Daileader v. Certain Underwriters at Lloyds London - Syndicate 1861

670 F.Supp.3d 12

Timothy DAILEADER, Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON — SYNDICATE 1861, Subscribing to Policy No. ANV122398A; Crum & Forster Specialty Insurance Company; Certain Underwriters at Lloyd's Subscribing to Policy Number DOH00746111; and Starstone Specialty Insurance Company, Defendants.

22 Civ. 5408 (PGG)

United States District Court, S.D. New York

Signed April 20, 2023

Raymond A. Mascia, Jr., William Gorman Passannante, Ethan Wilson Middlebrooks, Regan Erica Samson, Anderson Kill P.C., New York, NY, Rita Bolt Barker, Wyche PA, Greenville, SC, for Plaintiff.

Jessica W. Laffitte, Kendall Patricia Crawford, Shelley S. Montague, Gallivan White and Boyd, Columbia, SC, Rafael Rivera, Jr., Cozen O'Connor, New York, NY, Stephanie Alix Nashban, Cozen

O'Connor, Chicago, IL, for Defendants Certain Underwriters at Lloyds London Syndicate 1861, StarStone Specialty Insurance Company.

Jessica W. Laffitte, Kendall Patricia Crawford, Shelley S. Montague, Gallivan White and Boyd, Columbia, SC, Scott Anthony Schechter, Kaufman Borgeest & Ryan LLP, Valhalla, NY, for Defendant Crum & Forster Specialty Insurance Company.

Jessica W. Laffitte, Kendall Patricia Crawford, Shelley S. Montague, Gallivan White and Boyd, Columbia, SC, Jonathan Ellis Meer, Wilson Elser, New York, NY, for Defendant Certain Underwriters at Lloyds, Subscribing to Policy Number DOH00746111.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, United States District Judge:

Plaintiff Timothy Daileader moves for a preliminary injunction requiring Defendant Certain Underwriters at Lloyd's London - Syndicate 1861, Subscribing to Policy No. ANV122398A ("Syndicate 1861") to pay his defense expenses as incurred in three adversary proceedings against Daileader pending in the U.S. Bankruptcy Court for the District of South Carolina. (Pltf. Mot. (Dkt. No. 41))

Daileader is a former director and manager of Oaktree Medical Center, LLC, Oaktree Medical Centre PC, and Labsource, LLC (collectively, "Oaktree" or "Debtors"). Defendants Syndicate 1861, Crum & Forster Specialty Insurance Company, Certain Underwriters at Lloyd's Subscribing to Policy Number DOH00746111 ("DOH00746111 Subscribers"), and Starstone Specialty Insurance Company (collectively, the "Excess Insurers") sold excess director and officer ("D&O") insurance policies to Oaktree. The excess policies follow the form of Oaktree's primary D&O policy, which was issued by Landmark American Insurance Company (together with the Excess Insurers, the "Insurers").

The First Amended Complaint seeks a declaratory judgment that the Insurers have a duty to defend and to indemnify Daileader in connection with the adversary proceedings and asserts claims for breach of contract, bad faith coverage denial, and breach of the implied covenant of good faith and fair dealing. (First Am. Cmplt. ("FAC") (Dkt. No. 15))¹

Pending before the Court is Daileader's motion for a preliminary injunction requiring Syndicate 1861 to pay his defense costs. (Pltf. Mot. (Dkt. No. 41); Pltf. Br. (Dkt. No. 42))

For the reasons that follow, Daileader's motion for a preliminary injunction will be denied.

BACKGROUND

Plaintiff Daileader is a "[s]enior investment professional and manager" at Drivetrain, LLC. Daileader Biography, available at https://www.drivetrainllc.com/tim-daileader. Drivetrain is "a fiduciary services firm comprised of investment professionals who serve as independent directors of outside companies, which often are financially distressed." (Pltf. Supp. Br. (Dkt. No. 77) at 6-7² (citing Drivetrain: What We Do, available at https://www.drivetrainllc.com/what-we-do)) Daileader was retained to serve as "a co-Manager at Oaktree Medical Centre, LLC; Manager at Labsource, LLC; and [as] the sole, independent director of Oaktree Medical Centre PC." (FAC (Dkt. No. 15) ¶ 32)

The FAC alleges that Defendant Crum & Forster "is an insurance company organized under the laws of the State of Delaware with its principal place of business in Morristown, New Jersey" and that Defendant StarStone "is an insurance company organized and existing under the laws of the State of Delaware with its principal place of business in Jersey City, New Jersey." (FAC (Dkt. No. 15) ¶¶ 9, 11) The FAC does not allege the residency of Defendants Syndicate 1861 or Certain Underwriters at Lloyd's Subscribing to Policy Number DOH00746111. The Court understands that they are syndicates consisting of numerous individual and entity subscribers. (See Jan. 26, 2023 Joint Ltr. (Dkt. No. 65) at 1)

Jurisdiction is premised on federal question, bankruptcy, and supplemental jurisdiction under 28 U.S.C. §§ 1331, 1334(b), and 1367. (FAC (Dkt. No. 15) ¶ 13)

I. FACTUAL BACKGROUND

A. Daileader's Involvement with Oaktree

"Oaktree was a group of affiliated companies that provided pain management healthcare services.... Oaktree Medical Centre PC was a pain management practice that was privately owned by a non-practicing chiropractor, Daniel McCollum. Labsource LLC was Oaktree's toxicology laboratory. Oaktree Medical Centre, LLC was Oaktree's management service organization." (FAC (Dkt. No. 15) ¶ 33)

In 2018, Oaktree defaulted on a loan. Fidus Investment Corporation, the lenders' collateral agent, exercised its rights under the loan agreement to remove McCollum's control over Oaktree and appoint new leadership. On July 12, 2018, Fidus appointed Daileader as sole director of Oaktree Medical Centre PC and sole manager of LabSource, LLC. (See Unanimous Written Consent of the Sole Stockholder of Oaktree Medical Centre PC (Dkt. No. 79-2) at 3; Unanimous Written Consent of the Member of LabSource, LLC (Dkt. No. 79-4) at 2). On December 21, 2018, Fidus appointed Daileader as co-manager of Oaktree Medical Centre, LLC, and on June 20, 2019, Fidus removed McCollum as the other co-manager, leaving Daileader as the sole manager. (Written Consents of the Sole Member of Oaktree Medical Centre, LLC (Dkt. Nos. 79-6, 79-8))

As Oaktree Medical Centre PC's sole director, Daileader was "empowered to do and perform such ... acts and things ... as necessary or advisable." (Unanimous Written Consent of the Sole Stockholder of Oaktree Medical Centre, P.C. (Dkt. No. 79-2) at 3) As manager of LabSource and Oaktree Medical Centre, LLC, Daileader had "full and complete authority, power, and discretion to manage and control the business of [those] [c]ompan[ies]." (LabSource, LLC Operating Agreement (Dkt. No. 79-10) at 11-13; Oaktree Medical Centre, LLC Operating Agreement (Dkt. No. 79-11) at 4) The amended adversary complaints allege that Daileader was "vested ... with corporate authority and control over all day-to-day management, financials, and operations of [Oaktree]." Fort v. Daileader, Adv. Proc. 21-80057-hb, Am. Cmplt. (Dkt. No. 33) ¶ 22 (Bankr. D.S.C.).³

B. The Policies

At the time of Daileader's July 12, 2018 appointment as sole director of Oaktree Medical Center PC, Oaktree had a $1 million primary D&O policy issued by Landmark. (Landmark Policy (Dkt. No. 43-1)) Daileader states that — as a condition to his appointment — he "requested that Oaktree purchase additional D&O liability coverage" (Pltf. Supp. Br. (Dkt. No. 77) at 7), and that Oaktree obtained excess policies from the Excess Insurers amounting to a "tower" of $10 million in coverage. (See Syndicate 1861 Policy, Crum & Forster Policy, DOH00746111 Subscribers Policy, and StarStone Policy (Dkt. Nos. 43-2 — 43-5); FAC (Dkt. No. 15) ¶¶ 16, 19-22) The excess policies all follow the form of the Landmark Policy, "which means that they incorporate by reference [its] terms and conditions." (FAC (Dkt. No. 15) ¶ 23)

The Syndicate 1861 Policy — which is the policy at issue in connection with Daileader's preliminary injunction motion — is the "first-layer excess policy," providing up to $1 million in coverage after the $1 million in coverage under the Landmark Policy has been exhausted. (Id. ¶ 19) The initial coverage period of the Syndicate 1861 Policy was August 22, 2018 to July 9, 2019. Syndicate 1861 subsequently extended the coverage to January 9, 2020 by endorsement. (Syndicate 1861 Policy (Dkt. No. 43-2) at 3, 24-25) Oaktree's insurance broker paid Syndicate 1861's agent the full premiums for the initial policy and coverage extension on October 31, 2018 and August 12, 2019, respectively. (Feb. 2, 2023 ANV Email (Dkt. No. 70-3))

The Syndicate 1861 Policy provides liability coverage for directors and officers and for Oaktree, with directors and officers receiving priority payment. (Landmark Policy (Dkt. No. 43-1) at 41-42, 45)⁴

As to the duty to defend, the Syndicate 1861 Policy provides that "[i]t shall be the right and duty of the Insurer to defend any Claim against any Insured for which coverage applies." (Id. at 25) (emphases in original)

As to D&O coverage, the Syndicate 1861 Policy provides that "if a Claim for a Wrongful Act is first made against any Insured Person during the Policy Period and reported in accordance with [the applicable conditions], the Insurer will pay on behalf of such Insured Person all Loss such Insured Person is legally obligated to pay, except and to the extent that the Insured Organization is required or permitted to indemnify such Insured Person for such Loss." (Id. at 41)

"Claim" is defined in the Policy as (1) [a] written demand for monetary or non-monetary relief; or (2) [a] civil, criminal, administrative, regulatory or arbitration proceeding, or arbitration demand for monetary or non-monetary relief which is commenced by [r]eceipt or service of a complaint or similar pleading." (Id. at 42 (list formatting and numbering altered)) "All Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions, or events, or the same or related series of facts, circumstances, situations, transactions or events, shall be deemed to be a single Claim for all purposes under [the Policy]." (Id. at 15)

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