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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

ESURANCE INSURANCE COMPANY v. WESTCHESTER FIRE INSURANCE COMPANY et al

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
3:15-cv-00862 Search Pacer
ACE Group party(s): 
Opposing Party: 
Esurance Insurance Company
Court Type: 
Federal
US District Court: 
Northern District of California
Date Filed: 
Feb 25 2015

COMES NOW Plaintiff ESURANCE INSURANCE COMPANY (“ESURANCE”) and
alleges as follows:
JURISDICTION
1. This is an action for declaratory judgment pursuant to 28 U.S.C. §2201, breach of
contract, breach of the implied covenant of good faith and fair dealing and professional negligence
between corporations of different states in which the amount in controversy exceeds $75,000,
exclusive of costs and interest. This Court has original jurisdiction based on diversity of
citizenship pursuant to 28 U.S.C. § 1332(a) (1) and (c) (1).
VENUE
2. A substantial part of the events and omissions giving rise to this action, including
contract delivery, anticipated performance of contract, breach of contract, and harm resulting from
tortious acts occurred within this judicial district, and each of the defendants’ business activities
and contacts within this judicial district are sufficient to subject defendants to personal jurisdiction
within this judicial district. Accordingly, venue in the Northern District of California is
appropriate pursuant to 28 U.S.C. § 1391(b) (1) and (2), and 28 U.S.C. § 1391 (d).
ALLEGATIONS
3. ESURANCE is an insurance corporation in good standing, organized and existing
under the laws of the State of Wisconsin. ESURANCE is registered to do business and is in good
standing in the State of California and maintains its principal place of business in California.
Accordingly, ESURANCE is a citizen of the State of Wisconsin and the State of California for the
purpose of diversity jurisdiction.
4. WESTCHESTER FIRE INSURANCE COMPANY (“WESTCHESTER”) is a
corporation in good standing, organized and existing under the laws of the State of Pennsylvania,
with its principal place of business in the State of Pennsylvania. Accordingly, WESTCHESTER is
a citizen of the State of Pennsylvania for the purpose of diversity jurisdiction.
5. STEADFAST INSURANCE COMPANY (“STEADFAST”) is a corporation in
good standing, organized and existing under the laws of the State of Delaware, with its principal
place of business in the State of Illinois. Accordingly, STEADFAST is a citizen of the State of
Delaware and the State of Illinois for the purpose of diversity jurisdiction.
6. WILLIAM GALLAGHER ASSOCIATES INSURANCE BROKERS, INC.
(“WILLIAM GALLAGHER”) is a corporation in good standing, organized and existing under the
laws of the State of Massachusetts, with its principal place of business in the State of
Massachusetts. Accordingly, WILLIAM GALLAGHER is a citizen of the State of Massachusetts
for the purpose of diversity jurisdiction.
7. ESURANCE is an insurance company engaged in the enterprise of selling personal
lines insurance to the general public. Between October 4, 2000 and October 7, 2011, ESURANCE
operated as a wholly owned subsidiary of White Mountains Insurance Group, Ltd (“White
Mountains”). On October 7, 2011, ESURANCE was acquired by The Allstate Corporation
(“Allstate”).
8. WESTCHESTER is an insurance company engaged in the enterprise of selling
professional liability insurance to insurance carriers. ESURANCE is informed and believes, and
thereon alleges, that WESTCHESTER is operated as a member of the ACE Group (“ACE”),
whose parent is ACE, Ltd.
9. STEADFAST is an insurance company engaged in the enterprise of selling
professional liability excess insurance to insurance carriers. ESURANCE is informed and
believes, and thereon alleges, that STEADFAST is operated as a member of the Zurich in North
America Companies, whose parent company is Zurich American Insurance Company.
10. WILLIAM GALLAGHER is an insurance broker engaged in the enterprise of
providing insurance brokerage services to various companies, including insurance carriers. At all
times relevant thereto, WILLIAM GALLAGHER served as the insurance broker for ESURANCE
with respect to each of the primary and excess liability policies addressed in this pleading.
11. On November 1, 2008, WESTCHESTER issued a primary “Claims Made”
Management Protection Insurance Policy to White Mountains, Policy No. DON G21669349 005,
covering the period from November 1, 2008 to November 1, 2009 (“WTM 2009 POLICY”).
White Mountains was identified in the WTM 2009 POLICY as the “Company”. The WTM 2009
POLICY afforded coverage to the “Company” and the “Subsidiaries” of the Company, including,
inter alia, ESURANCE and Northern Assurance Company (“Northern Assurance”). The WTM
2009 POLICY was procured for the benefit of, inter alia, ESURANCE, by WILLIAM
GALLAGHER. A true and correct copy of the redacted WTM 2009 POLICY is attached hereto as
Exhibit A.
12. The WTM 2009 POLICY consisted of two Coverage Parts, the “Insurance
Company Professional Liability” Coverage Part and the “Mutual Fund, Investment Adviser and
Service Provider Professional Liability” Coverage Part. The Insurance Company Professional
Liability Coverage Part provided indemnity limits of $10,000,000 in the aggregate, subject to
$5,000,000 Retention for each Claim, as follows:
The Insurer shall pay on behalf of the Insureds Loss which the Insureds become
legally obligated to pay by reason of any Claim first made by a policyholder or
third party client of the Company against the Insureds during the Policy Period or
any applicable Discovery Period for any Wrongful Acts by the Insureds or by a
person or entity for whom the Insureds are legally responsible in rendering or
failing to render Professional Services, if such Wrongful Acts take place prior to the
end of the Policy Period.
13. The WTM 2009 POLICY defined the term “Claim” in pertinent part as “a written
demand for monetary damages” or “a civil proceeding commenced by the service of a complaint
or similar pleading”. The WTM 2009 POLICY defined the term “Wrongful Act” as “any error,
misstatement, misleading statement, act, omission, neglect or breach of duty actually or allegedly
committed or attempted by the Insured Persons in their capacity as such or by the company or by
any person or organization for whom the Insureds are legally responsible.”
14. The WTM 2009 POLICY provided the following Notice provision with respect to
the submission of a “Claim” under the WTM 2009 POLICY:
The Insureds shall, as a condition precedent to their rights under any Liability
Coverage Part, give to the Insurer written notice of any Claim made against the
Insured as soon as practical after any Executive Officer or the Company’s risk
manager first learns of such Claim, but in no event later than forty-five (45) days1
after expiration of the Policy period or, if exercised, during the Discovery Period.
15. The WTM 2009 POLICY provided the following Notice provision with
respect to the submission of a “Designated Claim”, defined as a Claim which presents a loss and/or
exposure equal to or exceeding $2,000,000 based on the Insured’s evaluation, or a Claim for which
the insured has received a written settlement demand which exceeds $5,000,000:
1 As amended by Endorsement 4.
The Insureds shall, as a condition precedent to coverage, give to the Insurer written
notice of any Designated Claim made against the Insured as soon as practical after
the Company’s Risk Manager or General Counsel first learns of such Claim. Such
Notice shall be given during the Policy Period or applicable Discovery Period, but
in no event more than 30 days after expiration of the Policy Period or applicable
Discovery Period.
16. The WTM 2009 POLICY provided the following Notice provision with
respect to a “Wrongful Act” which had not yet manifested into a Claim:
If during the Policy Period or the Discovery Period, if exercised, the Insured first
become aware of a specific Wrongful Act which may reasonably give rise to a
future Claim covered under a Liability Coverage Part and during such Policy Period
or Discovery Period give written notice to the Insurer of:
a. the names of the potential claimants and a description of the specific
Wrongful Act which forms the basis of their potential claim,
b. the identity of the specific Insured allegedly responsible for such
specific Wrongful Act,
c. the consequences which have resulted or may result from such
specific Wrongful Act,
d. the nature of the potential monetary damages or non-monetary relief
which may be sought in consequence of such specific Wrongful Act,
and
e. the circumstances by which the Insured first became aware of such
specific Wrongful Act,
then any Claim which arises out of such Wrongful Act shall be deemed to have
been first made during the Policy Period or Discovery Period, if exercised, in which
such written Notice was received by the Insurer. ...
All notices under any provision of this Policy shall be in writing and given by
prepaid express courier, certified mail or fax properly addressed to the appropriate
party. ... Notice to the Insurer of any Claim, Wrongful Act or Loss shall be given to
the Insurer at the address set forth in Item 6(A) of the Declarations. . . .
Any notice to the Insurer or any Claim, Wrongful Act or Loss shall designate the
Coverage Part(s) under which the notice is being given and shall be treated as
notice under only the Coverage Part (s) so designated.
17. On November 1, 2006, STEADFAST issued a following form Integrated Excess
Insurance Policy to White Mountains, Policy No. IPR 3757632-01, covering the period from
November 1, 2006 to November 1, 2009 (“STEADFAST EXCESS POLICY”). The
STEADFAST EXCESS POLICY afforded excess liability coverage to, inter alia, ESURANCE on
a follow form basis excess to the WTM 2009 POLICY. The STEADFAST EXCESS POLICY was
procured for the benefit of, inter alia, ESURANCE, by WILLIAM GALLAGHER. A true and
correct copy of the redacted STEADFAST EXCESS POLICY is attached hereto as Exhibit B.
18. The STEADFAST EXCESS POLICY provided, in the event of exhaustion of the
WTM 2009 POLICY as a result of a payment of a loss covered under the WTM 2009 POLICY,
that the STEADFAST EXCESS POLICY would afford primary coverage to, inter alia,
ESURANCE for a Loss pursuant to the definitions, insuring clauses, exclusions and condition
contained in the WTM 2009 POLICY.
19. The STEADFAST EXCESS POLICY provided indemnity limits of $ 15,000,000 for
each loss, $30,000,000 each annual period, and $45,000,000 for the entire policy period. In
addition, the policy provided an indemnity sublimit of $10,000,000 Per Loss for Insurance
Company Professional Liability claims, subject to an insured retention of $5,000,000 Per Loss.
20. WILLIAM GALLAGHER is, and at all times during the pendency of the WTM
2009 POLICY and STEADFAST EXCESS POLICY was, directly responsible for providing all
notices for all Claims and/or Wrongful Acts involving ESURANCE to WESTCHESTER and
STEADFAST under the terms and conditions of the WTM 2009 POLICY and STEADFAST
EXCESS POLICY.
21. ESURANCE is informed and believes that all notices of Claims, Designated
Claims, and Wrongful Acts involving ESURANCE to WESTCHESTER and STEADFAST under
the terms and conditions of the WTM 2009 POLICY and STEADFAST EXCESS POLICY were
provided by WILLIAM GALLAGHER through WILLIAM GALLAGHER’S submission to these
insurers of periodic “Bordereau Reports”.
22. On or about March 17, 2009, an automobile injury Complaint was filed against
ESURANCE insured Wendy Whitney in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida, Case No. CACE09015488, entitled: Manos Milien v. Wendy Whitney
and David Seavey Whitney (“Milien Complaint”). In relevant part, the Milien Complaint alleged
that on December 31, 2008, Ms. Whitney negligently operated her motor vehicle so as to cause
bodily injury to Mr. Milien.
23. At the time of the accident, Wendy Whitney was insured by ESURANCE under an
automobile liability policy with limits of $250,000. Following the accident, an ESURANCE
adjuster, Lisa Reynolds, allegedly failed to offer these policy limits to plaintiff in a timely fashion,
giving rise to a potential cause of action for “bad faith” under Florida law.
24. On or before April 30, 2009, ESURANCE completed a bordereau form provided by
WILLIAM GALLAGFIER for a Wrongful Act Notice reporting under the WTM 2009 POLICY
and STEADFAST EXCESS POLICY for the Milien Complaint. (“WHITNEY CLAIM”).
25. On April 30, 2009, WILLIAM GALLAGHER, through its Assistant Vice President,
Jamie Pester, provided its Bordereau Report to Westchester. (“April 2009 Bordereau Report”).
ESURANCE is informed and believes that the April 2009 Bordereau Report was also provided to
STEADFAST during the pendency of the WTM 2009 POLICY. Thereafter, WILLIAM
GALLAGER continued to provide updated Bordereau Reports pertaining to the WHITNEY
CLAIM at least twice yearly to WESTCHESTER through September 11, 2013. A true and correct
copy of the redacted April 2009 Bordereau is attached hereto as Exhibit C.
26. At no time during the period of the WTM 2009 POLICY was any Claim (“a written
demand for monetary damages” or “a civil proceeding commenced by the service of a complaint
or similar pleading”) made against ESURANCE with respect to the Whitney Matter.
27. On June 5, 2009, a Complaint was filed against Northern Assurance of America
(“Northern Assurance’), a subsidiary of White Mountains and an Insured under the WTM 2009
POLICY, in the Circuit Court of Jackson County, Missouri, Case No. 0916-CV18325, entitled:
Syndey Kendall v. The Northern Assurance Company of America, et al. (“Kendall Complaint”)
The Kendall Complaint alleged that Northern Assurance committed an act of “bad faith” by
refusing to defend or indemnify its insureds in connection with personal injury action which
resulted in a judgment against the insureds for $10,000,000. The Kendall’s Complaint sought
damages for the satisfaction of the judgment, punitive damages and prejudgment interest.
28. At all times during the pendency of the WTM 2009 POLICY, ESURANCE was
unaware of the Kendall Complaint against Northern Assurance.
29. On or after December 1, 2009, WILLIAM GALLAGHER provided the first Notice
of the Kendall Complaint in a Bordereau Report to WESTCHESTER. ESURANCE is informed
and believes that the Kendall Complaint qualified as a “Designated Claim”, as the term was
defined in the WTM 2009 POLICY. ESURANCE is informed and believes that the first Notice to
WESTCHESTER of the Kendall Complaint occurred more than 30 days after the expiration of the
WTM 2009 POLICY notice period at 12.01 am on December 1, 2009.
30. On November 1, 2010, WESTCHESTER issued a primary “Claims Made”
Management Protection Insurance Policy to White Mountains, Policy No. DON G21669349 007,
covering the period from November 1, 2010 to November 1, 2011 (“WTM 2011 POLICY”).
The WTM 2011 POLICY was procured for the benefit of, inter alia, ESURANCE, by WILLIAM
GALLAGHER, its insurance broker. The substantive terms and conditions of the WTM 2011
POLICY were essentially the same as the substantive terms and conditions of the WTM 2009
POLICY. A true and correct copy of the redacted WTM 2011 POLICY is attached hereto as
Exhibit D.
31. On or about November 5, 2010, a Florida jury awarded a $31 million dollar verdict
against Ms. Whitney in connection with the Milien Complaint.
32. On December 2, 2010, Ms. Kerian Bunch, Vice President and General Counsel for
ESURANCE, prepared an email to Ms. Pester of WILLIAM GALLAGHER concerning the Milien
Complaint. In relevant part, the email stated as follows:
In an abundance of caution, we would like at this time to provide a special notice to
our insurers regarding the Whitney lawsuit, which has been regularly reported on
our Claims bordereau. Attached is the amended complaint [Milien Complaint].
The lawsuit was filed by a third party claimant against an ESURANCE insured. No
claim has yet been made against ESURANCE. However, on November 5, 2010, a
Florida Jury awarded a $31 million judgment against our insured. A motion for
new trial is pending. A bad faith plaintiffs’ attorney has been involved in the case,
and it is possible that at some point in the future ESURANCE will be sued for bad
faith. Please contact Stephen Geist if you need additional information about this
matter.”
A true and correct copy of the email of Ms. Bunch is attached hereto as Exhibit E.
33. On or about February 24, 2011, Ms. Whitney, without leave of Court, temporarily
filed a procedurally and substantively deficient Cross Claim for bad faith against ESURANCE but
not its adjuster, Lisa Reynolds. This Cross Claim was voluntarily withdrawn and dismissed on
March 23, 2011. Updated Bordereau Reports concerning the WHITNEY CLAIM continued to be
produced by WILLIAM GALLAGHER to WESTCHESTER during the WTM 2010 POLICY
period.
34. On October 7, 2011, following its acquisition by Allstate, ESURANCE purchased
through its broker, WILLIAM GALLAGHER, a “run off’ professional liability policy from
WESTCHESTER, Policy No. DON G25569763 00, covering the period from October 7, 2011 to
October 7, 2017. (“WESTCHESTER POLICY”). A true and correct copy of the redacted
WESTCHESTER POLICY is attached hereto as Exhibit F.
35. Under the terms of the WESTCHESTER POLICY, ESURANCE is defined as the
“Company” and its employees, inter alia, are defined as “Insureds Persons”. The term “Insureds”
is defined, either in the singular or plural, as: “1) the Insured Persons; and 2) the Company.”
Allstate is defined as the “Successor Company”. Neither White Mountain nor any of the
subsidiaries of White Mountain were identified as Insureds under the WESTCHESTER POLICY.
The WESTCHESTER POLICY is not identified anywhere in the policy as a renewal or
replacement of any previous policy.
36. The WESTCHESTER POLICY provides Insurance Company Professional Liability
Coverage with limits of $10,000,000 in the aggregate subject to $5,000,000 Retention for each
Claim, and afforded indemnity coverage pursuant to the following Insuring Clause for Wrongful
Acts which occurred “prior” to the advent of the WESTCHESTER POLICY2:
The Insurer shall pay the Loss of the Insureds for which the Insureds, or the Successor
Company, solely in their capacity as a successor-in-interest to the Company, become
legally obligated to pay by reason of any Claim first made by a policyholder or third party
client of the Company against the Insureds during the Policy Period or any applicable
Discovery Period for any Wrongful Acts by the Insureds or by a person or entity for whom
the Insureds are legally responsible in rendering or failing to render Professional Services,
if such Wrongful Acts take place prior to the inception of the Policy Period. In no event,
however, shall this Policy provide any coverage for any Wrongful Act to the Successor
Company.
37. The WESTCHESTER POLICY defined the term “Loss” in pertinent part as
“damages, judgments, any award of pre-judgment and post judgment interest, settlements and
Defense Costs”; the term “Claim” is defined in pertinent part as “a civil proceeding commenced
by the service of a complaint or similar pleading” or “a written demand for monetary damages”
against the Insured Persons and the Company; the term “Wrongful Act” is defined in pertinent part
as “any error, misstatement, misleading statement, act, omission, neglect or breach of duty actually
or allegedly committed or attempted by the Insured Persons in their capacity as such or by the
company or by any person or organization for whom the Insureds are legally responsible”; and the
term “Professional Services” is defined in pertinent part as “services performed for by on behalf of
the Company for a policyholder”.
38. On October 7, 2011, ESURANCE also purchased through its broker, WILLIAM
GALLAGHER, a following form Integrated Excess Insurance Policy from STEADFAST, Policy
No. IPR 9319365-00, covering the period from October 7, 2011 to October 7, 2017 (“Second
Excess Policy”), which policy afforded follow form liability coverage on basis excess to the
WESTCHESTER POLICY.
39. On April 25, 2013, a Complaint was filed by Ms. Whitney against ESURANCE
(the “Company”) and its employee, Lisa Reynolds (the “Insured Person”) entitled Wendy Whitney
v. ESURANCE Insurance Company and Lisa Reynolds, Circuit Court of the Seventeenth Judicial
Circuit, in and for Broward County, Florida, Case No. CACE-13-010298 (“WHITNEY
2 As amended by a Run-Off Endorsement, Endorsement 4
COMPLAINT”). A true and correct copy of the WHITNEY COMPLAINT is attached hereto as
Exhibit G.
40. The WHITNEY COMPLAINT alleged that Ms. Whitney was insured under an
automobile policy issued by ESURANCE; that Ms. Whitney had been named as a defendant in the
Milien Complaint for recovery of personal injuries sustained by Mr. Milien as a result of Ms.
Whitney’s negligent operation of a motor vehicle; that the personal injury claims of Mr. Milien
were covered under an ESURANCE automobile policy issued to Ms. Whitney; that Ms. Reynolds
was an employee of ESURANCE and the primary claims handler for Mr. Milien’s claims against
Ms. Whitney under her ESURANCE automobile policy; that ESURANCE and Ms. Reynolds had
failed to timely tender the ESURANCE automobile policy limits to settle Mr. Milien’s claims after
Ms. Reynolds had made various misrepresentations to Ms. Whitney advising that she would do so;
that Mr. Milien would have accepted the limits had they been timely offered; and that the Milien
Action was not settled and ultimately resulted in a judgment against Ms. Whitney in excess of
$31,000,000. Based upon these allegations, the WHITNEY COMPLAINT stated causes of action
against ESURANCE and Ms. Reynolds for breach of the implied covenant of good faith and fair
dealing and negligent misrepresentation, and sought damages in the amount of the judgment
against Ms. Whitney, plus interest, consequential damages and attorneys’ fees.
41. At no time prior to the filing of the WHITNEY COMPLAINT had a written
demand for monetary damages been made against ESURANCE or Ms. Reynolds by Ms. Whitney.
42. At no time prior to the filing of the WHITNEY COMPLAINT had any Claim been
made against Ms. Reynolds.
43. At no time prior to the filing of the WHITNEY COMPLAINT had a Claim been
made against ESURANCE, as the procedurally and substantively defective Cross-Claim filed
against ESURANCE, which was dismissed without any appearance by ESURANCE, did not
“commence any civil proceeding” against ESURANCE.
44. Following service of the WHITNEY COMPLAINT, ESURANCE retained counsel
to defend ESURANCE and Ms. Reynolds.
45. On September 11, 2013, WILLIAM GALLAGHER placed WESTCHESTER and
STEADFAST on Notice of the WHITNEY COMPLAINT under the WESTCHESTER POLICY.
(“WHITNEY WESTCHESTER CLAIM”). The September 11, 2013, letter included a specific
reference to the April 2009 Bordereau Report. A true and correct copy of this letter is attached
hereto as Exhibit H.
46. On October 23, 2013, WESTCHESTER issued a reservation of rights letter under
the WESTCHESTER POLICY as to the WHITNEY WESTCHESTER CLAIM. A true and
correct copy of this reservation of rights letter is attached hereto as Exhibit I.
47. On November 22, 2013, WESTCHESTER declined coverage for the WHITNEY
CLAIM under the WTM 2009 POLICY. In its declination letter, WESTCHESTER informed
ESURANCE for the first time that the WTM 2009 POLICY had been exhausted and that primary
coverage was no longer available under the WTM 2009 POLICY for the WHITNEY CLAIM. A
true and correct copy of this declination letter is attached hereto as Exhibit J.
48. ESURANCE has subsequently been advised, and on information and belief alleges,
that the ostensible exhaustion of the WTM 2009 POLICY was based on the settlement of the
Kendall Complaint involving Northern Assurance. However, at no time did WESTCHESTER
notify or otherwise consult with ESURANCE as to the resolution of the Kendall Complaint under
the WTM 2009 POLICY prior to its exhaustion. Furthermore, at no time did ESURANCE ever
consent to the exhaustion of the WTM 2009 POLICY to resolve the Kendall Complaint.
49. On December 10, 2013, ESURANCE advised WESTCHESTER that it would seek
to resolve the WHITNEY COMPLAINT by settlement. WESTCHESTER advised that it would
not withhold consent to the settlement.
50. On or after December 10, 2013, ESURANCE settled the WHITNEY
COMPLAINT on behalf of itself and Ms. Reynolds. Based on the confidentiality provision in the
settlement agreement with respect to the amount of the settlement of the WHITNEY
COMPLAINT, ESURANCE shall seek a protective order from this Court to limit the
dissemination of the amount of the settlement. In addition to paying the full amount of the
settlement, ESURANCE has paid all reasonable attorney fees and costs in the defense of
ESURANCE and Ms. Reynolds in connection with the WHITNEY COMPLAINT in the sum of
$499,862.00 as of May 28, 2014.
51. On December 19, 2014, STEADFAST denied coverage under its Second Excess
Policy on the grounds that the WESTCHESTER POLICY had not yet exhausted to satisfy the
WHITNEY WESTCHESTER CLAIM. As to the STEADFAST EXCESS POLICY,
STEADFAST asserted that it could find no Notice of the WHITNEY CLAIM and took no position
as to whether the April 2009 Bordereau Report satisfied the Notice provision in the WTM 2009
POLICY. The letter advised that STEADFAST “reserves all rights” under the STEADFAST
EXCESS POLICY without offering any payment or reimbursement to ESURANCE under the
STEADFAST EXCESS POLICY. A true and correct copy of this declination/reservation of rights
letter is attached hereto as Exhibit K.
52. On December 22, 2014, WESTCHESTER issued a “declination letter” under the
WESTCHESTER POLICY at to the WHITNEY WESTCHESTER CLAIM. In relevant part, the
declination letter asserted that the Cross-Claim filed in the Milien Complaint against ESURANCE
constituted a “Claim” which was “first made” prior to the WESTCHESTER POLICY which
placed the WHITNEY WESTCHESTER CLAIM outside the insuring agreement to the
WESTCHESTER POLICY. No mention was made as to absence of any such Cross-Claim against
Ms. Reynolds. The letter also cited to Exclusion A (1) as a basis to decline coverage under the
WESTCHESTER POLICY, which provides that WESTCHESTER will not be responsible for “any
Claim” made against any Insured which is “based upon, arising out of or attributable to any fact,
circumstance or situation which has been the subject of any written notice given under any Policy
of which this Policy is a renewal or replacement.” The letter states that to the extent that the
WESTCHESTER POLICY was a “renewal or replacement” of the WTM 2009 POLICY, the
Exclusion would apply because Notice had been given pursuant to the April 2009 Bordereau
Report. The letter also disclaimed coverage under the WTM 2011 POLICY on the grounds that
no Notice was given under that policy for the dismissed Cross-Claim. A true and correct copy of
this declination letter is attached hereto as Exhibit L.
FIRST CAUSE OF ACTION
(DECLARATORY JUDGMENT - AGAINST WESTCHESTER)
53. ESURANCE incorporates the allegations contained in paragraphs 1 through 52,
inclusive, of this Complaint as though fully set forth herein.
54. An actual controversy exists as to whether WESTCHESTER owes a duty to
indemnify ESURANCE under the WTM 2009 POLICY with respect to the WHITNEY CLAIM.
WESTCHESTER denies and continues to deny that any indemnity is afforded for the WHITNEY
CLAIM under the WTM 2009 POLICY based the exhaustion of the WTM 2009 POLICY in
connection with the Kendall Complaint. However, ESURANCE, on information and belief,
asserts that no duty to indemnify was triggered for the Kendall Complaint under the WTM 2009
POLICY because the Kendall Complaint, which qualified as a Designated Claim, was never
Noticed to WESTCHERSTER during the policy period or within 30 days of expiration. Any
exhaustion of the WTM 2009 POLICY by WESTCHESTER was therefore artificial and improper,
and the limits of the WTM 2009 POLICY should be fully available to satisfy the WHITNEY
CLAIM.
55. ESURANCE desires a judicial determination with respect to the rights, duties and
obligations of WESTCHESTER under the WTM 2009 POLICY, including the duty to indemnity
ESURANCE under the WTM 2009 POLICY with respect to the WHITNEY CLAIM. Such a
determination is necessary and appropriate at this time in order that ESURANCE may, inter alia,
properly ascertain its respective rights and remedies against WESTCHESTER and others,
including STEADFAST and WILLIAM GALLAGHER.
SECOND CAUSE OF ACTION
(DECLARATORY JUDGMENT - AGAINST WESTCHESTER)
56. ESURANCE incorporates the allegations contained in paragraphs 1 through 55,
inclusive, of this Complaint as though fully set forth herein.
57. An actual controversy exists as to whether WESTCHESTER owes a concurrent
duty to indemnify ESURANCE under the WESTCHESTER POLICY with respect to the
WHITNEY WESTCHESTER CLAIM. WESTCHESTER denies and continues to deny that
indemnity is afforded for the WHITNEY WESTCHESTER CLAIM under the WESTCHESTER
POLICY on the grounds that the dismissed “Cross Claim” filed in the Milien Complaint against
ESURANCE alone constituted a Claim “first made” prior to the advent of the WESTCHESTER
POLICY, and as such the WHITNEY CLAIM could not qualify as a “Claim” “first made” during
the WESTCHESTER POLICY under the terms of the WESTCHESTER Insuring Agreement.
Further, WESTCHESTER posits, based on the Notice of the WHITNEY CLAIM under the April
2009 Bordereau Report, that the WHITNEY WESTCHESTER CLAIM may fall within the
purview of Exclusion A. 1 to the WESTCHESTER POLICY, which provides that the Insurer shall
not be liable for Loss on account of any Claim for which “written notice” has been given under
any policy of which “this Policy” is a “renewal or replacement”. However, it is ESURANCE’s
position that the “first” “Claim” (a civil proceeding commenced by the service of a complaint or
similar pleading) made against ESURANCE and Ms. Reynolds was the Complaint filed on May
10, 2013, which was squarely during the pendency of the Westchester Policy; and Exclusion A (1)
is inapplicable as the WESTCHESTER POLICY is not a “renewal or replacement” of the WTM
2009 POLICY.
58. ESURANCE desires a judicial determination with respect to the rights, duties and
obligations of WESTCHESTER under the WESTCHESTER POLICY, including the duty to
indemnify ESURANCE under the WESTCHESTER POLICY with respect to the WHITNEY
CLAIM. Such a determination is necessary and appropriate at this time in order that ESURANCE
may, inter alia, properly ascertain its respective rights and remedies against WESTCHESTER and
others, including STEADFAST and WILLIAM GALLAGHER.
THIRD CAUSE OF ACTION
(DECLARATORY JUDGMENT - AGAINST STEADFAST!
59. ESURANCE incorporates the allegations contained in paragraphs 1 through 58,
inclusive, of this Complaint as though fully set forth herein.
60. An actual controversy exists as to whether STEADFAST owes an immediate duty
to indemnify ESURANCE under the STEADFAST EXCESS POLICY with respect to the
WHITNEY CLAIM. ESURANCE has sought indemnity and continues to seek indemnity for the
WHITNEY CLAIM under the STEADFAST EXCESS POLICY but STEADFAST has withheld,
and continues to withhold, indemnity under the STEADFAST EXCESS POLICY on grounds that
ostensibly the April 2009 Bordereau Report may not constitute proper Notice of a Wrongful Act
under the WESTCHESTER POLICY and that it has no proof that it had ever received the April
2009 Bordereau Report. However, it is ESURANCE’s position that WESTCHESTER has already
acknowledged that the April 2009 Bordereau Report constituted proper Notice under the WTM
2009 POLICY; that Notice to WESTCHESTER constitutes Notice to STEADFAST under the
follow form language of the STEADFAST EXCESS POLICY; that the absence of receipt of the
April 2009 Bordereau Report, even if true, provides no basis to decline coverage in the absence of
prejudice; that the duty to indemnify has been triggered based on the exhaustion of the WTM 2009
POLICY; and that STEADFAST owes an immediate obligation to indemnify ESURANCE for the
full amount of the WHITNEY CLAIM.
61. ESURANCE desires a judicial determination with respect to the rights, duties and
obligations of STEADFAST under the STEADFAST EXCESS POLICY, including the duty to
immediately indemnify ESURANCE under the STEADFAST EXCESS POLICY with respect to
the WHITNEY CLAIM. Such a determination is necessary and appropriate at this time in order
that ESURANCE may, inter alia, properly ascertain its respective rights and remedies against
STEADFAST and others, including WESTCHESTER and WILLIAM GALLAGHER.
Ill
III
FOURTH CAUSE OF ACTION
(BREACH OF CONTRACT - WTM 2009 POLICY - AGAINST WESTCHESTER)
62. ESURANCE incorporates the allegations contained in paragraphs 1 through 61,
inclusive, of this Complaint as though fully set forth herein.
63. ESURANCE has satisfied all conditions or has otherwise been excused from
satisfying all conditions necessary to trigger a duty to indemnify ESURANCE under the WTM
2009 POLICY for the settlement and defense costs incurred by ESURANCE in connection with
the WHITNEY CLAIM absent the alleged policy exhaustion in connection with the Kendall
Complaint.
64. WESTCHESTER owes a contractual duty to indemnify ESURANCE under the
WTM 2009 POLICY for the settlement and defense costs incurred by ESURANCE in connection
with the WHITNEY CLAIM, which settlement and defense costs qualify as a Loss under the
WTM 2009 POLICY and are not subject to any exclusion under the WTM 2009 POLICY, as the
Kendall Complaint was not a covered Claim under the WTM 2009 POLICY in the absence of
proper Notice and thus did not properly exhaust the WTM 2009 POLICY.
65. WESTCHESTER has breached its contractual duty to indemnify ESURANCE
under the WESTCHESTER POLICY by, among other things, failing to indemnify ESURANCE
for the settlement and defense costs incurred by ESURANCE in connection with the WHITNEY
CLAIM.
66. As a direct and proximate result of WESTCHESTER’S breach of contract,
ESURANCE has been damaged in an amount to be proven at trial, but in any event not less than
the amount of the settlement, less any retention, plus reasonable attorneys’ fees and costs incurred
to defend ESURANCE and Ms. Reynolds against the WHITNEY COMPLAINT in the amount of
$499,862.00 as of May 28, 2014, plus prejudgment interest.
Ill
III
III
FIFTH CAUSE OF ACTION
(BREACH OF CONTRACT - WESCHESTER POLICY - AGAINST WESTCHESTER)
67. ESURANCE incorporates the allegations contained in paragraphs 1 through 66,
inclusive, of this Complaint as though fully set forth herein.
68. ESURANCE has satisfied all conditions or has otherwise been excused from
satisfying all conditions necessary to trigger a duty to indemnify ESURANCE under the
WESTCHESTER POLICY for the settlement and defense costs incurred by ESURANCE in
connection with the WHITNEY WESTCHESTER CLAIM.
69. WESTCHESTER owes a contractual duty to indemnify ESURANCE under the
WESTCHESTER POLICY for the settlement and defense costs incurred by ESURANCE in
connection with the WHITNEY WESTCHESTER CLAIM, which settlement and defense costs
qualify as a Loss under the WESTCHESTER POLICY and are not subject to any exclusion under
the WESTCHESTER POLICY.
70. WESTCHESTER and has breached its contractual duty to indemnify ESURANCE
under the WESTCHESTER POLICY by, among other things, failing to indemnify ESURANCE
for the settlement and defense costs incurred by ESURANCE in connection with the WHITNEY
WESTCHESTER CLAIM.
71. As a direct and proximate result of WESTCHESTER’S breach of contract,
ESURANCE has been damaged in an amount to be proven at trial, but in any event not less than
the amount of the settlement, less any retention, plus reasonable attorneys’ fees and costs incurred
to defend ESURANCE and Ms. Reynolds against the WHITNEY COMPLAINT in the amount of
$499,862.00 as of May 28, 2014, plus prejudgment interest.
SIXTH CAUSE OF ACTION
(BREACH OF CONTRACT - AGAINST STEADFAST)
72. ESURANCE incorporates the allegations contained in paragraphs 1 through 71,
inclusive, of this Complaint as though fully set forth herein.
73. ESURANCE has satisfied all conditions or has otherwise been excused from
satisfying all conditions necessary to trigger an immediate duty to indemnify ESURANCE under
the STEADFAST EXCESS POLICY for the settlement and defense costs incurred by
ESURANCE in connection with the WHITNEY CLAIM.
74. STEADFAST owes an immediate contractual duty to indemnify ESURANCE
under the STEADFAST EXCESS POLICY for the settlement and defense costs incurred by
ESURANCE in connection with the WHITNEY CLAIM, which settlement and defense costs
qualify as a Loss under the STEADFAST EXCESS POLICY and are not subject to any exclusion
under the STEADFAST EXCESS POLICY.
75. STEADFAST has breached its contractual duty to indemnify ESURANCE under
the STEADFAST EXCESS POLICY by, among other things, failing to immediately indemnify
ESURANCE for the settlement and defense costs incurred by ESURANCE in connection with the
WHITNEY CLAIM.
76. As a direct and proximate result of STEADFAST’s breach of contract,
ESURANCE has been damaged in an amount to be proven at trial, but in any event not less than
the amount of the settlement, less any retention, plus reasonable attorneys’ fees and costs incurred
to defend ESURANCE and Ms. Reynolds against the WHITNEY COMPLAINT in the amount of
$499,862.00 as of May 28, 2014, plus prejudgment interest.
SEVENTH CAUSE OF ACTION
(BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING -
UNREASONABLE FAILURE TO PAY BENEFITS UNDER THE WTM 2009 POLICY -
AGAINST WESTCHESTER)
77. ESURANCE incorporates the allegations contained in paragraphs 1 through 76
inclusive, of this Complaint as though fully set forth herein.
78. The WTM 2009 POLICY contains an implied covenant of good faith and fair
dealing which obligates WESTCHESTER to, inter alia, reasonably pay covered policy benefits to
its Insureds and to do nothing unreasonable to withhold the payment of covered policy benefits.
79. WESTCHESTER owes a duty under the WTM 2009 POLICY to indemnify
ESURANCE with respect to the WHITNEY CLAIM, and WESTCHESTER has breached this
duty to indemnify by having failed to indemnify ESURANCE for the WHITNEY CLAIM.
80. The failure of WESTCHESTER to indemnify ESURANCE for the WHITNEY
CLAIM under the WTM 2009 POLICY is without proper cause and unreasonable and therefore
WESTCHESTER has breached the implied covenant of good faith and fair dealing in the
WESTCHESTER POLICY. More specifically, in breaching the implied covenant of good faith
and fair dealing, WESTCHESTER has subordinated ESURANCE’S interests to its own by
refusing to discharge its contractual duty to indemnify under the WTM 2009 POLICY without
reasonable grounds or good cause in the following particulars:
a. Failing to conduct a reasonable and unbiased investigation of the WHITNEY
CLAIM;
b. Denying indemnity without regard to facts undermining the articulated predicate for
its denial of the WHITNEY CLAIM, including the absence of coverage for the
Kendall Complaint based on the failure of Notice during the policy period;
c. Denying indemnity without regard to the pertinent policy provisions and case law
undermining the articulated predicate for its denial of the WHITNEY CLAIM;
d. Predicating a denial of a covered obligation to benefit its own economic interests;
and;
e. Continuing to deny indemnity despite knowledge that the predicate for its denial is
false and insupportable.
81. As a direct and proximate result of WESTCHESTER’S tortious breach of its duty
of good faith and fair dealing, ESURANCE has suffered damages in an amount to be proven at
trial, including attorneys’ fees and costs incurred to obtain policy benefits under the under the
WESTCHESTER POLICY.
Ill
III
EIGHTH CAUSE OF ACTION
(BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING -
UNREASONABLE FAILURE TO PAY BENEFITS UNDER THE WESTCHESTER
POLICY- AGAINST WESTCHESTER)
82. ESURANCE incorporates the allegations contained in paragraphs 1 through 81
inclusive, of this Complaint as though fully set forth herein.
83. The WESTCHESTER POLICY contains an implied covenant of good faith and fair
dealing which obligates WESTCHESTER to, inter alia, reasonably pay covered policy benefits to
its Insureds and to do nothing unreasonable to withhold the payment of covered policy benefits.
84. WESTCHESTER owes a duty under the WESTCHESTER POLICY to indemnify
ESURANCE with respect to the WHITNEY WESTCHESTER CLAIM and WESTCHESTER has
breached this duty to indemnify by having failed to indemnify ESURANCE for the WHITNEY
WESTCHESTER CLAIM.
85. The failure of WESTCHESTER to indemnify ESURANCE for the WHITNEY
WESTCHESTER CLAIM under the WESTCHESTER POLICY is without proper cause and
unreasonable and therefore WESTCHESTER has breached the implied covenant of good faith and
fair dealing in the WESTCHESTER POLICY. More specifically, in breaching the implied
covenant of good faith and fair dealing, WESTCHESTER has subordinated ESURANCE’S
interests to its own by refusing to discharge its contractual duty to indemnify under the
WESTCHESTER POLICY without reasonable grounds or good cause in the following particulars:
a. Failing to conduct a reasonable and unbiased investigation of the WHITNEY
WESTCHESTER CLAIM;
b. Denying indemnity without regard to facts undermining the articulated predicate for
its denial of the WHITNEY WESTCHESTER CLAIM;
c. Denying indemnity without regard to the pertinent policy provisions and case law
undermining the articulated predicate for its denial of the WHITNEY
WESTCHESTER CLAIM;
d. Predicating a denial of a covered obligation to benefit its own economic interests;
and
e. Continuing to deny indemnity despite knowledge that the predicate for its earlier
denial is false and insupportable.
86. As a direct and proximate result of WESTCHESTER’S tortious breach of its duty
of good faith and fair dealing, ESURANCE has suffered damages in an amount to be proven at
trial, including attorneys’ fees and costs incurred to obtain policy benefits under the
WESTCHESTER POLICY.
NINTH CAUSE OF ACTION
(BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING -
UNREASONABLE FAILURE TO PAY BENEFITS UNDER THE STEADFAST EXCESS
POLICY - AGAINST STEADFAST)
87. ESURANCE incorporates the allegations contained in paragraphs 1 through 86
inclusive, of this Complaint as though fully set forth herein.
88. The STEADFAST EXCESS POLICY contains an implied covenant of good faith
and fair dealing which obligates STEADFAST to, inter alia, reasonably pay covered policy
benefits to its Insureds and to do nothing unreasonable to withhold the payment of covered policy
benefits.
89. STEADFAST owes an immediate duty under the STEADFAST EXCESS POLICY
to indemnify ESURANCE with respect to the WHITNEY CLAIM, and STEADFAST has
breached this duty to indemnify by having failed to indemnify ESURANCE for the WHITNEY
CLAIM under the STEADFAST EXCESS POLICY.
90. The failure to indemnify ESURANCE for the WHITNEY CLAIM under the
STEADFAST EXCESS POLICY is without proper cause and unreasonable and therefore
STEADFAST has breached the implied covenant of good faith and fair dealing in the
STEADFAST EXCESS POLICY. More specifically, in breaching the implied covenant of good
SURANCE under the STEADFAST
EXCESS POLICY without reasonable grounds or good cause in the following particulars:
a. Failing to conduct a reasonable and unbiased investigation of the WHITNEY
CLAIM;
b. Withholding its immediate obligation to indemnity and forcing ESURANCE to
litigate against WESTCHESTER to establish the absence of primary exhaustion
under the WTM 2009 POLICY;
c. Withholding its immediate obligation to indemnity and forcing ESURANCE to
litigate against WESTCHESTER to establish concurrent primary coverage under
the WESTCHESTER POLICY;
c. Denying indemnity without regard to the pertinent policy provisions and case law
undermining the articulated predicate for its denial of the WHITNEY CLAIM;
d. Predicating a denial of a covered obligation to benefit its own economic interests;
and
e. Continuing to deny indemnity despite knowledge that the predicate for its denial is
false and insupportable.
91. As a direct and proximate result of STEADFAST’s tortious breach of its duty of
good faith and fair dealing, ESURANCE has suffered damages in an amount to be proven at trial,
including attorneys’ fees and costs incurred to obtain policy benefits under the WESTCHESTER
POLICY.
TENTH CAUSE OF ACTION
(BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING -
IMPROPER EXHAUSTION OF THE WTM POLICY - AGAINST WESTCHESTER)
92. ESURANCE incorporates the allegations contained in paragraphs 1 through 91
inclusive, of this Complaint as though fully set forth herein.
93. The WTM 2009 POLICY contains an implied covenant of good faith and fair
dealing which obligates WESTCHESTER, inter alia, not to favor one Insured’s interest to policy
benefits to the prejudice of another Insured’s interest to the same benefits under the same policy.
94. If the Kendall Complaint was properly Noticed under the WTM 2009 POLICY and
if the Kendall Complaint triggered a duty to indemnify under the WTM 2009 POLICY,
WESTCHESTER breached the implied covenant of good faith and fair dealing by exhausting the
WTM 2009 POLICY to resolve the Kendall Complaint. More specifically, by exhausting the
WTM 2009 POLICY to resolve the Kendall Complaint against Northern Assurance without the
prior knowledge or consent of ESURANCE, WESTCHESTER favored the competing interest of
Northern Assurance over the interests of ESURANCE to the same policy limits, thus prejudicing
ESURANCE in breach of the implied covenant of good faith and fair dealing.
95. As a direct and proximate result of WESTCHESTER’S breach of the implied
covenant of good faith and fair dealing, ESURANCE has suffered damages in an amount to be
proven at trial but equivalent to damages sufficient to satisfy the Loss with respect to the
WHITNEY COMPLAINT according to proof.
ELEVETH CAUSE OF ACTION
(PROFESSIONAL NEGLIGENCE - AGAINST WILLIAM GALLAGHER)
96. ESURANCE incorporates the allegations contained in paragraphs 1 through 95,
inclusive, of this Complaint as though fully set forth herein.
97. In acting at all relevant times as ESURANCE’S insurance broker, WILLIAM
GALLAGHER owed a duty to ESURANCE to use the skill, prudence, and diligence that other
members of its profession commonly possess and exercise, including providing proper notice of all
Claims to ESURANCE’s liability insurers, WESTCHESTER and STEADFAST, under the terms
and conditions of their policies.
98. Should for any reason it be adjudged that coverage is not afforded to ESURANCE
for the WHITNEY CLAIM under either the WTM 2009 POLICY or the STEADFAST EXCESS
POLICY based on, among other things, improper Notice; or it is it adjudged that coverage would
have been afforded to ESURANCE under the WTM 2011 POLICY if a special Notice had been
provided as requested by ESURANCE; then WILLIAM GALLAGHER has breached its duty to
perform its professional services for ESURANCE, including providing proper Notice to
WESTCHESTER and/or STEADFAST with the skill, prudence, and diligence that other members
of the insurance brokerage profession commonly possess and exercise, which ESURANCE, by
custom, practice and agreement with WILLIAM GALLAGHER, would have relied upon to its
detriment.
99. Should for any reason it be adjudged that coverage is not afforded to ESURANCE
for the WHITNEY CLAIM under either the WTM 2009 POLICY, the STEADFAST EXCESS
POLICY or the WTM 2011 POLICY based on improper Notice, and if it is adjudged that coverage
is not afforded for the WHITNEY WESTCHESTER CLAIM under the WESTCHESTER
POLICY, then as a direct and proximate result of WILLIAM GALLAGHER’S negligent
performance of professional services, ESURANCE has been damaged in an amount to be proven
at trial, but in any event not less than the amount of the settlement, less any retention, plus
reasonable attorneys’ fees and costs incurred to defend ESURANCE and Ms. Reynolds against the
WHITNEY COMPLAINT in the amount of $499,862.00 as of May 28, 2014, plus prejudgment
interest, plus attorney fees and costs incurred in connection with this matter, which fees and costs
are the foreseeable result of WILLIAM GALLAGHER’S negligence pursuant to the “tort of
another” doctrine.
PRAYER FOR RELIEF
WHEREFORE, ESURANCE prays for judgment as follows:
Against WESTCHESTER:
1. For a declaration as to the duty to indemnify ESURANCE under the WTM 2009
POLICY with respect to the WHITNEY CLAIM
2. For a declaration as to the duty to indemnify ESURANCE under the
WESTCHESTER POLICY with respect to the WHITNEY WESTCHESTER
CLAIM;
3. For contractual and tort damages in an amount to be proven at trial;
4. For attorneys’ fees and costs;
5. For prejudgment interest as permitted by law; and
6. For such other and further relief as the Court may deem just and proper under the
circumstances;
Against STEADFAST:
1. For a declaration as to the immediate duty to indemnify ESURANCE under the
STEADFAST EXCESS POLICY with respect to the WHITNEY CLAIM;
2. For contractual and tort damages in an amount to be proven at trial;
3. For attorneys’ fees and costs;
4. For prejudgment interest as permitted by law; and
6. For such other and further relief as the Court may deem just and proper under the
circumstances; and
Against WILLIAM GALLAGHER:
1. For damages in an amount to be proven at trial;
2. For attorney fees and costs;
3. For prejudgment interest as permitted by law; and
4. For such other and further relief as the Court may deem just and proper under the
circumstances.
DATED: February^, 2015 BOORNAZIAN, JENSEN & GARTHE
A Professional Corporation
By:
THOMAS E. MULVIHILL. ESQ.
TAMIKO A. DUNHAM, ESQ.
ROSEANNE C. LAZZAROTTO, ESQ.
Attorneys for Plaintiff,
ESURANCE INSURANCE COMPANY
DEMAND FOR JURY TRIAL
ESURANCE hereby demands a jury trial as provided by Rule 38 of the Federal Rules of
Civil Procedure.

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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