Certain Underwriters at Lloyd's London v. Jupiter Managing General Agency, Inc.

596 F.Supp.3d 1039

CERTAIN UNDERWRITERS AT LLOYD'S LONDON subscribing to Policy No. CE0052, Plaintiff,

v.JUPITER MANAGING GENERAL AGENCY, INC., d/b/a Jupiter Auto Insurance ; Lyndon Southern Insurance Company ; and Insurance Company of the South, Defendants.

Case No. 3:20-cv-01037

United States District Court, M.D. Tennessee, Nashville Division.

Signed March 31, 2022

Christopher R. Brooks, Gregory Lee Mast, Jennifer W. Wolak, Louie Whit Carmon, Fields Howell LLP, Atlanta, GA, for Plaintiff.

William R. O'Bryan, Jr., Butler Snow LLP, Nashville, TN, for Defendant Jupiter Managing General Agency, Inc.

Brent Brougher, Jeffrey H. Fisher, Joe P. Reynolds, Kilpatrick Townsend LLP, Atlanta, GA, Robert G. Norred, Jr., Logan-Thompson, P.C., Cleveland, TN, for Defendants Lyndon Southern Insurance Company, Insurance Company of the South.

MEMORANDUM

WILLIAM L. CAMPBELL, JR., UNITED STATES DISTRICT JUDGE

Pending before the Court is a Motion for Judgment on the Pleadings filed by Plaintiff Certain Underwriters at Lloyd's London subscribing to Policy No. CE0052 ("Lloyd's"). (Doc. No. 61). Defendants Lyndon Southern Insurance Company and Insurance Company of the South (collectively, "Lyndon"), and Jupiter Managing General Agency Inc. ("Jupiter") each filed a response in opposition.¹ (Doc. Nos. 68, 69). Lloyd's filed a reply. (Doc. No. 75).

In addition, Plaintiff filed a request for oral argument. (Doc. No. 62). The Court does not find oral argument necessary for resolution of the motion. Accordingly, that request is denied.

For the reasons stated herein, Plaintiff's Motion for Judgment on the Pleadings will be DENIED .

I. BACKGROUND

Jupiter and Lyndon entered into contractual agreements whereby Jupiter served as the program administrator and claims manager for Lyndon. When a dispute arose as to the amounts due under the Program Agreement, Lyndon sent Jupiter a written Demand for Arbitration. (Doc. No. 1-6). As articulated in Lyndon's Position Statement in the arbitration, Lyndon claimed: (1) "Jupiter negligently failed to remit $2,757,632.75, primarily for premiums reported to Lyndon as collected from policyholders"; (2) "Jupiter negligently withdrew individual file Allocated Loss Adjustment Expenses ("ALAE") from Lyndon's fiduciary account in the amount of $259,186.16"; and (3) Jupiter "refused to pay at least $75,000 in outstanding legal invoices for ALAE that accrued after Lyndon terminated Jupiter's access to the fiduciary account." (See Doc. No. 32-1).

Lloyd's issued an Insurance Agents and Brokers Professional Liability Insurance Policy (the "Policy") to Jupiter for the period of July 24, 2019 to July 24, 2020. (See Compl., Doc. No. 1 ¶ 2; Doc. No. 1-1). Lloyd's seeks a declaration that the damages claimed by Lyndon in the arbitration are not covered by the Policy and Lloyd's owes no duty to defend or indemnify Jupiter with respect to the arbitration.² (Doc. No. 60 at 1).

II. STANDARD OF REVIEW

"After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). The standard for evaluating a motion for judgment on the pleadings is the same as that applicable to a motion to dismiss under Rule 12(b)(6) for failure to state a claim. Monroe Retail, Inc. v. RBS Citizens, N.A. , 589 F.3d 274, 279 (6th Cir. 2009). The Court may grant a plaintiff's motion for judgment on the pleadings where "all well-pleaded material allegations of the pleadings of the opposing party [are] taken as true, and ... the moving party is nevertheless clearly entitled to judgment." Id. (citing JPMorgan Chase Bank, N.A. v. Winget , 510 F.3d 577, 581 (6th Cir. 2007) ). The Court may consider "documents attached to and referenced in the pleadings on a motion for judgment on the pleadings without converting the motion into a motion for summary judgment." Founders Ins. Co. v. Bentley Entertainment, LLC , No. 3:12-cv-01315, 2013 WL 3776311, at *8 (M.D. Tenn. 2013) (citing Barany-Snyder v. Weiner , 539 F.3d 327, 333 (6th Cir. 2008) ).

III. ANALYSIS

A. Applicable Law

In a diversity action, the substantive law of the forum state controls under the forum's choice of law principles. See In re Air Crash Disaster , 86 F.3d 498, 540-41 (6th Cir. 1996) (citing Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) ). "In Tennessee, absent a valid choice of law provision, the rights and obligations under an insurance policy are governed by the law of the state where the insurance policy was ‘made and delivered.’ " Charles Hampton's A-1 Signs, Inc. v. Am. States Ins. Co. , 225 S.W.3d 482, 485 n.1 (Tenn. Ct. App. 2006). Here the Policy does not contain a choice of law provision specifying the law of a particular state. (See Policy, Doc. No. 1-1 (specifying choice of law as "U.S.A.")). Because the Policy was issued and delivered to Jupiter in Nashville, Tennessee (see id. ), the Court will apply Tennessee substantive law to the interpretation and effect of the Policy.

Under Tennessee law, "an insurance policy is a contract, and as such, [the court's] analysis must be grounded in principles of contract law." Christenberry v. Tipton , 160 S.W.3d 487, 492 (Tenn. 2005). Thus, the terms of an insurance contract "should be given their plain and ordinary meaning." Garrison v. Bickford , 377 S.W.3d 659, 663 (Tenn. 2012). Where the language of the policy is clear and unambiguous, the court must give effect to that meaning. Id. Courts must construe insurance policies "as a whole in a reasonable and logical manner." Travelers Indem. Co. of Am. v. Moore & Assocs., Inc. , 216 S.W.3d 302, 306 (Tenn. 2007) ; see also, Shempert v. Cox , 513 S.W.3d 469, 473 (Tenn. Ct. App. 2016) ("The policy should be construed ‘as a whole in a reasonable and logical manner’ and the language in dispute should be examined in the context of the entire agreement.").

"Language in an insurance policy is ambiguous if it is susceptible of more than one reasonable interpretation." Artist Bldg. Partners v. Auto-Owners Mut. Ins. Co. , 435 S.W.3d 202, 216 (Tenn. Ct. App. 2013) (citing Tata v. Nichols , 848 S.W.2d 649, 650 (Tenn. 1993) ). "Ambiguity in a contract is doubt or uncertainty arising from the possibility of the same language being fairly understood in more ways than one." Id. (quoting Mid-Century Ins. Co. v. Williams , 174 S.W.3d 230, 240 (Tenn. Ct. App. 2005) ). "When a provision that purports to limit insurance is ambiguous, it must be construed against the insurance company and in favor of the insured." Id. (quoting Gates v. State Auto Mut. Ins. Co. , 196 S.W.3d 761, 764 (Tenn. Ct. App. 2005) ).

Under Tennessee law, "whether a duty to defend arises depends solely on the allegations contained in the underlying complaint" and where the underlying dispute is pending in arbitration, "the central issue [ ] is whether [the claimant's] demand for arbitration alleges damages that are within the risk covered by the policy ..." Travelers Indem. Co. of Am. v. Moore & Assocs., Inc. , 216 S.W.3d 302, 305 (Tenn. 2007). "If any allegations in the complaint are covered by an insurance policy, the insurance company has a duty to defend." York v. Vulcan Materials Co. , 63 S.W.3d 384, 387-88 (Tenn. Ct. App. 2001). "Any doubt as to whether the claimant has stated a cause of action within the coverage of the policy is resolved in favor of the insured." Forrest Const., Inc. v. Cincinnati Ins. Co. , 728 F. Supp. 2d 955, 959-60 (M.D. Tenn. 2010) (collecting cases).

B. The Policy Provisions

Lloyd's contends the damages sought by Lyndon are not covered under the Policy. The Parties have identified the following Policy provisions as relevant to Lloyd's duty to defend. The Policy contains the following definitions of "wrongful act" and "loss":

Wrongful Act means a negligent act, error, or omission or Personal Injury committed by an Insured or any natural person for whose Wrongful Acts the Insured is legally responsible solely in the rendering or failing to render Professional Services for a client.

(Doc. No. 1-1 at PageID# 37).

Loss means awards, verdicts, judgments, damages and settlements that an Insured is legally obligated to pay as a result of a Claim for a Wrongful Act . Loss also includes:

a. Prejudgment and post-judgment interest awarded by a court; and

b. Punitive or exemplary damages and the multiplied portion of any multiple damages award, to the extent the damages are insurable under applicable law.

c. However, Loss does not include fines, penalties, taxes, damages owed solely based on an express obligation by written or oral agreement; disgorgement of profits by an Insured ; the costs incurred by an Insured for correction of any Wrongful Act ; the repayment or return or any fees, commissions, expenses or costs paid to or charged by an Insured ; the cost to comply with an injunctive or other non-monetary or declaratory relief, including specific performance, or any agreement to provide such relief; or amounts owed as an obligation under any contract or agreement.

(Id. at PageID# 35).

The Policy includes the following coverage exclusions:

The Insurer will not be liable to make any payment for Loss , including Defense Costs in connection with, arising out of, directly or indirectly related to or in any way involving:

K. Any actual or alleged gaining of profit, remuneration or monetary advantage to which any Insureds are not legally entitled;

...

N. Any comingling, misappropriation or conversion of funds;

O. The collection, payment or return of, or the failure to collect, pay or return any commission fee, tax or premium; (Policy, Doc. No. 1-1 at IV.O.)

(Id. at PageID# 38).

C. The Underlying Claims

Before issuing a demand for arbitration, Lyndon sent Jupiter two letters demanding payment of an "outstanding balance due for premiums [Jupiter] reported to the Company as collected for which it has not remitted payment" and failure to remit "additional Program payments." (Jan. 28, 2020 Demand Letter, Doc. No. 1-4). The January letter stated:

In

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