Beazley Ins. Co. v. ACE Am. Ins. Co.

197 F.Supp.3d 616

BEAZLEY INSURANCE COMPANY, INC., Plaintiff,

v.ACE AMERICAN INSURANCE COMPANY, ET AL., Defendants.

15-cv-5119 ( JSR)

United States District Court, S.D. New York.

Signed July 12, 2016

Dustin H. Thai, Kevin Kieffer, Peter Lucier, Ryan C. Tuley, Troutman Sanders LLP, Irvine, CA, Matthew Joel Aaronson, Troutman Sanders LLP, New York, NY, for Beazley Insurance Company, Inc.

Daniel Wagner London, London Fischer LLP, New York, NY, for ACE American Insurance Company.

Alexander Seton Lorenzo, Alston & Bird, LLP, New York, NY, for Illinois National Insurance Company.

OPINION AND ORDER

JED S. RAKOFF, U.S.D.J.

This dispute between three insurers of NASDAQ arises from a class action suit (the "Facebook Class Action") that retail investors in Facebook brought against NASDAQ in the aftermath of Facebook's troubled initial public offering on the NASDAQ stock exchange. While plaintiff Beazley Insurance Company, Inc. ("Beazley") agreed to contribute its full limit of liability to NASDAQ's settlement of the Facebook Class Action, defendants ACE American Insurance Company ("ACE") and Illinois National Insurance Company ("INIC") disclaimed coverage. Beazley now moves for partial summary judgment against ACE on its second cause of action seeking a declaratory judgment that ACE is obligated to provide indemnity coverage to NASDAQ in connection with the Facebook Class Action. Conversely, ACE moves for summary judgment on all remaining claims against it (Counts Two, Four, and Five) primarily on the basis that the Facebook Class Action falls within the "professional services" exclusion of the relevant policy. INIC likewise moves for summary judgment on all remaining claims against it (i.e., Counts One and Two).

Because the Court finds that the Facebook Class Action's claims fall within the "professional services" exclusion, the Court denies Beazley's motion for summary judgment, grants ACE's motion for summary judgment on Counts Two and Four, and grants INIC 's motion for summary judgment in its entirety. However, the Court denies ACE summary judgment on plaintiff's breach of contract claim (Count Five), since ACE breached its duty to advance defense costs to NASDAQ and since Beazley (in its capacity as NASDAQ's assignee) appears to have damages in the form of NASDAQ's unreimbursed attorneys' fees.

This litigation traces itself to a series of lawsuits filed against NASDAQ entities and officers in 2012 in connection with NASDAQ's alleged mishandling of the Facebook IPO. On October 4, 2012, the Judicial Panel on Multidistrict Litigation centralized 41 actions related to the Facebook IPO in the Southern District of New York before Judge Sweet, including eight actions brought against NASDAQ entities and officers alleging federal securities law and negligence claims. See In re Facebook, Inc., IPO Sec. & Derivative Litig., 899 F.Supp.2d 1374, 1377 (J.P.M.L.2012). Judge Sweet subsequently consolidated the NASDAQ actions separately for pretrial proceedings. See In re Facebook, Inc., IPO Sec. & Derivative Litig., 288 F.R.D. 26, 29–30 (S.D.N.Y.2012).

On April 30, 2013, a consolidated amended class action complaint (the "CAC") was filed against NASDAQ OMX Group, Inc., NASDAQ Stock Market, LLC, Robert Greifeld (NASDAQ's President and CEO at the relevant time), and Anna Ewing (NASDAQ's Chief Information Officer at the relevant time) (collectively, the "NASDAQ Parties"), on behalf of a putative class of all persons "that entered pre-market and aftermarket orders to purchase and/or sell the common stock of Facebook Inc.... on May 18, 2012... in connection with Facebook's initial public offering ... and who thereby suffered monetary losses as a result of the [NASDAQ Parties'] wrongdoing." See Decl. of Kevin Kieffer in Support of Pl. Beazley Ins. Co., Inc.'s Mot. for Partial Summ. J. dated Jan. 15, 2016 ("Kieffer Decl. dated Jan. 15, 2016"), Ex. 2 at 1, ECF No. 74-2.

More specifically, the CAC was brought on behalf of both a "Securities Class" alleging violations of § 10(b) and § 20(a) of the Securities Exchange Act of 1934 and a "Negligence Class" alleging claims for common law negligence. See id. Among other things, the CAC alleged that "the wholesale breakdown in NASDAQ's trading platforms" on the day of the IPO "caused Class Members substantial damages by, inter alia: (i) causing erroneous and failed trade executions; (ii) blinding Class Members for hours—if not days—as to their then-current positions in Facebook stock due to late and/or missing trade confirmations; (iii) preventing Class Members from executing orders at the National Best Bid/Offer [ ] prices for Facebook stock as required by SEC Reg. NMS; and (iv) exposing Class Members to related failures of the NASDAQ trading platform, resulting in, among other things, an artificial downward pressure on the price of Facebook's stock." Id.¶ 15.

During the relevant time period, NASDAQ OMX Group, Inc. maintained both an errors and omissions ("E&O") insurance policy and a directors and officers ("D&O") insurance policy—both of which were potentially implicated by the CAC. Non-party Chartis Specialty Insurance Company ("Chartis") was NASDAQ's primary E&O liability insurer at the relevant time, having issued NASDAQ OMX Group, Inc. a policy for the policy period of January 31, 2012 through January 31, 2013 (the "Chartis E&O Policy"). See Defs.' Joint Statement of Undisputed Material Facts ("Defs.' Rule 56.1 Stmt.") ¶ 8, ECF No. 71.¹ Beazley was NASDAQ's first-layer excess E&O insurer, having issued a policy to NASDAQ OMX Group, Inc. for the same policy period (the "Beazley E&O Policy"). See id.¶ 12. The Beazley E&O Policy follows the form of the Chartis E&O Policy—meaning that it generally insures the same risks under the same set of terms and conditions as the Chartis E&O Policy—and sits in excess of the Chartis E&O Policy's $15 million limit of liability. As a "first-layer excess" insurer, Beazley's $15 million limit of liability was implicated once Chartis's $15 million limit of liability was exhausted. See id.¶ 13.

ACE, for its part, was NASDAQ's primary D&O liability insurer at the relevant time, having issued a policy to NASDAQ OMX Group, Inc. for the policy period of January 31, 2013 to January 31, 2014 (the "ACE D&O Policy").² See id.¶ 16. INIC was NASDAQ's first-layer excess D&O insurer, having issued a policy to NASDAQ OMX Group, Inc. for the same policy period with a $15 million limit of liability (the "INIC D&O Policy"). See id.¶¶ 19-20. The INIC D&O Policy follows the form of the ACE D&O Policy and sits in excess of the ACE D&O Policy's $15 million limit of liability. See id.¶¶ 17, 21-22.

The E&O policies provided NASDAQ with coverage, in relevant part, for "Damages resulting from any Claim ... for any Wrongful Act ... solely in rendering or failing to render Professional Services." Compl., Ex. C, § 1.1, ECF No. 2-3. Upon receiving notice of various of the underlying actions brought against NASDAQ, Chartis issued a reservation of rights letter and agreed to advance defense costs to NASDAQ under the Chartis E&O Policy. See Aff. in Support of Def.'s Mot. for Summ. J. ("London Aff."), Ex. L, ECF No. 66-8. Beazley similarly accepted potential coverage under its E&O policy, subject to a reservation of rights. See Decl. of Carrie Parikh in Support of Pl. Beazley Ins. Co., Inc.'s Mot. for Partial Summ. J. dated Jan. 15, 2016 ("Parikh Decl. dated Jan. 15, 2016") ¶ 2, ECF No. 75. ACE, however, disclaimed coverage, relying primarily on the "professional services" exclusion. See Def.'s Rule 56.1 Stmt. ¶ 46.

In April 2015, the NASDAQ Parties agreed to settle the Facebook Class Action for $26.5 million. See Parikh Decl. dated Jan. 15, 2016 ¶ 5. In connection with that settlement and in exchange for a mutual release of claims, Beazley entered into an agreement with the NASDAQ Parties dated June 15, 2015, by which Beazley agreed to contribute its full $15 million limit of liability toward the settlement and by which the NASDAQ Parties "assign[ed] to Beazley any and all contractual rights or extra-contractual rights they have or that they may acquire ... against ACE and/or Illinois National in connection with the [Facebook Class Action] up to the amount of [$15 million]." Kieffer Decl. dated Jan. 15, 2016 ¶ 20; see also Decl. of Carrie Parikh in Opp. to ACE Am. Ins. Co.'s and Ill. Nat'l Ins. Co.'s Mots. for Summ. J. dated Jan. 29, 2016 ¶ 6, ECF No. 86. Shortly thereafter, on June 30, 2015, Beazley initiated this action against ACE and INIC.

Beazley subsequently moved for partial summary judgment on Count One, seeking a declaratory judgment that ACE was obligated under the ACE D&O Policy to cover NASDAQ's defense costs in connection with the Facebook Class Action. Simultaneously, ACE and INIC both moved to dismiss the complaint in its entirety. On October 21, 2015, the Court granted Beazley partial summary judgment on Count One and granted in part and denied in part defendants' motions to dismiss. Specifically, the Court dismissed Count Three (for indemnification) as against both defendants with prejudice; dismissed Count Four (for contribution) and Count Five (for breach of contract) as against INIC without prejudice; and otherwise denied defendants' motions to dismiss. See Beazley Ins. Co. v. A CE Am. Ins. Co., 2015 WL 6442224, at *1–2 (S.D.N.Y. Oct. 21, 2015). The Court explained these rulings in an opinion issued on December 20, 2015, in which it found, based on the arguments then before it, that ACE had not yet met its heavy burden of demonstrating that the "professional services" exclusion unambiguously applied to the CAC's claims such that ACE could avoid its duty to advance defense costs to NASDAQ. See Beazley Ins. Co. v. Ace Am. Ins. Co., 150 F.Supp.3d 345, 352–54, 2015 WL 9267199, at *5 (S.D.N.Y. Dec. 20, 2015).

Turning to the parties' pending motions for summary judgment, the critical issue remains the applicability of the "professional services" exclusion found in the ACE D&O Policy to the...