U.S. Risk, LLC v. Chubb Glob. Mkts. Syndicate 2488

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U.S. RISK LLC, Plaintiff/Counter-Defendant, v. CHUBB GLOBAL MARKETS SYNDICATE 2488, Defendant/Counter-Plaintiff.

Civil Action No. 3:20-CV-2134-G

United States District Court, N.D. Texas, Dallas Division

January 19, 2023

MEMORANDUM OPINION AND ORDER

A. JOE FISH, SENIOR UNITED STATES DISTRICT JUDGE

Before the court are the parties' cross-motions for summary judgment. Plaintiff U.S. Risk, LLC (“U.S. Risk”) moves for summary judgment on its declaratory judgment claims and the defendant's counterclaims. Defendant Chubb Underwriting Agencies Limited for and on behalf of Syndicate 2488 (“CUAL”) moves for summary judgment on its counterclaims for breach of contract, breach of fiduciary duty, and negligence, and on U.S. Risk's declaratory judgment claims. Additionally, U.S. Risk has moved to strike the affidavit of Thomas Beazley (“Beazley”). CUAL relies on this affidavit to establish damages as an element of its counterclaims. The court will therefore address that motion in this order as well.

For the reasons discussed below, the cross-motions for summary judgment are GRANTED IN PART and DENIED IN PART. U.S. Risk's motion on CUAL's contract and negligence counterclaims is GRANTED. U.S. Risk's motion on the remaining claims is DENIED. CUAL's motion on its counterclaim for breach of fiduciary duties is GRANTED IN PART on the ground that U.S. Risk owed a fiduciary duty to CUAL, but DENIED IN PART as to the remaining elements of that counterclaim. Additionally, CUAL's motion on U.S Risk's declaratory claims is GRANTED.

I. BACKGROUND

The issue in this suit is whether U.S. Risk improperly underwrote an employment liability insurance policy on CUAL's behalf. See Defendant Chubb Underwriting Agencies Limited for and on Behalf of Syndicate 2488's Motion for Summary Judgment (“CUAL's Motion for Summary Judgment”) (docket entry 60) ¶¶ 1-2; Plaintiff's Motion for Summary Judgment and Statement of Undisputed Material Facts in Support Thereof (“U.S Risk's Motion for Summary Judgment”) (docket entry 62) at 2-3. U.S. Risk is a United States-based limited liability company that was authorized to underwrite various types of insurance polices on CUAL's behalf. Amended Complaint Against Chubb Underwriting Agencies by U.S. Risk (“U.S. Risk's Amended Complaint”) (docket entry 38) ¶ 3. CUAL is an England-based limited liability company that acts as the managing agent of Syndicate 2488, “an unincorporated Lloyd's insurance syndicate authorized as an eligible surplus lines insurer in the State of Texas.” Defendant Chubb Underwriting Agencies for and on Behalf of Syndicate 2488's Amended Answer to Plaintiff's Amended Complaint and Amended Counterclaim (“CUAL's Amended Answer and Counterclaim”) (docket entry 58) ¶ 47.

In 2013, U.S. Risk and CUAL entered into an agreement known as the Binding Authority Agreement (“BAA”), which authorized U.S. Risk to underwrite various classes of commercial insurance, including employment practices liability insurance. See U.S. Risk's Amended Complaint ¶¶ 9-10; CUAL's Amended Answer and Counterclaim ¶¶ 9-10. This agreement was renewed for a term dating June 1, 2017, to June 1, 2018. See U.S. Risk's Amended Complaint ¶ 9; CUAL's Amended Answer and Counterclaim ¶ 9.

In September 2016, a substance abuse treatment center in California known as Passages Malibu PHP, LLC, or Grasshopper House, LLC, (collectively, “Passages”) applied for employment practices liability insurance with U.S. Risk through a broker. See U.S. Risk's Motion for Summary Judgment at 7-10; Defendant's Brief in Support of its Motion for Summary Judgment (“CUAL's Brief in Support”) (docket entry 61) ¶ 7. U.S. Risk assigned William Duvall (“Duvall”) to act as the underwriter for Passages' account to review this application (“September 2016 application”) and to quote pricing and other terms. U.S. Risk's Motion for Summary Judgment ¶ 14. In the September 2016 application, Passages provided a claims history for fourteen lawsuits, including the following information:

Cynthia Begazo v. Passages Malibu PHP, LLC et al., LASC Case No.: BC 595150. Ms. Begazo filed her Complaint in September 2015 alleging claims of age discrimination, disability discrimination, retaliation, and wrongful termination amongst others. Ms. Begazo is represented by Carney Shegerian of Shegerian & Associates. Gordon & Rees is currently defending the action that is set for trial beginning on September 12, 2016. Defense fees and costs billed to date total $58,384.65 and there are currently fees/costs that are work in progress.

Defendant Chubb Underwriting Agencies Limited for and on Behalf of Syndicate 2488's Sealed Appendix in Support of its Motion for Summary Judgment (“CUAL's Appendix to Motion”) (docket entry 63) at 000390 (September 2016 application). U.S. Risk did not request additional information regarding the Begazo suit or any other suit listed in the September 2016 application. See id. at 000280-284 (Duvall's deposition). U.S. Risk quoted coverage for Passages based on the September 2016 application, but no policy was issued. CUAL's Brief in Support ¶ 10; see also CUAL's Appendix to Motion at 000294-297 (Duvall's deposition).

Passages submitted a second application for employment practices liability insurance on March 22, 2017 (“March 2017 application”). See U.S. Risk's Amended Complaint ¶ 13; CUAL's Brief in Support ¶ 12. The March 2017 application included supplemental forms for eight of the lawsuits identified in the September 2016 application, including the Begazo suit. See CUAL's Appendix to Motion at 000449-707. On the Begazo suit's supplemental claim form, Passages indicated that the “motion for summary adjudication was successful and limited cause of action went to trial.” CUAL's Appendix to Motion at 000488. The March 2017 application also noted the Begazo suit was still “in suit” when the application was completed. Id. But the March 2017 application did not include the result of the “limited cause of action [that] went to trial.” See id. In fact, a jury had returned a verdict in favor of Begazo and against Passages on March 3, 2017. Id. at 000395. The jury had awarded Begazo $1,829,160 almost three weeks before Passages submitted the March 2017 application to U.S. Risk. See id.

Duvall, the underwriter assigned to Passages' account, reviewed the March 2017 application, but he did not recall asking for more information about the Begazo suit or any other lawsuit pending against Passages. Id. at 000299-301. U.S. Risk once again quoted coverage to Passages, but a policy was not issued. See id. at 000708-712; 000713-721. U.S. Risk later offered an updated quote to Passages which reflected an increase in premiums, but again no policy was issued. See Plaintiff's Appendix in Support of its Motion for Summary Judgment (“U.S. Risk's Appendix to Motion”) (docket entry 62:2-62:31) at 000991-992.

Then, in June 2017, Passages submitted a third application (“June 2017 application”) to bind a policy effective June 14, 2017. CUAL's Brief in Support ¶ 16; CUAL's Appendix to Motion at 000713-715; 000722-726. U.S. Risk issued an employment practices liability insurance policy to Passages (hereinafter, “the policy” or “the Passages policy”), which was effective from June 14, 2017, through November 12, 2018. See U.S. Risk's Amended Complaint ¶¶ 16-17; CUAL's Amended Answer and Counterclaim ¶ 16; CUAL's Appendix to Motion at 000787.

Subsequently, by August 2018, four of Passages' former employees had individually filed suit against Passages (hereafter, “the four lawsuits”). See U.S. Risk's Amended Complaint ¶¶ 20-22; CUAL's Brief in Support ¶ 20. The four lawsuits alleged various employment law claims, and barring an effective defense, the policy would cover these lawsuits because they arose during the policy's term. See CUAL's Amended Answer and Counterclaim ¶ 72; see also CUAL's Appendix to Motion at 000733-737 (CUAL's internal coverage report). The first lawsuit was filed by Maureen Fahey (“Fahey”), Passages' former senior vice president. CUAL's Appendix to Motion at 000734. Fahey alleged violations of the California Labor Code, retaliation, wrongful termination, discrimination on the basis of sex, and sexual harassment. Id. The second suit was filed by John Zeller (“Zeller”), Passages' former chief financial officer and Fahey's husband. Id. at 000734-735. Zeller alleged violations of the California Labor Code, retaliation, wrongful termination, defamation, and gender discrimination based on his association with Fahey. Id. The third suit was filed by Suzanne Schuda (“Schuda”), Passages' former director of quality and informatics, and she alleged violations of the California Labor Code, retaliation, wrongful termination, discrimination on the basis of sex and age, and sexual harassment. Id. at 000735-736. Last, the fourth employment liability suit was a counterclaim raised by Carolyn Hazuka (“Hazuka”) when Passages filed suit against Hazuka for embezzlement and other property claims. See id. at 000736. Hazuka was Passages' environmental programs coordinator, and she alleged violations of the California Labor Code, violation of the Fair Employment and Housing Act, sexual harassment, and wrongful termination in response to Passages' suit against her. Id. at 000737.

CUAL defended Passages against these four suits pursuant to its understanding of its duty to defend under California law. See CUAL's Brief in Support ¶ 22; see also CUAL's Appendix to Motion at 000776-777. Despite Passages omitting the Begazo verdict on its applications, CUAL did not attempt to rescind the policy. See U.S. Risk's Motion for Summary Judgment ¶ 67. Ultimately, CUAL paid $2,000,000, the policy limit, to defend and settle the four lawsuits. See CUAL's Amended Answer and Counterclaim ¶ 73; ...