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

ZURICH AMERICAN INSURANCE COMPANY v. SCOTT N. FLANDERS

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: 
30-2011-00512900- CU-IC-CJC Search Pacer
ACE Group party(s): 
Opposing Party: 
Zurich American Insurance Company
Court Type: 
State
State Court: 
California.Supeior Court (Orange County)
Date Filed: 
Oct 4 2011

"COUNTI
(Declaratory Judgment - Zurich, RLI and ACE)

38. The Carriers repeat and reallege each and every allegation set forth in paragraphs 1 through 37 as if set forth at length herein.

39. The Insuring Agreement of the Zurich Policy provides in part as follows: A. DIRECTORS AND OFFICERS LIABILITY COVERAGE The Underwriter shall pay on behalf of the Insured Persons all Loss for which the Insured Persons are not indemnified by the Company and which the Insured Persons become legally obligated to pay on account of any Claim first made against them, individually or otherwise, during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act taking place before or during the Policy Period.

40. The Zurich Policy defines "Loss" as follows: Loss means the total amount that the Insureds become legally obligated to pay on account of each Claim and for all Claims in each Policy Period and the Extended Reporting Period* if exercised, made against them for Wrongful Acts for which coverage applies, including but not limited to damages, judgments, settlements and Defense Costs. Loss does not include the following:

1. punitive or exemplary damages or the multiple portion of multiplied damages; provided however, that such damages shall constitute Loss only to the extent that they are insurable pursuant to the jurisdiction most favorable to the Insured, provided that the jurisdiction is located in any of the following: (a) where the damages were awarded or imposed; (b) where any Wrongful Act took place that gave rise to such damages; or (c) where the Company is incorporated or resides or has its principle place of business;
2. amounts not indemnified by the Company for which the Insured Persons are absolved from payment by reason of any covenant, agreement or court order;
3. amounts incurred by the Insured in connection with the investigation or evaluation of any Claim or potential Claim brought by or on behalf of the Insured;
4. taxes, fines or penalties imposed by law; or
5. matters uninsurable under the law pursuant to which this policy is construed.

41. The Insuring Agreement of the RLI Policy provides as follows: The Insurer shall provide the Insureds with insurance during the Policy Period excess of the Underlying Limit. Coverage hereunder shall attach only after the full amount of the Underlying Limit for such Policy Period is paid in legal currency by:
(a) the Insurers of the Underlying Insurance, or
(b) the Insureds, if an Insurer of the Underlying Insurance is insolvent or if the Insurer otherwise consents to such payment by the Insureds. Coverage hereunder shall then apply in conformance with the terms and conditions of the Primary Policy and, to the extent coverage is further limited or restricted thereby, the terms and conditions of any other Underlying Insurance, except as otherwise provided herein. In no event shall this Policy grant broader coverage than would be provided by any of the Underlying Insurance.

42. The RLI Policy incorporates the terms and conditions of the Zurich Policy.

43. The Insuring Agreement of the ACE Policy provides that in certain specifically enumerated circumstances, as follows: The INSURER shall pay on behalf of the INSUREDS all
NON-INDEMNIFIABLE LOSS that the INSUREDS become legally obligated to pay by reason of any CLAIM first made against the INSUREDS during the POLICY PERIOD or, if elected, the DISCOVERY PERIOD, for any WRONGFUL ACTS that are actually or allegedly caused, committed, or attempted prior to the end of the POLICY PERIOD by the INSUREDS[.]

44. The ACE Policy defines LOSS, in part, as follows: "LOSS" shall mean any and all amounts that the INSUREDS are legally obligated to pay by reason of a CLAIM made against the INSUREDS for any WRONGFUL ACT[.]

45. Section 5.17 of the Plan provides in part as follows: (p) The Litigation Trust shall not (i) execute upon any assets of the D&O Defendants or (ii) record any judgment against the D&O Defendants; provided, however, that the Litigation Trust shall be entitled to recover any judgment, settlement, or other proceeds arising from or related to the Transferred Causes of Action only from the Debtors' director and officer insurance policies (the "D&O Insurance Policies") and other damages, if any, from the Debtors' director and officer insurance companies (the "D&O Insurers") related to any Insurance Coverage Action (subject to the allocation set forth in Section 5.17(v)); provided, further, that there shall be no limitation on a D&O Defendant's liability in the event that the subject director or chief executive officer (i) intentionally impairs or impedes insurance coverage, (ii) intentionally attempts to cause or causes the delay of any insurance coverage or the payment thereof, or (iii) is not entitled to insurance coverage on account of his or her failure to make a timely claim under the applicable policies or failure to cooperate with the insurers.

46. The D&O Defendants have complied with and fulfilled Section 5.17(p) of the Plan and have done nothing to violate the provisions of that section.

47. As a result of Section 5.17(p) of the Plan, the D&O defendants will not become legally obligated to pay any damages, judgments or settlements in connection with the D&O Action.

48. The D&O Defendants will not incur any Loss (other than covered Defense Costs) as that term is defined in the Zurich, RLI and ACE Policies in connection with the D&O Action.

49. The Carriers have no obligation to pay any damages, judgments or settlements in the D&O Action as the D&O Defendants are not and will never be legally obligated to pay such amounts.

50. The Carriers are entitled to a declaration that they are not obligated to pay any damages, judgments or settlements in connection with the D&O Action.

51. An actual case or controversy exists between the parties as to their respective rights and obligations under the Zurich, RLI and ACE Policies.

COUNT II
(Declaratory Judgment - Zurich and RLI)

52. Zurich and RLI repeat and reallege each and every allegation set forth in paragraphs 1 through 51 as if fully set forth at length herein.

53. Section IV of the Zurich Policy provides in part as follows:

IV. EXCLUSIONS
A. The Underwriter shall not be liable for Loss on account of any Claim made against any Insureds:

2. based upon, arising out of, attributable to, or in any way directly or indirectly related to any demand, suit or proceeding pending, or order, decree or judgment entered against the Company or any Insured Person on or prior to the respective Pending or Prior Date set forth in Item 8 of the Declarations, or the same or substantially the same fact, circumstance or situation underlying or alleged therein;

54. The Pending or Prior Date set forth in the Zurich Policy is May 18, 2004.

55. Section 8 of the RLI Policy provides:
a. The Insurer shall not be liable under this Policy for any loss which is based upon, arises from or is in consequence of any demand, suit or other proceeding pending, or order, decree or judgment entered against any Insured on or prior to the Pending or Prior Date set forth in Item 7, of the Declarations, or the same or substantially similar fact, circumstance, or situation underlying or alleged therein.

56. The Pending or Prior Date set forth in Item 7 of the Declarations of the RLI Policy is May 18, 2004.

57. The D&O Action is based upon, arises out of, is attributable to and/or is directly or indirectly related to an action entitled Nelson Gonzalez, et al. v. Freedom Communications, Inc., Case No. 03CC08756, Superior Court of California, Orange County (the "Gonzalez Action").

58. The D&O Action alleges that the plaintiffs in the Gonzalez Action constitute the majority of unsecured creditors on whose behalf the D&O Action was commenced.

59. The Gonzalez Action was commenced on July 7, 2003, prior to the Pending or Prior Date set forth in the Zurich Policy and the RLI Policy.

60. Coverage for the D&O Action is excluded under the Zurich Policy pursuant to Section IV.A.2 of the Zurich Policy.

61. Coverage for the D&O Action is excluded under the RLI Policy pursuant to Section 8.a of the RLI Policy.

62. Zurich and RLI are entitled to a declaration that it is not obligated to pay any Loss, as defined in the Zurich Policy and/or the RLI Policy, in connection with the D&O Action.

COUNT III
(Declaratory Judgment - Zurich, RLI and ACE)

63. The Carriers repeat and reallege each and every allegation set forth in paragraphs 1 through 62 as if fully set forth at length herein.

64. The Insuring Agreement of the Zurich Policy provides in part as follows:

DIRECTORS AND OFFICERS LIABILITY COVERAGE

The Underwriter shall pay on behalf of the Insured Persons all Loss for which the Insured Persons are not indemnified by the Company and which the Insured Persons become legally obligated to pay on account of any Claim first made against them, individually or otherwise, during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act taking place before or during the Policy Period.

65. Section III.S of the Zurich Policy defines the term "Wrongful Act" as follows: Wrongful Act means any error, misstatement, misleading statement, act, omission, neglect, or breach of duty actually or allegedly committed or attempted (i) by any of the Insured Persons, individually or otherwise, in their capacity as Insure Persons, or any matter claimed against them solely by reason of their serving in such capacity, or (ii) if Employment Practices Company Liability Coverage is granted as set forth in Item 11 of
the Declarations, by the Company.

66. Section 2(s) of the ACE Policy defines the term "Wrongful Act" as follows: "WRONGFUL ACT" shall mean any actual or alleged error, misstatement, misleading statement or act, omission, neglect, or breach of duty by the INSUREDS while acting, individually or collectively, in their capacities as INSUREDS, or any other matter claimed against them by reason of serving in such capacities.

67. The acts allegedly committed by the defendants in the D&O Action were undertaken in a capacity other than as Insured Persons and/or INSUREDS.

68. Moreover, the matters claimed against defendants in the D&O Action were not claimed against them solely by reason of the defendants' serving in their capacity as Insured Persons and/or INSUREDS.

69. Based on the foregoing, no coverage is available under the Zurich, RLI and ACE Policies in connection with the D&O Action, and Zurich, RLI and ACE are entitled to a declaration that they are not obligated to pay any Loss, as defined in the Zurich Policy and ACE Policy, respectively, in connection with the D&O Action."

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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