ECB USA, INC.

v.

CHUBB INSURANCE COMPANY OF NEW JERSEY

ECB USA, Inc. and others, ) Plaintiffs, ) ) v. ) Civil Action No. 20-20569-Civ-Scola ) Chubb Insurance Company of New ) Jersey and Executive Risk ) Indemnity, Inc., Defendants. )

Omnibus Order The Defendants—insurance providers—move for summary judgment on all claims asserted by the Plaintiffs—assignees of certain insurance-related claims. (ECF No. 161.) The Plaintiffs also move for partial summary judgment on two specified issues. (ECF No. 154.) The parties filed oppositions in response to each motion (ECF Nos. 186, 187), and each filed a reply in support of their respective motions (ECF Nos. 193, 195). Resolution of these cross motions for summary judgment also entails review and consideration of the Defendants’ motion to dismiss Count One (ECF No. 143) and the Plaintiffs’ motion to substitute (ECF No. 215), both of which were fully briefed. After careful consideration of the briefing, the record, and the relevant legal authorities, the Court grants in part and denies in part the Defendants’ motion for summary judgment (ECF No. 161) and grants in part and denies in part the Plaintiffs’ motion for partial summary judgment (ECF No. 154).

Moreover, the Court denies the Defendants’ motion to dismiss (ECF No. 143) and grants the Plaintiffs’ motion to substitute (ECF No. 215).

1.

Background As a general matter, insurance policies and insurance salesmen have long been the butt of jokes. The former are not known for beautiful prose nor the latter for exciting conversation. But insurance contracts can provide fodder for scores of attorneys, grammarians, and logophiles, where, as here, the meaning of one phrase and the placement (or omission) of one comma can make the difference between coverage and nothing. On December 17, 2019, ECB USA, Inc, Atlantic Ventures Corp., and G.I.E. C2B (the “Plaintiffs”) sued Chubb Insurance Company of New Jersey (“Chubb”) in the Circuit Court of the Eleventh Judicial Circuit for various relief associated with Chubb’s denial of insurance coverage in an earlier litigation. (ECF No. 1.) On February⁷, 2020, Chubb removed the case to federal court on the basis of diversity jurisdiction. (Id.) On February 26, 2021, the Plaintiffs and Constantin Associates, LLP (“Constantin”) filed the operative pleading, the Fourth Amended Complaint, which brings seven claims against Chubb and Executive Risk Indemnity, Inc. (“ERI”). (ECF No. 79.) Before addressing the merits of each claim, the Court will briefly provide the relevant factual background. In an insurance dispute such as this, the Court will focus this discussion on: (1) the relevant actors, (2) the terms and negotiations of the relevant insurance policies, (3) the entities that are provided coverage under the relevant insurance policies, (4) the extent of coverage provided under the policies, and (5) the underlying lawsuit that is the subject of the alleged failure to defend and indemnify.

A. The Actors

Control Associates/Constantin Group L.P. (“Control Group”) is a limited partnership registered in Delaware that provides professional and consulting services. (ECF No. 156 at ¶ 5; ECF No. 184 at ¶ 5; ECF No. 155-51.) Constantin, a New York limited liability partnership, provides accounting and auditing services. (ECF No. 155 at ¶ 106; ECF No. 156 at ¶ 6; ECF No. 184 at ¶ 6.) ERI, a Delaware-based corporation, issues professional liability insurance policies in New Jersey. (ECF No. 156 at ¶ 1; ECF No. 184 at ¶ 1.) Chubb is a New Jersey-based entity that also provides professional liability insurance policies in New Jersey. (ECF No. 156 at ¶ 2; ECF No. 184 at ¶ 2.) Both Chubb and ERI are subsidiaries of Chubb Limited. (ECF No. 156 at ¶ 3; ECF No. 184 at ¶ 3.) Sometimes, Chubb and ERI share underwriters, claims staff, and policies and procedures for underwriting and claims processing. (ECF No. 156 at ¶ 4; ECF No. 184 at ¶ 4.) From 2002 to 2019, either Chubb or ERI issued professional liability insurance policies to Control Group. (ECF No. 156 at ¶ 7; ECF No. 184 at ¶ 7.)

B. The Policies

This dispute primarily centers around the terms and negotiations of one policy—the 2017-18 Policy. In 2017, Control Group obtained this professional liability insurance policy, number 8168-4190, from Chubb. (ECF No. 156 at ¶ 9; ECF No. 184 at ¶ 9; ECF No. 156-7.) The policy covered the period from December 12, 2017 to December 12, 2018. (ECF No. 156-7 at 5.) The parties dispute whether the 2017-18 Policy was a renewal of the prior policy. Control Group had filed previous renewal applications, and the parties agree that the 2016-17 Policy was a renewal of the 2015-16 Policy. (ECF No. 156 at ¶¶ 23–24, 26; ECF No. 184 at ¶¶ 23–24, 26.) The 2017-18 Policy process began around September 2017 when Chubb sent Control Group, through a third party, a “non-renewal letter,” indicating that Chubb did not yet have adequate information to underwrite Control Group’s “upcoming renewal.” (ECF No. 155-40; ECF No. 185 at ¶¶ 166–167; ECF No. 196 at ¶¶ 166–167.) In October 2017, Control Group, through a third party, requested a renewal application. (ECF No. 156-24; ECF No. 185 at ¶ 157; ECF No. 196 at ¶ 157.) One month later, Sean Murray, an underwriter for the Defendants, sent “the renewal app.” (ECF No. 185 at ¶ 158; ECF No. 196 at ¶ 158; ECF No. 185-21.) And on December⁶, 2017, Control Group submitted a “Professional Error and Omission Insurance Renewal Application.” (ECF No. 196 at ¶ 159; ECF No. 196-5.) Indeed, the application form was labeled “Chubb Pro E&O Renewal Application,” and, above the signature line, the application is referred to as the “Renewal Application.” (ECF No. 196-5.) A week later, Chubb sent a binder letter for the 2017-18 Policy, stating “thank you again for the renewal business for [Control Group].” (ECF No. 185-24.)

C. The Insureds

Control Group’s policies from 2003 to 2017 were all under the applicant name “[Control Group] and Subsidiaries.” (ECF No. 155 at ¶ 76; ECF No. 185 at ¶ 76.) But the entities provided coverage under the policies (the Insureds) were not necessarily limited to Control Group’s subsidiaries. For example, the 2016-17 Policy covered any Insured, which was defined, in relevant part, as “the person or entity stated in Item¹ of the Declarations.” (ECF No. 155-16 at 9.) Item¹ of the Declarations was amended by an endorsement—Endorsement No. 5—within the 2016-17 Policy, which provided a list of additional “Named Insured[s],” including Constantin. (ECF No. 93-3; ECF No. 155 at ¶ 79; ECF No. 155-16 at 6, 22; ECF No. 185 at ¶ 79.) Control Group first added Constantin to the “Named Insured list” in the 2015-16 Policy. (ECF No. 155 at ¶ 78; ECF No. 155-15 at 6; ECF No. 155-39; ECF No. 185 at ¶ 78.) The 2017-18 Policy did not include Endorsement No. 5. (ECF No. 155 at ¶¶ 92, 94; ECF No. 185 at ¶¶ 92, 94.) Nevertheless, Control Group states that it intended that Constantin remain an Insured. (ECF No. 156 at ¶ 35.) Indeed, on December 12, 2017, before the completed binder letter was sent, Control Group was asked to confirm the “list of named insured” for the 2017-18 Policy—the list as proposed included Constantin. (ECF No. 155-43; ECF No. 156-31.) But the definition of an “Insured” was different in the 2017-18 Policy. To determine who was an Insured, one must wade through multiple definitions: • “Insured” was defined as “any Organization and any Insured Person.”¹ (ECF No. 156-7 at 8; ECF No. 155-43 at 22.) • “Organization” was defined as the “Parent Organization and any Subsidiary.” (ECF No. 155-43 at 13.) • The Parent Organization was defined as Control Group. (ECF No. 185-1.) • Subsidiary was defined, in relevant part, as an entity for which Control Group, directly or indirectly, owns or controls the majority of the “outstanding securities representing the present right to vote for election of or to appoint” management. (Id.) While the definition of Insured changed from the 2016-17 Policy to the 2017-18 Policy, the parties dispute whether Control Group received adequate notice of this change. (ECF No. 156 at ¶ 36; ECF No. 184 at ¶ 36.) The Defendants did not explicitly communicate to Control Group that there was a different definition of Insured and Subsidiary. The Defendants point to an e- mail dated December⁴, 2017, in which Mr. Murray explained that the parties could “either keep [the 2017-18 Policy] on the current form or move it to the new form.” (ECF No. 155-42.) Mr. Murray then explained that the “new form” had “a lot of enhancements to it”; Mr. Murray did not identify a change in the list of Insureds or a change in the definition of Insured. (Id.; ECF No. 185 at ¶ 85.) On January 9, 2018, Control Group was asked to review the 2017-18 Policy, and the Policy was on the “new form” that Mr. Murray had addressed earlier. (ECF No. 155-46.)

D. The Coverage

In relevant part, the 2017-18 Policy provided coverage for claims related to “Management consulting services,” which are defined as “services directed toward expertise in banking finance, accounting, risk and systems analysis, design and implementation, asset recovery and strategy planning for financial institutions.” (ECF No. 155-37 at 23; ECF No. 185 at ¶ 1.) That definition remained the same from 2002 to 2017. (ECF No. 155 at ¶ 15; ECF No. 185 at ¶ 15.) Beginning in 2001, when applying for coverage, Control Group identified that all of its revenues were derived from either “management consulting” or “consulting.” (ECF No. 155 at ¶¶ 16–20; ECF No. 185 at ¶¶ 16–20.) It was not until 2016 and 2017 that Control Group also identified “accounting” as included in its services. (ECF No. 155 at ¶¶ 22–23; ECF No. 185 at ¶¶ 22–23.)

E. The Litigation

In 2018, the Plaintiffs sued Constantin in the Eleventh Judicial Circuit in Miami-Dade County for its alleged wrongdoing in connection with the provision of a professional audit (the “Underlying Litigation”). (ECF No. 156 at ¶ 40; ECF No. 184 at ¶ 40.) Constantin gave notice of the lawsuit to Chubb. (ECF No. 156 at ¶¶ 41–42; ECF No. 184 at ¶¶ 41–42.) But Chubb later issued two claim denial letters, denying coverage to Constantin for the sole reason that auditing services were not covered under the 2017-18 Policy. (ECF No. 156 at ¶¶ 43, 46; ECF No. 184 at ¶¶ 43, 46.) Chubb did not indicate in the claim denial letters that Constantin was not an Insured. (ECF No. 156 at ¶ 47; ECF No. 184 at ¶ 47.) In November 2019, Constantin settled with the Plaintiffs, agreeing to judgment in favor of the Plaintiffs for $4,850,000 and agreeing to assign all rights against Chubb and ERI to the Plaintiffs. (ECF No. 156 at ¶ 48; ECF No. 184 at ¶ 48; ECF No. 156-38.) This current action was initiated approximately one month later. (ECF No. 1.)

2. Legal Standard

Summary judgment is proper if, following discovery, the pleadings, depositions, answers to interrogatories, affidavits, and admissions on file show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Fed. R. Civ. P. 56. “An issue of fact is ‘material’ if, under the applicable substantive law, it might affect the outcome of the case.” Hickson Corp. v. N. Crossarm Co., 357 F. 3d 1256, 1259–60 (11th Cir. 2004). “An issue of fact is ‘genuine’ if the record taken as a whole could lead a rational trier of fact to find for the nonmoving party.” Id. at 1260. All the evidence and factual inferences reasonably drawn from the evidence must be viewed in the light most favorable to the nonmoving party. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Jackson v. BellSouth Telecomms., 372 F. 3d 1250, 1280 (11th Cir. 2004). Once a party properly makes a summary judgment motion by demonstrating the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings through the use of affidavits, depositions, answers to interrogatories, and admissions on file and designate specific facts showing that there is a genuine issue for trial. See Celotex, 477 U.S. at 323–24. The nonmovant’s evidence must be significantly probative to support the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The Court will not weigh the evidence or make findings of fact. See Anderson, 477 U.S. at 249; Morrison v. Amway Corp., 323 F. 3d 920, 924 (11th Cir. 2003). Rather, the Court’s role is limited to deciding whether there is sufficient evidence upon which a reasonable juror could find for the nonmoving party. See id.

3.

Analysis The Defendants move for summary judgment on all counts (ECF No. 161), while the Plaintiffs only seek summary judgment on two issues, namely, that auditing services are covered under the 2017-18 Policy and that Constantin is an Insured under the 2017-18 Policy (ECF No. 154). The Court will address each. As a preliminary matter, the Plaintiffs argue that New Jersey law applies to all claims. (ECF No. 154 at 3.) The Defendants did not contest this, but rather argue that there is a “false conflict” between New Jersey law and Florida law and that the laws of those states are, in relevant part, the same. (ECF No. 161 at 6 n.3.) As the parties largely do not dispute the applicable law, the Court will apply New Jersey law. As to the contractual claims, Florida applies the doctrine of lex loci contractus, which holds that the law of the jurisdiction where the contract was executed governs. See State Farm Mut. Auto. Ins. Co. v. Roach, 945 So. 2d 1160, 1163 (Fla. 2006). This occurred in New Jersey, so New Jersey law applies. (ECF No. 156 at ¶¶ 2, 51; ECF No. 184 at ¶¶ 2, 51.) As to the tort claims, Florida applies the “most significant relationship” test. See Trumpet Vine Invs., N.V. v. Union Cap. Partners I, Inc., 92 F. 3d 1110, 1115 (11th Cir. 1996). For the reasons laid out by the Plaintiffs, the Court finds that New Jersey has the most significant relationship to the facts of this case. (ECF No. 154 at 3.) A. Count¹: Breach of Contract The Plaintiffs allege that Chubb breached the 2017-18 Policy by failing to defend and indemnify Constantin in the Underlying Litigation. An insurer has a duty to defend where a plaintiff “alleges facts that fairly and potentially bring the suit within policy coverage.” Rosario v. Haywood v. Haywood, 799 A. 2d 32, 40 (N.J. App. Div. 2002); Evanston Ins. Co. v. Heeder, 490 F. App’x 215, 216 (11th Cir. 2012) (citing Jones v. Fla. Ins. Guar. Ass’n, 908 So. 2d 435, 442–43 (Fla. 2005)).

Moreover, an insurer has a duty to indemnify where the party seeking indemnification is actually covered under the policy. See Hartford Accident & Indem. Co. v. Aetna Life & Cas. Ins. Co., 483 A. 2d 402, 405 (N.J. 1984); Regions Bank v. Commonwealth Land Title Ins. Co., 977 F. Supp. 2d 1237, 1261–62 (S.D. Fla. 2013) (Scola, J.). It is the insured’s burden to establish the duty to defend and the duty to indemnify. See State Nat. Ins. Co. v. Cnty. of Camden, No. 08-5128(NLH)(AMD), 2012 WL 6652819, at *2 (D.N.J. Dec. 19, 2012). Insurance contracts must be interpreted liberally in favor of coverage “to the full extent that any fair interpretation will allow.” State Nat. Ins. Co., 2012 WL 6652819, at *2; see also Colony Ins. Co. v. Ramon, No. 08- 21812-CIV, 2009 WL 10699122, at *3 (S.D. Fla. July 30, 2009) (Seitz, J.). The 2017-18 Policy provided coverage for claims related to “Management consulting services,” which are defined as “ services directed toward expertise in banking finance, accounting, risk and systems analysis, design and implementation, asset recovery and strategy planning for financial institutions.” (ECF No. 155-37 at 23; ECF No. 185 at ¶ 1.) First, the parties argue whether the auditing of financial statements (the provision of which was the basis for the Underlying Lawsuit) constitutes “services directed toward expertise in . . . accounting[.]” The interpretation of an insurance contract is a question of law, and the Court must give the contract its plain and ordinary meaning. See Princeton Inv. Partners, Ltd. v. RLI Ins. Co., CV171120KMMAH, 2018 WL 846917, at *5 (D.N.J. Feb. 9, 2018); CPS MedManagement LLC v. Bergen Reg’l Med. Ctr., L.P., 940 F. Supp. 2d 141, 154 (D.N.J. 2013). An insurance contract is ambiguous if “the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage,” and courts may look to extrinsic evidence to determine whether an ambiguity exists and to resolve the ambiguity. See Princeton Inv. Partners, 2018 WL 846917, at *5 (quoting State Nat. Ins., 10 F. Supp. 3d at 574–75); CPS MedManagement, 940 F. Supp. 3d at 154.

However, courts must resolve any ambiguity in favor of coverage if a fair reading permits. See Princeton Inv. Partners, 2018 WL 846917, at *5 (“[I]f the controlling language of the policy will support two meanings, one favorable to the insurer and one favorable to the insured, the interpretation supporting coverage will be applied.”). The parties have spilt much ink on the proper interpretation of the clause “services directed toward expertise in . . . accounting,” filing multiple motions for judicial notice and devoting much of their respective briefs to these arguments. Notwithstanding these other sources, the Court will start with the definition provided in the Policy. Doing so, the Court finds that the auditing of financial statements falls within the contractual term “services directed toward expertise in . . . accounting.” This provision is hardly ambiguous—auditing of financial statements is a widely recognized accounting service. See N.J.S.A 2A:53A-25 (“‘Professional accounting services’ includes, but is not limited to, the . . . audit of . . . a financial statement[.]”); Fla. Stat. § 473.302(8)(a) (defining services that fall within “public accounting”). And conducting an audit requires expertise, as the materials to which the Defendants point explain. (See ECF No. 175 at 6 (“[F]orensic accounting services . . . involve the application of . . . special skills in accounting, auditing, finance, quantitative methods . . . and research[.]”) (quoting Code of Professional Conduct, 1.295.140, Forensic Accounting).) The Defendants disagree, arguing that the term “services directed toward expertise in . . . accounting” must be interpreted in light of the usage of the term that it is defining—“management consulting services.” (ECF No. 161 at 5– 6.) The Defendants point to, among other things, various business dictionaries, certain standards promulgated by the American Institute of Certified Public Accountants, professional standards for public accountants, SEC guidance, as well as writings by the late Justice Scalia. (Id. at 6; ECF No. 195 at 4.) The Defendants argue that these extrinsic sources establish that “management consulting” does not include auditing, as consulting generally involves the analysis of management problems and the provision of recommendations, while auditing generally involves the attestation to financial statements. (ECF No. 161 at 6–8.) However, the principles to which the Defendants point only apply where the contract is ambiguous. See A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts, at 228 (2012) (noting that the principle that a definition is interpreted in light of the definiendum’s context applies only where “a definition itself contains a term that is not clear”); see also Stenberg v. Carhart, 530 U.S. 914, 942 (2000) (“When a [text] includes an explicit definition, [a court] must follow that definition, even if it varies from that term’s ordinary meaning.”). As held above, the definition of “management consulting services” is not “so confusing[ly]” ambiguous to warrant extensive resort to extrinsic evidence. See Princeton Inv. Partners, 2018 WL 846917, at *5. If the parties wished to limit coverage to “consulting” services in a way that comported with certain trade usage, the parties could have done so. But the parties contracted to an expansive definition of “management consulting services,” which must be interpreted in favor of coverage if a fair reading permits. See State Nat. Ins. Co., 2012 WL 6652819, at *2. The Court must apply this plain meaning.² Second, however, the Underlying Lawsuit did not concern the provision of accounting services to a “financial institution.” This is undisputed. (ECF No. 155 at ¶ 72; ECF No. 185 at ¶ 72.) The Plaintiffs’ only argument in

Second, the Court holds that the Defendants did not give adequate notice of any change in the renewed Policy’s definition of Insured. Under New Jersey law, “[a]bsent notification that there have been changes in the restrictions, conditions or limitations of [a renewed insurance] policy, the insured is justly entitled to assume that they remain the same.” Bauman v. Royal Indem. Co., 174 A. 2d 585, 592 (N.J. 1961). If the insured is not “specifically and clearly informed of [a] change, the renewal will be ineffective.” See McClellan v. Feit, 870 A. 2d 644, 649 (N.J. App. Div. 2005) (emphasis added). The Defendants never gave Control Group clear and specific notice of a change in the definition of Insured or of any change in what entities were provided coverage under the Policy. (ECF No. 156 at ¶¶ 37–39; ECF No. 184 at ¶¶ 36–39.) The Defendants primarily argue that adequate notice was given (1) when Mr. Murray listed some of the “enhancements” of the “new form” and (2) when the Defendants delivered the bound policy and asked Control Group to review it. (ECF No. 161 at 19.) Any suggestion that Control Group need only have read the 2017-18 Policy to learn of changes flies in the face of Bauman, which explicitly puts the burden on the insurer to give clear and specific notice of a change. See Bauman, 174 A. 2d at 592.

Moreover, while Mr. Murray noted some “enhancements” in the new form, he did not notify Control Group of any change in the definition of Insured or a change in the determination of what entities were covered. (ECF No. 155-42; ECF No. 185 at ¶ 85.) As the 2017-18 Policy was a renewal and as the Defendants did not give Control Group adequate notice of a change in the definition of Insured or what entities were covered under the Policy,⁴ the Court denies the Defendants’

Here, the decision for Constantin to bring Counts Five through Seven was an honest and understandable mistake, and substitution will not alter this case. By their own admission, the Defendants undertook months of discovery to determine who could bring these claims (ECF No. 219 at 13), and the parties resorted to motions practice to determine whether Constantin had standing to bring these claims.

Moreover, the relief sought will not change the nature of the claims—only the party bringing the claims.

Therefore, substitution will not alter this action or cause prejudice to the Defendants. In all, the Court grants the Plaintiffs’ motion to substitute (ECF No. 215) and finds that (1) there was an honest and understandable mistake in determining the appropriate party to bring Counts Five through Seven, (2) the substitution will not alter the

4. Conclusion

In total, the Court grants in part and denies in part the Defendants’ motion for summary judgment (ECF No. 161) and grants in part and denies in part the Plaintiffs’ partial motion for summary judgment (ECF No. 154). In particular, the Court grants summary judgment in the Defendants’ favor as to Counts¹, 2, 4, 5, 6, and⁷, while granting summary judgment in the Plaintiffs’ favor as to Count 3. As the Court reformed the 2017-18 Policy and found that Constantin is an Insured, the Court denies the Defendants’ motion to dismiss Count 1.7 (ECF No. 143.) Moreover, the Court grants the Plaintiffs’ motion to substitute (ECF No. 215) for the reasons set out above. Last, the Court denies the parties’ requests for oral argument. As set out above, all claims and counterclaims have been adjudicated. The Court enters judgment as follows. Judgment is entered in favor of the Plaintiffs and against the Defendants on Count 3. Judgment is entered in favor of the Defendants on all other claims. The Court directs the Clerk to close this case. All remaining pending motions are denied as moot.

Rotlert N. Scola, Jr. United States District Judge