Navigators Specialty Ins. Co. v. Med. Benefits Adm'rs of MD, Inc.

NAVIGATORS SPECIALTY INSURANCE CO., Plaintiff, v. MEDICAL BENEFITS ADMINISTRATORS OF MD, INC., et al. Defendants.

Civil Action No. ELH-12-2076

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: February 21, 2014

MEMORANDUM OPINION

This case involves an insurance coverage dispute between plaintiff Navigators Specialty Insurance Co. ("Navigators") and defendants Medical Benefits Administrators of MD, Inc. ("MBA") and R.J. Wilson & Associates, Ltd. ("RJW"). The dispute arises from two successive Error and Omissions insurance policies (the "2009-2010 Policy" and the "2010-2011 Policy") issued by Navigators to MBA, each of which contained an endorsement naming RJW as an additional insured.

In sum, Navigators filed suit in this Court (ECF 1) seeking a declaration that it is not required to provide coverage to defendants under the 2010-2011 Policy with respect to a lawsuit pending in this district against defendants, Certain Underwriters at Lloyd's London v. R.J. Wilson and Associates, Ltd. and Medical Benefits Administrators of Md. Inc., Civ. No. CBB-11-01809, filed on June 30, 2011 (the "Maryland Action").¹ That suit involves claims for breach ofcontract, breach of fiduciary duty, and fraud and seeks more than one million dollars in damages. Navigators contends, inter alia, that the insured did not timely make and report the claim to Navigators. According to Navigators, the claim was reported during the 2010-2011 policy period, but it was first made against the defendants as early as 2008 and, at the latest, by July 26, 2010. Therefore, Navigators maintains that no coverage is available under the 2010-2011 Policy. ECF 47-1 at 10, 12. Navigators, which has been defending MBA and RJW in the Maryland Action subject to a reservation of rights and defenses, also claims that it is entitled to reimbursement for the expenses it has incurred in defending MBA and RJW in the Maryland Action.²

Defendants filed a counterclaim (ECF 22) seeking a declaration that coverage for the Maryland Action exists under the 2010-2011 Policy or, alternatively, that coverage exists under the 2009-2010 Policy. As to the 2010-2011 Policy, they maintain that the claim was first made against them and reported to Navigators within the policy period. Alternatively, they argue that if the claim was first made against them before the 2010-2011 policy period, then the claim is covered under the 2009-2010 Policy. They acknowledge that they did not timely report the claim to Navigators within the 2009-2010 policy period, but contend that Navigators was not prejudiced by late notice.

The parties have filed cross-motions for summary judgment. Navigators filed a Motion for Summary Judgment ("Navigators Motion," ECF 47), supported by a memorandum of law("Memo," ECF 47-1) and several exhibits. Defendants filed a consolidated Opposition and Cross-Motion for Summary Judgment (ECF 48), also supported by a memorandum of law ("Opp.," ECF 48-1) and several exhibits.³ The central issue is whether Navigators is required by either policy to provide coverage to MBA and RJW with respect to the Maryland Action.

No hearing is necessary to resolve the motions. See Local Rule 105.6. For the reasons set forth below, I will grant plaintiff's motion with regard to the 2010-2011 Policy, and will deny it with regard the 2009-2010 Policy. And, I will deny defendants' cross-motion.

Factual Summary

The Navigators Policies

This case involves two successive claims-made-and-reported insurance policies issued by Navigators to MBA.⁴ The first policy, number NY09MPL669102NC, was issued for the period October 31, 2009 to October 31, 2010 ("2009-2010 Policy," Ex. P to Park Dec., ECF 47-19).⁵The second policy, number NY10MPL669102IC, was issued for the period October 31, 2010 to October 31, 2011 ("2010-2011 Policy," Ex. Q to Park Dec., ECF 47-20).

Section I.A. of each policy provides, e.g., 2009-2010 Policy (defined terms bolded in original):

[Navigators] will pay on behalf of the Insured all sums in excess of the deductible [$25,000] that the Insured becomes legally obligated to pay as damages and claim expenses as a result of a claim first made against the Insured and reported in writing to [Navigators] during the policy period . . . by reason of an act or omission . . . in the performance of professional services by the Insured or by someone for whom the Insured is legally responsible, provided that:

1. Such act or omission was committed on or subsequent to the retroactive date specified in Item 8 in the Declarations; and

2. Prior to the inception date of this policy and if continuously renewed, no Insured had a basis to believe that any such act or omission, or related act or omission, might reasonably be expected to be the basis of a claim.

In the 2009-2010 Policy, the term "claim" is defined as "a demand for money or services naming the Insured arising out of an act or omission in the performance of professional services. A claim also includes the service of suit or the institution of an arbitration proceeding against the Insured." 2009-2010 Policy at 5 (defined terms bolded in original). In the 2010-2011 Policy, the term "claim" is defined as follows: "A demand received by an Insured for money or services, the service of suit against an Insured, or the institution of arbitration against an Insured." 2010-2011 Policy at 19 (defined terms bolded in original).

Both policies also contain an Additional Insured Endorsement. It provides: "In consideration of the premium charged, it is understood and agreed that the persons or entitiesnamed below shall be added as additional Insureds under this policy, but only as respects their liability for an Insured's acts or omissions." Ex. P to Park Dec., Endorsement ("Endt.") 2; Ex. Q to Park Dec., Endt. 1.

On or about October 19, 2010, MBA's representative signed an Errors and Omissions Insurance Renewal Application ("2010 Application"). Ex. R. to Park Dec. The 2010 Application provided, in part, id.:

The Applicant's Failure to report to the Company any Claim made against it during the current policy term, or act, or omission or circumstances which the Applicant is aware of which may give rise to a Claim before the expiration of the current policy may create a lack of coverage for each Applicant who had a basis to believe that any such act, error, omission, or circumstance might reasonably be expected to be the basis of a claim.

Similarly, Section I of the 2010-2011 Policy, entitled "Insuring Agreements," provided that coverage was only available if if "[p]rior to the inception date of [the 2010-2011] policy and if continuously renewed no Insured had a basis to believe that any such act or omission, or related act or omission, might reasonably be expected to be the basis of a claim." (Ex. Q to Park Dec., Endt. 4).

The Maryland Action

In late 2004 or early 2005, RJW entered into a Coverholder Agreement, referred to as the "Client First Binding Authority Agreement," with Brit Insurance ("Brit"),⁶ an underwriter at Lloyd's of London (collectively, "Lloyd's"). Declaration of Ronald J. Wilson, CEO of RJW and MBA ("Wilson Dec.," ECF 48-4) ¶ 3. The Coverholder Agreement authorized RJA to act on behalf of Lloyd's to bind and administer Certificates of Insurance ("Certificates"), providingaggregate and specific excess-loss coverage to employer self-funded benefit plans. Id. ¶ 4.⁷ This program was referred to as the "Client First Program." Id. The Coverholder Agreement provided that MBA would act as claims administrator for the Certificates. Id.

All Certificates issued under the Client First Program included a Monthly Aggregate Accommodation Agreement ("MAA"). Id. ¶ 5. The MAA required the insurer to provide advances on a cumulative monthly basis to the insured if the insured was on pace to meet its annual deductible. Id. For example, if after five months of the contract, the insured filed claims for greater than five-twelfths of its annual deductible, the insurer would provide advances to the insured. Id. At the end of the contract year, the insured was required to reimburse Lloyd's for the amount of advances it received in excess of what was required under the final annual aggregate. Id.

RJW and Lloyd's agreed that MBA would act as RJW's Claims Administrator in regard to the Certificates of Insurance issued under the Client First Binding Authority Agreement. Wilson Dec. ¶ 4. Pursuant to that agreement, RJW submitted reports, called bordereaux, to the Lloyd's broker detailing premiums, claims, advances received and paid to the individual employer welfare plans, and other pertinent accounting information on a monthly basis. Id. ¶ 9. MBA, as RJW's Claims Administrator, processed all the claims and accumulated and prepared all of the information for the reports. Id. ¶ 10. The Lloyd's broker reviewed the bordereaux and balanced the accounts with Lloyd's at the Exchange Office each month. Id. ¶ 11.

On May 10, 2007, Lloyd's terminated the Client First Program. Id. ¶ 6. The Certificates issued under the Program expired one year from the date that notice of termination was provided to the insureds. Id. At the end of the period of insurance and settlement of all claims, Lloyd's had the right to review and audit RJW's records to make a final accounting and determine if either Lloyd's or RJW was owed money. Id. ¶ 7. Lloyd's conducted an initial review and came to the conclusion that over one million dollars in accommodation advances had never been repaid to Lloyd's. See Complaint in Maryland Action, ECF 1-1 ¶ 30. In 2008, Lloyd's asked Northshore International Insurance Services, Inc. ("NIIS") to audit the pertinent documents and identify the accommodation advances that were not repaid in accordance with the MAA. Wilson Dec. ¶ 12. In June of 2009, NIIS concluded that $1,032,371.69 in advancements had not been repaid or otherwise reconciled. See id. ¶ 15.

On multiple occasions, Lloyd's and/or its agents corresponded with MBA and/or RJW about the discrepancy....