Travelers Cas. & Sur. Co. of Am. v. Jeld-Wen Holding

641 F.Supp.3d 273

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Plaintiff, v. JELD-WEN HOLDING, INC.; et al., Defendants.

Jeld-Wen Holding, Inc., Third-Party Plaintiff, v. Old Republic Insurance Company, Third-party Defendant.

3:21-cv-173-MOC-DCK

United States District Court, W.D. North Carolina, Charlotte Division

Filed November 21, 2022

Signed November 18, 2022

Jang H. Jo, Michael William Mitchell, Smith Anderson Blount Dorsett Mitchell & Jernigan, Raleigh, NC, Jason Chirstopher Reichlyn, Pro Hac Vice, Thomas James Judge, Jr., Pro Hac Vice, Dykema Gossett PLLC, Washington, DC, for Plaintiff.

Benjamin Charles DeCelle, R. Steven DeGeorge, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC, Gabriel J. LeChevallier, Pro Hac Vice, Michael E. Farnell, Pro Hac Vice, Parsons Farnell & Grein LLP, Portland, OR, Sean W. Carney, The Chartwell Law Offices, LLP, Portland, OR, for Defendants/Third-Party Plaintiff.

Courtney Ashe Palko, Pro Hac Vice, Michael J. Hartley, Pro Hac Vice, Baute Crochetiere & Hartley LLP, Los Angeles, CA, Walter E. Brock, Jr., Young, Moore & Henderson, P.A., Raleigh, NC, for Third-Party Defendant.

ORDER

Max O. Cogburn Jr., United States District Judge

THIS MATTER is before the Court on the parties' opposing Motions for Summary Judgment. (Doc. Nos. 46, 58). JELD-WEN Holding, Inc. ("Jeld-Wen") seeks coverage under a directors and officers ("D & O") liability insurance policy issued by Travelers Casualty and Surety Company of America ("Travelers"). The Court held a hearing on the motions on September 22, 2022. For the following reasons, Jeld-Wen's motion is DENIED and Travelers' motion is GRANTED.

I. BACKGROUND

a. Antitrust Lawsuits

Jeld-Wen-among other things-manufactures and sells interior molded doors and "doorskins," a key component of interior molded doors. Interior molded doors are the most popular type of interior door in North America. (Doc. No. 1 at ¶ 3). In 2012, Jeld-Wen acquired CraftMaster Manufacturing, Inc. ("CraftMaster"), one of only two competitors in the doorskin market. Following this acquisition, Jeld-Wen and some of its directors and officers became embroiled in several antitrust suits.

In 2016, Steves and Sons, Inc. ("Steves"), one of Jeld-Wen's customers, filed suit challenging Jeld-Wen's 2012 acquisition of CraftMaster, as violative of antitrust laws. See Steves and Sons, Inc. v. Jeld-Wen, Inc., No. 3:16-cv-545-REP (E.D. Va.). Steves alleged that both Jeld-Wen and CraftMaster manufactured and sold interior molded doorskins, and that through the merger, Jeld-Wen utilized its new market power to coordinate with Masonite Corporation, its only remaining doorskin competitor. (Doc. No. 57-2 at ¶ 2). Steves alleged that Jeld-Wen's anticompetitive conduct raised doorskin prices above competitive levels and reduced the quality and output of doorskins below market competitive levels. (Id. at ¶ 2). In 2018, a jury found in Steves' favor and Jeld-Wen was ordered to rewind their merger with CraftMaster. See (Doc. No. 57-3 at ¶ 4; Doc. No. 57-2 at ¶ 3). On appeal, the Fourth Circuit affirmed the district court's decision ordering Jeld-Wen to divest CraftMaster. See Steves & Sons, Inc. v. Jeld-Wen, Inc., 988 F.3d 690, 699 (4th Cir. 2021).

In 2018, a number of Jeld-Wen and Masonite's direct purchasers between October 24, 2012, and April 10, 2019, brought an antitrust class action against Jeld-Wen. In Re: Interior Molded Doors Antitrust Action, No. 3:18cv718-JAG (E.D. Va.). The direct purchaser antitrust class action alleged that Jeld-Wen and Masonite engaged in a conspiracy to fix interior molded doors prices, after Jeld-Wen acquired CraftMaster. (Doc. No. 57-4 at ¶ 83).

In 2019, Jeld-Wen was named in an additional antitrust class action initiated by people who indirectly purchased interior molded doors and doorskins manufactured by Jeld-Wen. In re: Interior Molded Doors Indirect Purchaser Litigation, No. 3:18-cv-00850JAG (E.D. Va.). The allegations in this matter mirrored those in the direct purchasers' antitrust class action. Compare id. ¶¶ 1-28, 60-112 with In Re: Interior Molded Doors Antitrust Action, No. 3:18cv718-JAG (E.D. Va.).

Also in 2019, Jeld-Wen notified its insurers at the time-insurers in the 2018-2019 tower described below-of the antitrust class actions. See (Doc. No. 57-8 at ¶ 9; see also Doc. No. 57-14 at ¶ 15).

In June 2021, the court approved Jeld-Wen's settlement of the direct purchaser antitrust action. See Final Approval Order and J. (Doc. No. 57-5 at ¶ 6). In July 2021, the court approved Jeld-Wen's settlement of the indirect purchaser antitrust class action. See Final J. Approving Settlement Agreement (Doc. No. 57-7 at ¶ 8).

b. Securities Class Action Lawsuit

In 2020, Jeld-Wen, and several of its directors and officers, were sued in a securities class action lawsuit. See In re: Jeld-Wen Holding, Inc. Securities Litigation, No. 3:20-cv-112-JAG (E.D. Va.) ("Securities Class Action"). The class action alleged that from January 26, 2017, through October 15, 2018, the defendants made misrepresentations and omissions about the sources of Jeld-Wen's business success and the competitive marketplace for interior molded doors. (Doc. No. 21, ¶¶ 4, 38). In February 2020, Jeld-Wen simultaneously notified insurers in the 2018-2019 and 2019-2020 towers of the Securities Class Action. See (Doc. No. 57-12 at ¶ 13).

The Securities Class Action was predicated upon Jeld-Wen's antitrust violations. The pleading states that the class action arose "out of Defendants' consistent misrepresentations and omissions intended to mislead the investing public by falsely attributing the source of [Jeld-Wen's] financial success to legitimate and lawful pricing strategies", when, in actuality, Jeld Wen "engaged in anticompetitive conduct in violation of federal antitrust laws which was artificially propping up [Jeld-Wen's] sales and was actually the true cause of Jeld-Wen's success." (Doc. No. 57-16 at ¶ 17). In other words, Jeld-Wen engaged in unlawful anticompetitive conduct and then lied about its unlawful conduct to its shareholders, leading the shareholders to file suit.

On April 20, 2021, Jeld-Wen agreed to settle the Securities Class Action and pay $39.5 million to the shareholder class (the "Securities Settlement"). (Doc No. 48 at ¶¶ 10-11). The funds for the settlement were to be (and have now apparently been) paid into an escrow account for distribution. (Id.).

c. Directors and Officers Liability Insurance Coverage

To protect itself against securities-related claims and to protect its directors and officers from all manner of claims (including claims for which it must indemnify its directors and officers), Jeld-Wen had purchased directors and officers ("D & O") liability insurance coverage. (Id. at ¶ 2). Jeld-Wen bought a primary insurance policy and purchased underlying excess policies. The primary and excess insurance policies covering the period of March 15, 2018, to March 15, 2019 ("2018-2019 tower") is structured as follows: Arch Insurance Company ("Arch") issued to Jeld-Wen a primary D & O policy; National Fire Union Insurance Company of Pittsburgh, Pa. ("AIG") issued an excess D & O policy providing a 2^nd layer of coverage; XL Specialty Insurance Company ("XL") issued excess insurance as a 3^rd layer of coverage; and Starr Indemnity and Liability Company ("Starr") issued excess insurance as a 4^th layer of coverage. Each insurer provides $10 million in coverage per layer. Finally, in the 2018-2019 tower, Old Republic Insurance Company ("Old Republic") issued excess insurance as a 5^th layer of coverage to Jeld-Wen.

The primary and excess insurance policies covering the period of March 15, 2019, to March 15, 2020 ("2019-2020 tower"), is structured the same as the 2018-2019 tower, except that the fifth layer of coverage (i.e. the fourth excess carrier) is Travelers rather than Old Republic.

The Travelers excess policy follows the form of the Arch primary policy and "incorporates by reference, and affords coverage in accordance with and subject to, the insuring clauses, warranties, definitions, terms, conditions, exclusions and other provisions contained in the [primary policy], except as regards the premium, the limit of liability, the policy period, and except as otherwise provided" in the Travelers excess policy. See (Travelers Excess Policy, Items 4 & 5(C)). Relevant here, the Travelers excess policy provides two coverage exclusions.

i. Preceding Claims Exclusion

First, there is a preceding claims exclusion. Travelers' excess policy provides that the policy only affords coverage for Claims, Securities Claims, and Derivative Suits against Jeld-Wen "first made . . . during the Policy Period." (Doc. No. 1-4 at 8). Therefore, no coverage is provided "for any Claim made, or deemed first made, before the Policy Period."

Regarding related Claims, the policy stipulates that all Claims for (i) the same Wrongful Act, (ii) any Interrelated Wrongful Acts, or (iii) the same or related facts, circumstances, or situations shall be treated as a single Claim first made on the earliest date that (a) any of such Claims commenced, even if that date is before the Policy Period, or (b) notice of any such Wrongful Act, Interrelated Wrongful Act, or fact, circumstance, or situation was given under any prior management liability or similar insurance policy. (Doc. No. 1-4 at 8).

"Interrelated Wrongful Acts" are defined as "[w]rongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of causally connected facts, circumstances, situations, events, transactions or causes." (Doc. No. 1-4 at 12).

ii. Prior Notice Exclusion

Second, the Travelers excess policy includes a prior notice exclusion. The prior notice exclusion states that there is no coverage for a loss-including defense costs-in connection with "any Claim for, based upon, arising from, or in any way related to any fact, circumstance or situation that, before the inception date of this Policy, was the subject...