Ill. Nat'l Ins. Co. v. Alixpartners LLP, 337564

ILLINOIS NATIONAL INSURANCE CO., Plaintiff-Appellant, v. ALIXPARTNERS LLP, Defendant-Appellee.

No. 337564

STATE OF MICHIGAN COURT OF APPEALS

February 26, 2019

If this opinion indicates that it is "FOR PUBLICATION," it is subject to revision until final publication in the Michigan Appeals Reports.

UNPUBLISHED

Oakland Circuit Court

LC No. 2014-141526

Before: SERVITTO, P.J., and GLEICHER and STEPHENS, JJ.

PER CURIAM.

In this professional liability insurance coverage dispute, plaintiff Illinois National Insurance Company appeals as of right the trial court's opinion and order granting MCR 2.116(C)(10) summary disposition in favor of defendant AlixPartners LLP and denying it the same. We affirm.

I. BACKGROUND

Plaintiff unsuccessfully sued to recoup the payment of an $18,507,861.92 arbitration award on defendant's behalf in February 2013. After making the payment, plaintiff determined it should not have paid, because the claim was not covered under any of the three professional liability insurance policies it issued to defendant. These policies are referred to in this opinion as: 1) The Tail Policy, 2) Policy 1, and 3) Policy 2. The policy period for the Tail Policy was from February 25, 2006 to February 25, 2007 with an extended reporting period (ERP) from October 12, 2006 to October 12, 2008. The policy period for Policy 1 was from October 12, 2006 to March 15, 2008. The policy period for Policy 2 was retroactive from February 15, 1998 through the ERP of August 30, 2009.

Our resolution of this matter requires an examination of the events that preceded the filing of the claim that resulted in the arbitration award. The award pertained to a claim against defendant made by Kingsbridge Capital, an investment advisor firm headquartered in London. The parties commenced a business relationship on February 28, 2006, when defendant and Kingsbridge entered into a consulting agreement whereby defendant agreed to provide Kingsbridge support in the due diligence process for its acquisition of Märklin, a model train company headquartered in Germany. On March 24, 2006, defendant issued a due diligence report. Kingsbridge, relying on that report, purchased 100% of Märklin's equity, as well as a significant portion of its debt on May 11, 2006, anticipating the potential turnaround discussed in the report. A few weeks later, on May 24, 2006, defendant entered into a separate agreement with the newly acquired Märklin to provide the company with management services to assist it with its turnaround.

Märklin did not perform as defendant had projected however, and on December 19, 2007, at a meeting of the Märklin advisory board, board Chairman Michel Perraudin, blamed a 3 to 3.5 million Euro loss in Märklin's Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) on defendant's inadequate management. At that meeting, Perraudin also suggested that defendant return part of its management fees to help improve Märklin's bottom line. In letters dated March 7, 2008 and April 21, 2008 from Perruadin to Dr. Ulrich Wlecke, one of defendant's managing directors, Perruadin demanded that defendant waive 50% of its consulting fees, as well as all of its success fees and capital gain participation because Märklin's EBITDA was millions below the projected earnings defendant presented in its due diligence report to Kingsbridge. Defendant responded by letter on March 25, 2008 and April 21, 2008, calling the request absurd and stating that it still expected to be paid the fees owed.

Subsequently, Kingsbridge's counsel, Professor Dr. Wolf-Rüdiger Bub, requested that defendant provide him with the statements and figures defendant relied on in its due diligence report by November 30, 2008. On February 9, 2009, when the documents were still outstanding, Bub wrote to demand their production by February 23, 2009. The documents were received on March 3, 2009. After reviewing those documents, Bub sent a draft arbitration complaint to defendant on July 22, 2009, in which it was alleged that defendant was responsible for Kingsbridge's investment losses on the Märklin acquisition. The draft complaint addressed defendant's breach of duties in preparing the due diligences for Kingsbridge and not any deficiencies in defendant's performance as a consultant to Märklin.

Defendant notified plaintiff of Kingsbridge's claim on August 14, 2009. In response, on September 9, 2009, plaintiff sent defendant a letter that requested a copy of the November 2008 letter from Bub and all other correspondence regarding the claim to determine whether the delivery of the draft complaint to defendant was the first time the claim contained in the draft complaint was made. On October 6, 2011, an arbitration panel awarded Kingsbridge 13,446,000 Euros plus pre-judgment interest. On January 30, 2013, plaintiff agreed to fund the Kingsbridge arbitration award subject to a reservation of rights.

Plaintiff continued to investigate the arbitration matter. Ultimately, after payment of the award plaintiff determined that the Kingsbridge claim was not covered under the policy then in effect, Policy 2, nor under the Tail Policy or Policy 1, because of the policies' "claims first made and reported" language which provided:

We shall pay on your behalf those amounts, in excess of the retention, you are legally obligated to pay as damages resulting from a claim first made against you and reported to us during the policy period or Extended Reporting Period (if applicable) for your wrongful act in rendering or failing to render professionalservices for others, but only if such wrongful act first occurs on or after the retroactive date and prior to the end of the policy period.

Plaintiff argued that "claims first made and reported" policies only covered claims that were both made against defendant and reported by defendant to plaintiff during the policy period or an ERP. Plaintiff concluded that the Kingsbridge claim and the Märklin claim were one in the same claim because they both involved the same wrongful act, i.e. defendant's due diligence concerning the Märklin acquisition. Based on this conclusion, plaintiff decided that the Kingsbridge claim was first made at the December 2007 board meeting or, at the latest, in the March 2008 letter from Perraudin yet, not reported to plaintiff until August 2009 with notification of the arbitration complaint. Plaintiff applied the "claims first made and reported" language of the policy to find that the Kingsbridge claim was not covered because it was not reported to plaintiff when first made in December 2007 or March 2008.

On June 24, 2014, plaintiff filed an action against defendant seeking reimbursement of the arbitration claim it paid. In Count I, plaintiff alleged it was entitled to $19,100,000 in damages plus interest for the claim paid. In Count II, plaintiff alleged that defendant's innocent or negligent misrepresentations, regarding whether and when Kingsbridge first made a demand for money, caused plaintiff to pay the claim. In the alternative, in Count III, plaintiff requested reformation of Policy 2 to reverse expansions in coverage that it granted to defendant that it otherwise would not have granted had defendant not withheld information from plaintiff regarding the December 2007 and March 2008 demands. Lastly, in Count IV, plaintiff requested defendant be estopped from benefitting from or relying on Policy 2, and asserting that plaintiff waived its coverage defense with an untimely determination to deny coverage and that defendant was prejudiced by the delay.

On October 7, 2016, defendant and plaintiff both moved for summary disposition under MCR 2.116(C)(10). Defendant argued that the Kingsbridge claim was covered under Policy 2 because it was first made and reported during the policy period for Policy 2. Defendant further argued that the Kingsbridge claim and the Märklin claim were distinct from each other because the Märklin claim involved a fee dispute. Defendant also asserted that fee disputes were excluded from coverage and that it had no duty to volunteer this information when it was not requested in the policy renewal application. Plaintiff argued that it was entitled to summary judgment on its Count I claim for a declaration that the Kingsbridge claim was not covered under Policy 2 and its Count IV prayer for reformation. The parties' briefs in opposition to the other's motion from summary disposition largely maintained the positions argued in their principal briefs.

After oral argument, the court issued a written opinion and order on March 3, 2017, that denied plaintiff's claims. The court agreed with the defendant that the March 2008 letter was not a claim under "the policy"¹ and was separate from the Kingsbridge arbitration claim; that defendant was not required to submit its fee dispute with Märklin under "the policy"; and that defendant made no misrepresentations to plaintiff in its negotiations for Policy 2. Plaintiff appeals from this decision.

II. SUMMARY DISPOSITION

A. STANDARD OF REVIEW

We review de novo the trial court's decision on a motion for summary disposition. Barnard Mfg Co, Inc v Gates Performance Engg, Inc, 285 Mich App 362, 369; 775 NW2d 618 (2009). "A motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint." Maiden v Rozwood, 461 Mich 109, 120; 597 NW2d 817 (1999). "In reviewing a motion for summary disposition brought under MCR 2.116(C)(10), a trial court considers affidavits, pleadings, depositions, admissions, and documentary evidence filed in the action or submitted by the parties, MCR 2.116(G)(5), in the light most favorable to the party opposing the motion." Quinto v Cross & Peters Co, 451 Mich 358, 362; 547 NW2d 314 (1996). We only consider that evidence which was submitted to the court at the time of deciding the motion. Gorman v Am Honda Motor Co, Inc, 302 Mich App 113, 120; 839 NW2d 223 (2013). "Summary disposition is proper under MCR 2.116(C)(10) if the affidavits and other...