Crowley Mar. Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh

931 F.3d 1112

CROWLEY MARITIME CORPORATION, Plaintiff-Appellant,

v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant-Appellee.

No. 18-10953

United States Court of Appeals, Eleventh Circuit.

July 23, 2019

John D. Shugrue, Emily E. Garrison, Thomas A. Marrinson, Reed Smith, LLP, CHICAGO, IL, Charles B. Lembcke, Law Office of Charles B. Lembcke, PA, JACKSONVILLE, FL, for Plaintiff - Appellant.

Michael P. Duffy, Scarlett M. Rajbanshi, Peabody & Arnold, LLP, BOSTON, MA, Forrest Lee Andrews, Jason Benjamin Bloom, Stephen Hunter Johnson, Lydecker Diaz, LLC, MIAMI, FL, for Defendant - Appellee.

Before ED CARNES, Chief Judge, MARTIN and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge:

This case involves an unusual and factually complex insurance coverage dispute between two sophisticated parties. It requires us to consider the coverage and reporting requirements in a claims-made executive and organization liability insurance policy that provides, inter alia, defense costs coverage for certain directors, officers, and employees of the insured. After obtaining an unfavorable result in an arbitration proceeding, Plaintiff-Appellant Crowley Maritime Corporation ("Crowley Maritime") sued its insurer Defendant-Appellee National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") in federal court seeking reimbursement of over $2.5 million in legal defense fees paid on behalf of Thomas Farmer ("Farmer"), an employee of Crowley Liner Services, Inc. ("Crowley Liner" and, together with Crowley Maritime, "Crowley"). Jurisdiction is based on diversity.

Relying in part on the res judicata effect of the arbitration proceeding, the district court granted National Union’s converted motion for summary judgment on grounds that Crowley failed to timely report the Claim¹ at issue in this appeal to National Union as required by the relevant insurance policy. Crowley insists it timely reported the Claim even though an affidavit evidencing the Claim was under seal until after the relevant Claim reporting periods expired. Although our reasoning differs somewhat from the reasoning adopted by the district court, we affirm the district court’s grant of National Union’s converted motion for summary judgment.

I. BACKGROUND

A. Factual Background.

1. Crowley purchases executive and organization liability insurance policy from National Union.

Crowley Liner is a Jacksonville-based water freight carrier that carries freight between the United States and Puerto Rico. It is a wholly owned subsidiary of Crowley Maritime. National Union is among the largest providers of directors and officers insurance policies. As it relates to this case, Crowley Maritime purchased liability insurance from National Union pursuant to Executive and Organization Liability Insurance Policy No. 061-36-48 (the "Policy"), which provided coverage for an initial Policy Period running from November 1, 2007 through November 1, 2008 and an extended Discovery Period running through November 1, 2013. The Policy provided coverage on a "claims made" basis, meaning that National Union insured Crowley "solely with respect to Claims² first made against an Insured during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of [the P]olicy." As relevant to the issues in this case, the Policy covered Defense Costs resulting from the investigation, adjustment, and defense of a Claim against an Insured (Farmer in this case).

2. Sealed search warrant Affidavit leads to execution of search warrant at Crowley Liner headquarters.

During the initial Policy Period, Crowley Liner and Farmer, Crowley Liner’s then-Vice President of Price and Yield Management, attracted the attention of federal law enforcement officers. On April 17, 2008, a search warrant was executed at Crowley Liner’s Jacksonville headquarters. The search warrant ordered that certain property be seized from Crowley Liner management, pricing, or sales personnel—including Farmer and three other individuals specifically named in the search warrant—in connection with a joint investigation by the Federal Bureau of Investigation ("FBI") and the Department of Justice ("DOJ") of an alleged price-fixing conspiracy in the Puerto Rican trade lane.

On April 16, 2008, the day before federal law enforcement officers executed the search warrant, an FBI special agent signed and delivered an affidavit supporting the search warrant (the "Affidavit") to a federal magistrate judge in the Middle District of Florida. The Affidavit—which spans forty-eight pages and describes in great detail an ongoing FBI/DOJ antitrust investigation involving several water freight carriers—asserted that Farmer and others had been involved in communications and agreements to allocate customers and coordinate pricing in violation of the Sherman Act.³ To protect the ongoing FBI/DOJ investigation, the Affidavit was sealed by court order the day it was presented to the magistrate judge. The search warrant itself noted generally the existence of an affidavit supporting probable cause, but it did not specifically identify the Affidavit, reveal its content, or note that it had been placed under seal. The detailed descriptions of Farmer’s alleged conduct in the sealed Affidavit were not apparent from the face of the search warrant itself. Crowley and Farmer also received subpoenas to appear before a grand jury, but Farmer never testified.

3. National Union accepts Crowley’s notice of Claim as a notice of circumstances under section 7(c) of the Policy.

A little over a week later, in a letter dated April 25, 2008 (the "April 2008 Notice"), Crowley’s insurance broker sent National Union a notice it characterized as a notice of a Claim. An email attached to the April 2008 Notice provided the initial "details of a DOJ/FBI investigation," including a statement that "[t]he charges that may have [led] to the subpoena and search warrant are sealed at this point in time and no indictments have been filed." Crowley also asked National Union to consent to the retention of defense counsel and the expenditure of Defense Costs by Crowley and Farmer.

National Union responded to the April 2008 Notice in a letter dated May 27, 2008. Although it acknowledged that Crowley had submitted the April 2008 Notice and other related information "as Claims under the Policy," National Union concluded that the Policy did not provide coverage because, in part, no one had been identified in writing as a target of the investigation as required by the Policy. National Union noted that its determination was "preliminary, as it [was] based solely upon the documentation currently available." National Union did, however, accept the April 2008 Notice "as a notice of circumstances that may give rise to a Claim being made against an Insured, pursuant to Clause 7(c) of the Policy." It then invited Crowley to submit additional information in the future that might be relevant to a coverage determination.

Crowley and National Union continued to correspond over roughly the next four years. For its part, Crowley asserted that a Claim existed and had been reported to National Union in April 2008. It also informed National Union of Farmer’s mounting legal expenses. National Union acknowledged the existence of circumstances that might eventually result in a Claim against an Insured Person, but it persisted in its denial of coverage. Subject to customary reservation of rights language, National Union also encouraged Crowley to send additional information that might be relevant to its coverage determination.

4. Arbitration panel enters decision favoring National Union’s position.

Crowley eventually initiated arbitration, and the arbitrators held a hearing in December 2012. The proceeding addressed whether, based on the information provided to National Union at the time of the arbitration hearing, the FBI/DOJ investigation constituted a Claim under the Policy. The arbitration order noted that the evidence of a Claim presented to National Union at that time included only: the search warrant, the Farmer and Crowley subpoenas, several documents relating to a plea agreement entered into by Crowley, and the investigation relating to those documents. National Union encouraged the arbitrators to ignore the Affidavit,⁴ and the arbitration order observed that "[t]he [A]ffidavit has remained sealed; therefore, its specific allegations have never been made known to Crowley or its employees." The Affidavit does not appear in the list of documents considered by the arbitrators as evidence of the FBI/DOJ investigation.

A majority of the arbitration panel entered a decision in favor of National Union on January 29, 2013. The arbitration order observed that "the triggering event for a Claim ... is when the DOJ identifies in writing an Insured Person as one against whom a criminal proceeding may be commenced." It continued, ultimately concluding that "[t]he materials Crowley submitted to National Union did not constitute a Claim for Insured Persons as the term ‘Claim’ is defined in the Policy. The triggering event specified in the Policy has not yet been presented to National Union."

5. Farmer receives and rejects Plea Offer, is acquitted at trial.

In a letter dated February 11, 2013, the government offered to enter into a plea agreement with Farmer on certain terms and conditions, including acceptance of a recommended sentence (the "Plea Offer"). Crowley notified National Union of the Plea Offer in a letter dated February 15, 2013 (the "February 2013 Notice"). In response to the February 2013 Notice, National Union agreed to treat the FBI/DOJ investigation as a Claim under the Policy as of February 18, 2013 (the date it received the February 2013 Notice). In making this new coverage determination, National Union acknowledged that Crowley submitted the February 2013 Notice within the six-year Discovery Period and that it also "appear[ed] to be related to prior correspondence [i.e.,...