Plus Five” Policy includes the
following language: “The Underwriter will pay on behalf of the
during the Policy Period . . . for a D&O Wrongful Act.” (Id.)
The Policy’s broad coverage for all “wrongful act[s]” of
directors and officers is subject to several exclusions. The
relevant exclusion in this case states: “The Underwriter shall
not be liable to make any payment for Loss in connection with
any Claim made against the Insured . . . brought or maintained
by, at the behest, or on behalf of the Organization.”4 (Id. at
A complete copy of the Flexi Plus Five Policy is included
in the Complaint. (See Compl. 36, ECF No. 1.)
This sort of exclusion is typical for directors and
officers liability insurance policies, and is commonly referred
to as the “insured v. insured exclusion.” Stratton v. Nat’l
Union Fire Ins. Co., No. CIV.A.03-CV-12018-RGS, 2004 WL 1950337,
at *5 (D. Mass. Sept. 3, 2004). The purpose of this exclusion
Organization” or “Any Subsidiary.” (Id. at 44.) However, the
Policy provides no definition for the phrase “on behalf of.”
After ProCAP went into receivership, the Policy was amended
to include the Receiver (Hemmendinger) as a named party with
coverage under the Policy. This amendment places the Receiver
under the umbrella definition of an “Individual Insured” and
Organization . . . .” (Id.) Of note, the amendment does not make
A. Issue Framing
At the core of the parties’ dispute is whether the claim
brought by the Receiver against ProCAP’s former officers should
be considered as brought “on behalf of” ProCAP such that it is
“is to protect insurers from collusive lawsuits by corporations
trying to recoup corporate losses by attributing them to the
wrongdoing of directors and officers who, if insured, have
nothing to lose by taking the blame.” Id.; see also Narath v.
Exec. Risk Indem., Inc., No. CIV.A. 01-10122-RWZ, 2002 WL
924231, at *2 (D. Mass. Mar. 14, 2002) (memorandum decision).
disagreement involves two issues. The first hinges on the role
of the Receiver under Rhode Island law. PIIC argues that the
Receiver, in bringing a lawsuit against former ProCAP directors
contrast, the Receiver argues that he does not act on behalf of
ProCAP, but instead acts on behalf of the Rhode Island Superior
Court that appointed him.
The second issue revolves around the Policy amendment which
specifically defines the Receiver as an “Individual Insured” and
an “Independent Contractor . . . who is contracted to perform
services for the Organization . . . .” (Compl. 11, ECF No. 1.)
PIIC argues that because the Policy defines
the Receiver as
“perform[ing] services for” ProCAP, the Receiver’s lawsuit was
by definition “on behalf of” ProCAP for the purposes of the
Policy’s insured-versus-insured exclusion (even if, under Rhode
Island law, the Receiver is acting as an agent of the Rhode
Island Superior Court). The Receiver argues that the amendment
language does not transform the Receiver’s actions, which were
taken on behalf of the Superior Court, into actions taken “on
behalf of” ProCAP.
B. Issue 1 – Rhode Island Receivership Law
action “on behalf of” ProCAP (making the insured-versus-insured
exclusion applicable) or is instead acting on his own behalf as
an agent of the Rhode Island Superior Court (making the insuredversus-insured exclusion inapplicable). The question of whether
trustees, receivers, etc.) act “on behalf of” the pre-bankruptcy
versus-insured exclusion has been the subject of much debate and
disagreement. See, e.g., Michael D. Sousa, Making Sense of the
Bramble-Filled Thicket: the “Insured vs. Insured” Exclusion in
the Bankruptcy Context, 23 Emory Bankr. Dev. J. 365 (2007). This
disagreement has led to conflicting decisions in the federal
courts. See, e.g., W Holding Co., Inc. v. AIG Ins. Co.-Puerto
Rico, 748 F.3d 377, 386 (1st Cir. 2014) (noting that there is
“no controlling authority on whether an insured-versus-insured
pointing in different directions”); Biltmore Associates, LLC v.
Twin City Fire Ins. Co., 572 F.3d 663, 670–71 (9th Cir. 2009)
(discussing the disagreement among federal courts as to whether
bankruptcy entity). For their part, the parties have provided
several out-of-circuit decisions in support of their arguments,
all of which provide some conflicting analysis.
While the cases that discuss this issue are useful, they
are not controlling. Neither the First Circuit nor the Rhode
depends on Rhode Island law governing receiverships, it is to
that area of law the Court next turns.
When the Rhode Island Superior Court orders a company into
receivership, the court and its receiver (as an officer of the
Manchester v. Manchester, 94 A.2d 235, 238 (R.I. 1962); see also
State of Maine v. Fiore, 497 A.2d 298, 301 (R.I. 1985) (“We
Courts in general accept the view that a receiver appointed by a
possession which constitutes a part of the estate that is the
subject of the receivership is in custodia legis until it is
disposed of by the receiver in compliance with an order of that
court.”) (quoting Manchester, 181 A.2d at 238).5 The phrase in
The Rhode Island Superior Court’s authority to appoint a
receiver has been codified in the Rhode Island Business
Corporation Act. See R.I. gen. Laws § 7-1.2-1323 (“[T]he
superior court has full power to appoint a receiver, with any
custodia legis “is traditionally used in reference to property
taken into the court’s charge during pending litigation over
Black’s Law Dictionary 783 (8th ed. 2004). “[U]nlike a
mere attachment, the court’s decision to place the property in
le[aves] him with only a contingent right to the property.”
Davis v. Cox, 356 F.3d 76, 94 (1st Cir. 2004) (reviewing the
claim of a receiver under Maine law).
empowered (through its receiver) to distribute the property to
various interests as it deems appropriate. Rhode Island Hosp.
Trust Co. v. Rhode Island Covering Co., 182 A.2d 438, 441 (R.I.
custody of that court to be disposed of only according to its
concerned.”). The pre-receivership entity that previously owned
Steenstra, 307 B.R. 732, 740 (B.A.P. 1st Cir. 2004) (holding
powers and duties that the court, from time to time, directs,
and to take any other proceedings that the court deems advisable
under the circumstances.”).
that, in the bankruptcy context, “once the case is dismissed and
the automatic stay is terminated, the property of the estate
revests in the debtor and the doctrine of in custodia legis no
However, the re-vesting of the receivership estate back to
Superior Court, may transfer the property to other interested
parties. See Rhode Island Hosp. Trust Co., 182 A.2d at 441;
Francis v. Buttonwood Realty Co., 765 A.2d 437, 443 (R.I. 2001).
This outcome is particularly likely in this case as the Rhode
impossible for any funds obtained in the Receiver’s lawsuit to
re-vest in ProCAP. (Hemmendinger Aff. Ex. D, ECF No. 24-4.)
Decisions of courts within the First Circuit on the topic
of the insured-versus-insured exclusion in the receivership or
bankruptcy context are consistent with this interpretation of
Rhode Island law.6 For example, in Am. Cas. Co. of Reading,
Sec. & Exch. Comm’n v. Churchville, No. C.A. No. 15-191 S,
2016 WL 3816373, at *2–3 (D.R.I. July 12, 2016) (finding “little
case law relating to equitable receiverships” in Rhode Island
and looking to “cases interpreting the U.S. Bankruptcy Code”);
Patel v. Shivai Nehal Realty LLC, No. KB-2012-0301, 2012 WL
5380060, at *2 (R.I. Super. Ct., Oct. 26, 2012) (“[W]here state
Pennsylvania v. Sentry Fed. Sav. Bank, 867 F. Supp. 50, 59 (D.
Mass. 1994), the District of Massachusetts held:
[t]he crux of the dispute is this: when the [receiver]
is asserting the claims of the Bank, does it merely
“stand in the shoes” of the bank subject to the same
limitations that would apply to the bank, see FDIC v.
American Cas. Co., 975 F.2d 677, 681–82 (10th Cir.
1992); Mt. Hawley Ins. Co. v. FSLIC, 695 F. Supp. 469,
482 (C.D. Cal. 1987); Gary v. American Cas. Co., 753
F. Supp. 1547, 1555 (W.D. Okla. 1990), or is it
shareholders and creditors of the bank and is not the
Insured referred to in the exclusion, see Baker, 758
F. Supp. at 1349; American Casualty Co. v. FDIC, 791
F. Supp. 276 (W.D. Okla. 1992); American Cas. Co. v.
FDIC, No. CIV. 86–4018, 1990 WL 66505, at *11 (N.D.
Iowa Feb. 26, 1990), aff’d in relevant part and rev’d
in part, 944 F.2d 455 (8th Cir. 1991); Branning v. CNA
Ins. Cos., 721 F.Supp. 1180, 1184 (W.D. Wash. 1989).
“The weight of opinions concerning ‘insured vs.
insured’ exclusions in the receivership context side
with the American Casualty cases and the Branning
decision by allowing coverage when receivers sue the
Insured’ Exclusions in Director and Officer Liability
Insurance Policies: Is Coverage Available When Chapter
11 Trustees and Debtors–in–Possession Sue Former
Directors and Officers?, 9 Bankr. Dev. J. 101, 118
receivership law provides minimal guidance, this Court instead
‘looks to the Bankruptcy Act and to decisions by the federal
courts for guidance.’”) (quoting Reynolds v. E & C Assoc., 693
A.2d 278, 281 (R.I. 1997)).
Id. at 59; see also Narath v. Exec. Risk Indem., Inc., No.
CIV.A. 01-10122-RWZ, 2002 WL 924231, at *2 (D. Mass. Mar. 14,
exclusions inapplicable where, as here, one ‘insured’ is the
trustee or receiver of an insolvent institution bringing claims
decision); In re Molten Metal Tech., Inc., 271 B.R. 711, 726
(Bankr. D. Mass. 2002) (“The claims now belong to the estate,
not to the Company, and the Chapter 11 Trustee brings them on
behalf of the estate, not on behalf of the Company.”).
Under these circumstances, the Court finds that a Rhode
behalf of” the pre-receivership entity. Instead, a Rhode Island
receiver is better understood as an agent of the Superior Court
that appointed the receiver and as working for the potential
benefit of various parties. In this case, the Receiver’s claims
were therefore not brought “on behalf of” ProCAP and are not
subject to the insured-versus-insured exclusion.
C. Issue 2 - Receiver as Defined in the Policy
defines the role of a court-appointed receiver, the Receiver in
this case should still be considered as acting “on behalf of”
ProCAP under the terms of the Policy. PIIC’s argument is based
on the amendment to the Policy that was made after the Superior
specifically defines Hemmendinger as an “Independent Contractor
. . . who is contracted to perform services for the Organization
. . . .” (Compl. 11, ECF No. 1.) Under PIIC’s reading of the
services for the Organization” in the amendment, the Receiver,
by definition, is acting “on behalf of the Organization” for the
purposes of the insured-versus-insured exclusion in the original
Def.’s Mem. in Supp. of Cross-Mot. for Summ. J. 10-11, ECF No.
The Court finds this argument unpersuasive for two reasons.
First, PIIC has no authority to alter the relationship between
the Receiver and the Superior Court by negotiating a contract
amendment with ProCAP’s insurance broker. As was discussed in
the previous section, a Rhode Island receiver has the duty to
marshal the assets of the receivership entity and performs this
vitiated by an insurance contract between the insurance carrier
and the entity which is the subject of the receivership. Absent
consent from the
Court, any such contract is ultra
vires and unenforceable.7 To hold otherwise would allow private
parties to contract away a receiver’s legal authority (and, by
extension, the authority of the Superior Court) to collect the
Moreover, even if this Court were to find the amendment
enforceable, which it does not, the Receiver’s claim would still
not fall within the insured-versus-insured exclusion. The Policy
uses different language in its insured-versus-insured exclusion
(defining what claims will not be covered) and its amendment
(defining the Receiver’s role under the contract). The exclusion
applies to claims “brought . . . on behalf of the Organization.”
(Compl. 45-46, ECF No. 1.) By contrast, the amendment defines
the Receiver’s role as an “Independent Contractor . . . who is
“[T]he doctrine of ultra vires rests upon the principle
that on grounds of public policy the courts will not enforce an
illegal or an ultra vires contract . . . .” Barron v. McKinnon,
196 F. 933, 938 (1st Cir. 1912); see also Citizens’ Cent. Nat.
Bank of N.Y. v. Appleton, 216 U.S. 196, 205 (1910). This
doctrine has been adopted by the Rhode Island Supreme Court.
See, e.g., City of Warwick v. Boeng Corp., 472 A.2d 1214, 1218
(R.I. 1984) (discussing the “general rule that a contract or
agreement against public policy is illegal and void”) (citing
Weil v. Neary, 278 U.S. 160 (1929)). In Rhode Island, a
“contract or agreement is generally against public policy if it
is injurious to the interests of the public, interferes with the
public welfare or safety, is unconscionable, or tends to
injustice or oppression.” Id. (citing Calamari & Perillo, The
Law of Contracts § 22–1 at 780 (2d ed. 1977)).
contracted to perform services for the Organization.
. . .”
language, the Policy is devoid of any cross-reference between
defining the role of the Receiver. The insured-versus-insured
exclusion does not reference claims brought by an “Independent
Contractor,” which is how the amendment defines the Receiver.
As a general rule, “where the document has used one term in
idea.” Antonin Scalia & Bryan A. Garner, Reading Law 170 (2012).
In this case, after reviewing the contract in its entirety, the
Court sees no reason to set aside that presumption and instead
presume that when PIIC drafted the phrase “perform services for
the Organization” in an amendment, what PIIC really meant was to
define the Receiver as acting “on behalf of the Organization”
for the purposes of the insured-versus-insured exclusion in the
original Policy. This conclusion is fortified by the fact that
there is no cross-reference between the insured-versus-insured
Therefore, the Court finds that the phrase “perform services
for” is unambiguously not encompassed by, or synonymous with,
the phrase “on behalf of” as those terms are used in the Policy.
D. Exception to the Insured-Versus-Insured Exclusion
entitled “Pro-Pak Elite Enhancement.”8 Within that addendum was,
among other things, an exception to the insured-versus-insured
exclusion. That exception states that the insured-versus-insured
exclusion “will not apply to any claim brought as a derivative
provided the claim is brought without the assistance of any
current or former Individual Insured.” (Compl. 60, ECF No. 1.)
The parties disagree as to whether the Receiver’s claim falls
under this exception. Because the Court has determined that the
Receiver’s claim, there is no need to determine whether
Receiver’s claim falls under an exception to that exclusion.
Summary Judgment (ECF No. 20) is DENIED, and Defendants’ CrossMotion for Summary Judgment (ECF No. 23) is GRANTED. Judgment
will be entered in favor of Defendants.
A complete copy of the “Pro-Pak Elite Enhancement” is
included with the Complaint. (See Compl. 58, ECF No. 1.)
IT IS SO ORDERED.
William E. Smith
Date: January 24, 2017
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