U.S. Court of Appeals for the First Circuit, Green Enterprises, LLC v. Hiscox Syndicates Limited at Lloyd’s of London; XL Catlin Lloyd’s Syndicate 2003; Amlin Lloyd’s Syndicate 2001; Canopius Lloyd’s Syndicate 4444; Noa Lloyd’s Syndicate 3902; Blenheim Lloyd’s Syndicate 5886; Brit Lloyd’s Syndicate 2987/2988, Docket No. 21-1542

Insurance Law

 

Motion to Compel Arbitration

 

Question of First Impression (First Circuit)

 

Conflicts Between State Laws Regulating Insurance and Acts of Congress

 

Preemption

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. (A Self-Executing Treaty)

 

Comity

 

 

 

 

Green Enterprises, LLC ("Green"), a Puerto Rican recycling company, filed an insurance claim after a fire destroyed one of its plants. The underwriters of Green's insurance policy, all syndicates at Lloyd's of London ("Underwriters"), denied the claim, prompting Green to initiate this lawsuit. Pointing to an arbitration clause in the insurance policy, the district court declined to decide the parties' coverage dispute and granted Underwriters' motion to compel arbitration. Green then timely filed this appeal. As we will explain, this appeal presents a question of first impression in this circuit that turns on the interactions among Puerto Rico law, two federal statutes, and a multilateral treaty to which the United States is a party. For the following reasons, we affirm the judgment of the district court granting Underwriters' motion to compel arbitration and dismissing Green's claims without prejudice.

 

 

The arbitration clause provides: If the Insured and the Underwriters fail to agree in whole or in part regarding any aspect of this Policy, each party shall, within ten (10) days after the demand in writing by either party, appoint a competent and disinterested arbitrator and the two chosen shall before commencing the arbitration select a competent and disinterested umpire. The arbitrators together shall determine such matters in which the Insured and the Underwriters shall so fail to agree and shall make an award thereon, and if they fail to agree, they will submit their differences to the umpire and the award in writing of any two, duly verified, shall determine the same. The Parties to such arbitration shall pay the arbitrators respectively appointed by them and bear equally the expenses of the arbitration and the charges of the umpire.

 

 

Our analysis begins with the McCarran-Ferguson Act, Pub. L. No. 79-15, 59 Stat. 33 (1945) (codified at 15 U.S.C. §§1011–1015). Generally, a federal statute preempts any state law with which the federal statute directly conflicts. See PLIVA, Inc. v. Mensing, 564 U.S. 604, 617–18 (2011). The McCarran-Ferguson Act largely flips this general rule on its head as applied to conflicts between state laws regulating insurance and most acts of Congress. It states: "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance... unless such Act specifically relates to the business of insurance." 15 U.S.C. §1012(b).

 

 

The McCarran-Ferguson Act specifically defines "State" to include Puerto Rico. 15 U.S.C. §1015. (Fn. 2).

 

 

The Supreme Court "has long recognized the distinction between self-executing treaties that automatically have effect as domestic law, and non-self-executing treaties that--while they constitute international law commitments--do not by themselves function as binding federal law." Medellín, 552 U.S. at 504.

 

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (the "Convention")—the multilateral treaty that Chapter II of the FAA "implements." See GE Energy Power Conversion Fr. SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637, 1644 (2020); 9 U.S.C. §201 ("The Convention shall be enforced in United States courts in accordance with this chapter.").

 

 

The text of the Convention makes plain that Article II (3) provides a clear "directive to domestic courts." Medellín, 552 U.S. at 508. Article II (3) by its express terms directly commands courts to channel arbitrable disputes to arbitration: "The court... shall... refer the parties to arbitration...."As the Ninth Circuit described, "This provision is addressed directly to domestic courts, mandates that domestic courts 'shall' enforce arbitration agreements, and 'leaves no discretion to the political branches of the federal government whether to make enforceable the agreement-enforcing rule it prescribes.'" CLMS Mgmt. Servs. Ltd. P'shipv. Amwins Brokerage of Ga., LLC, 8 F.4th 1007, 1013 (9th Cir. 2021) (quoting Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 735 (5th Cir. 2009) (en banc) (Clement, J., concurring)), cert. denied, 142 S.Ct. 862 (2022). Based on this characterization, that court then concluded, "A straightforward application of the textual analysis outlined in Medellín compels the conclusion that Article II, Section 3 is self-executing...." Id.

 

 

(…) Green does not argue that insurance disputes generally constitute a subject that is not "capable of settlement by arbitration" under the Convention, and any such argument would be meritless. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 639 n. 21 (1985) ("Congress may specify categories of claims it wishes to reserve for decision by our own courts without contravening this Nation's obligations under the Convention. But we decline to subvert the spirit of the United States' accession to the Convention by recognizing subject-matter exceptions where Congress has not expressly directed the courts to do so."). (Fn. 7).

 

 

In sum, none of Green's arguments can overcome the self-executing nature of the plain text of Article II (3). That article, which is not an act of Congress, has the force of law and applies directly to preempt Puerto Rico law. We need not address whether Puerto Rico insurance law would reverse-preempt Chapter II of the FAA were Article II (3) non-self-executing.

 

 

The McCarran-Ferguson Act calls for reverse-preemption only of "Acts of Congress"; any policy preference expressed within it regarding state regulation of insurance does not bear on the relationship between state law and a self-executing treaty provision. And the policy considerations weigh strongly in favor of enforcement here, as "the emphatic federal policy in favor of arbitral dispute resolution... applies with special force in the field of international commerce." Mitsubishi Motors Corp., 473 U.S. at 631; see also id. at 629 ("Concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' arbitration agreement, even assuming that a contrary result would be forthcoming in a domestic context.").

 

 

For the foregoing reasons, the judgment of the district court is affirmed.

 

 

 

 

(U.S. Court of Appeals for the First Circuit, May 19, 2023, Green Enterprises, LLC v. Hiscox Syndicates Limited at Lloyd’s of London; XL Catlin Lloyd’s Syndicate 2003; Amlin Lloyd’s Syndicate 2001; Canopius Lloyd’s Syndicate 4444; Noa Lloyd’s Syndicate 3902; Blenheim Lloyd’s Syndicate 5886; Brit Lloyd’s Syndicate 2987/2988, Docket No. 21-1542)

 

Nebraska Supreme Court, Callahan v. Brant, Docket No. S-21-1006, Cite as 314 Neb. 219

Insurance Law

 

Agents

 

Valuation

 

Total Loss: Measure of Recovery

 

Nebraska’s Valued Policy Statute

 

Statute Interpretation

 

Procedure: Possible Actions: Declaratory Judgment Action, Breach of Contract Action, Action for Specific Performance, Suit in Equity to Reform the Policy, Suit Alleging the Intentional Tort of Insurer Bad Faith, or Any Combination of Such Actions

 

Nebraska Law

 

 

 

Callahan filed this negligence action against insurer and its agent, seeking to recover damages after their home was destroyed in a fire. The district court granted summary judgment in favor of the insurer and its agent. Although our reasoning differs, we affirm the district court’s judgment.

 

 

In 2011, the Callahans purchased a Shelter Mutual Insurance Company (Shelter) homeowners insurance policy through a licensed insurance producer, Jeb Brant. Brant is a “captive” Shelter agent and exclusively sells Shelter insurance. Before the policy was issued, Brant used a reconstruction cost calculator tool to estimate the cost of rebuilding the Callahans’ home, using information obtained from the Callahans and from the Clay County assessor’s website. Brant prepared a report that estimated reconstruction costs at $250,481.

 

 

(…) It is undisputed that they subsequently purchased a replacement cost policy insuring their home for $250,481.

 

 

(…) In May 2019, the parties agree the Callahans’ home was totally destroyed by an electrical fire. The Callahans submitted a claim on the policy with Brant’s assistance, and it is undisputed that Shelter subsequently paid the Callahans all amounts due and owing under the policy. The Callahans allege that when they subsequently obtained a quote for the cost of rebuilding their home, they learned “the cost to rebuild was substantially higher than the amount of insurance coverage.”

 

 

In April 2020, the Callahans filed a complaint against Shelter and Brant, styled as claims for breach of contract, negligence, and negligent misrepresentation. The Callahans later stipulated to the dismissal of their breach of contract claim. Their remaining claims generally allege that Brant negligently advised them on the estimated replacement value of their home and negligently misrepresented the adequacy of their policy limits in the event of a total loss. The Callahans contend they reasonably relied on Brant’s statements and, as a result, sustained damages “in an amount to be proven at trial.” And they alleged Shelter was liable for Brant’s misrepresentations under a theory of respondeat superior.

 

 

The district court ultimately concluded the Callahans could not prevail on such a claim. It reasoned that even accepting as true the Callahans’ claims that Brant provided false information regarding the replacement value of their property and the adequacy of their policy limit, the Callahans could not have reasonably relied on such information because, under the terms of the policy and under Nebraska law, it was the Callahans’ duty and responsibility to know their coverage needs and to request the amount of coverage they wanted. The court also found the evidence was undisputed that the Callahans never asked Brant to provide them with a higher amount of coverage on their home or to procure any supplemental coverage.

 

See, Hobbs v. Midwest Ins., Inc., 253 Neb. 278, 570 N.W.2d 525 (1997); Hansmeier v. Hansmeier, 25 Neb. App. 742, 912 N.W.2d 268 (2018). (Fn. 3).

 

 

Nebraska’s valued policy statute conclusively establishes the true value of the Callahans’ loss in the event the property is wholly destroyed, and it precludes them from offering evidence that the true value was something other than the amount for which the home was insured.

 

 

Nebraska’s valued policy statute is currently codified at Neb. Rev. Stat. § 44-501.02 (Reissue 2021), and it provides: Whenever any policy of insurance is written to insure any real property in this state against loss by fire, tornado, windstorm, lightning, or explosion and the property insured is wholly destroyed without criminal fault on the part of the insured or his or her assignee, the amount of the insurance written in such policy shall be taken conclusively to be the true value of the property insured and the true amount of loss and measure of damages.

 

 

We discussed the public policy rationale behind the valued policy statute in Heady v. Farmers Mut. Ins. Co. There, we stated: “It is a well-known fact that it has been the practice of some fire insurance companies to insure property at any value the insured cared to put thereon without any investigation as to such value. The natural impulse of the insured was toward amply sufficient or even over valuation. The higher the valuation, the greater the premium. If there were no loss, the insurance company profited through the high valuation. If loss occurred, the insurer would contest the value or amount of recovery and the insured might recover less than the value stipulated in the policy, although he had honestly estimated the value at the time the insurance was taken and had paid premiums on the basis of such estimated value. This situation produced dissatisfaction and litigation. It was to correct this condition, that the valued policy statute was enacted.  .  .  .  Also, overvaluation was a temptation to commit arson, which might endanger lives or other property. The statute is not merely for the protection of the insured but ‘rests on considerations of public policy, and it is probable that the insured could not, even by express contract, relinquish the benefit of its provisions.’ . . .

 

 

Heady v. Farmers Mut. Ins. Co., 217 Neb. 172, 349 N.W.2d 366 (1984).

 

 

Heady expressly held that “the valued policy statute precludes the insurer from asserting as a defense to liability on its fire insurance contract the fact that its insured either affirmatively misrepresented or failed to disclose the actual value of the subject property.” Heady did, however, allow the insurer to offer evidence of a lower value for the limited purpose of showing the insured had a motive to commit arson, because such use was consistent with the valued policy statute.

 

 

We said in Heady that “‘neither party’” could evade the valued policy statute by avoiding the duty to investigate the value of the property before agreeing to a binding determination of value. This mutual duty encourages both the insurer and the insured to conduct a thorough and independent investigation into the value of the property to be insured before agreeing on a binding amount of coverage to be written into the policy, because in the event of a total loss, that policy limit becomes the conclusive measure of damages.

 

 

Malm v. State Farmers Ins. Co., 125 Neb. 594, 251 N.W. 260 (1933) (after total loss, insurer could not avoid paying policy limits by claiming insured falsely misrepresented actual value of insured building) (Fn. 31).

 

 

A suit on the policy after a total loss can take many forms—a declaratory judgment action, a breach of contract action, an action for specific performance, a suit in equity to reform the policy, a suit alleging the intentional tort of insurer bad faith, or any combination of such actions, just to list a few. And neither the plain language of the valued policy statute, nor any of its public policy objectives, confines its application to a single type of legal action between the insurer and insured. Construing the valued policy statute in a way that restricts its application exclusively to breach of contract actions would require us to read language into the statute that is not there, would undermine the statutory objectives, and would not place on the statute a reasonable construction that best achieves its recognized purpose. We thus decline the Callahans’ invitation to adopt a construction that restricts Nebraska’s valued policy statute to only certain actions.

 

 

(…) We are not suggesting that the valued policy statute will apply to preclude every claim of negligent misrepresentation by an insured against an insurer. But when the alleged misrepresentation pertains to the true value of the insured loss, the valued policy statute is plainly implicated.

 

 

 

 

(Nebraska Supreme Court, May 12, 2023, Callahan v. Brant, Docket No. S-21-1006, Cite as 314 Neb. 219, Per Curiam, Three Dissenters)

 

U.S. Court of Appeals for the Fifth Circuit, Windermere Oaks v. Allied World Specialty Insurance Comp., Docket No. 22-50218

Insurance Law

 

Exclusion

 

Exclusion of Contractual Liability

 

Breach of Fiduciary Duty

 

Ultra Vires Acts

 

Breach of the Duty to Defend

 

Claim Based on a Common-Law Duty  

 

Texas Law

 

 

 

 

Appeal from the United States District Court for the Western District of Texas USDC No. 1:21-CV-258

 

 

 

This insurance dispute turns on a simple principle of law: A claim for breach of fiduciary duty is not a claim for breach of contract, and is therefore not subject to exclusion from coverage under a contractual liability exclusion. That’s what the district court found here in granting summary judgment in favor of the insured. We accordingly affirm.

 

 

Allied World Specialty Insurance Company issued a WaterPlus Package Insurance Policy to the Windermere Oaks Water Supply Corporation. That policy includes coverage for Public Officials and Management Liability. But it also includes various exclusions from coverage. At issue in this appeal is the exclusion for contractual liability. That provision states that coverage excludes: “damages,” “defense expenses,” costs or loss based upon, attributed to, arising out of, in consequence of, or in any way related to any contract or agreement to which the insured is a party or a third-party beneficiary, including, but not limited to, any representations made in anticipation of a contract or any interference with the performance of a contract.

 

 

Three individual members and partial owners of Windermere brought a suit (the “Underlying Suit”) against it, its various officials, and relevant others. This suit alleges that Windermere sold a valuable tract of land at Spicewood Airport to a commercial entity controlled by Windermere board member Dana Martin “for pennies on the dollar.” Because of this sale—as well as a subsequent settlement that “left the . . . fire sale transaction largely intact and gave Martin even more valuable Windermere property for no consideration”—the suit contends that Windermere’s losses have exceeded $1,000,000, resulting in rate hikes and fee increases. In doing so, the suit claims that Windermere “exceeded its powers” and the board of directors “exceeded their authority and breached their duties,” specifically alleging various ultra vires acts committed in violation of Section 20.002(c) of the Texas Business Organizations Code. These included: the unauthorized conveyance of property; improper use of the cooperative’s assets; improper disbursement of the cooperative’s assets to benefit the directors; and failure to recover loss, as well as for breach of fiduciary duty. Plaintiffs in this case subsequently brought suit against Allied World for its failure to defend them in the Underlying Lawsuit. After both sides sought summary judgment on the issue of the duty to defend, the district court granted Plaintiffs’ motion and denied Allied World’s motion. Allied World subsequently sought entry of judgment under Federal Rule of Civil Procedure 54(b), which the district court granted. Allied World then filed its timely notice of appeal.

 

 

“The insured bears the initial burden of showing that there is coverage, while the insurer bears the burden of proving the applicability of any exclusions in the policy.” Guar. Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998). “In construing a contract, a court’s primary concern is to ascertain the intentions of the parties as expressed in the instrument.” Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 514 (Tex. 2014). “As with any other contract, the parties’ intent is governed by what they said.” Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006). See also Gilbert Texas Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010) (“We look at the language of the policy because we presume parties intend what the words of their contract say.”).

 

 

Under Texas’s so-called “eight-corners rule, the insurer’s duty to defend is determined by comparing the allegations in the plaintiff’s complaint to the policy provisions, without regard to the truth or falsity of those allegations and without reference to facts otherwise known or ultimately proven.” Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195, 199 (Tex. 2022). When applying the rule, “we give the allegations in the complaint a liberal interpretation.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). “In case of doubt as to whether or not the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in insured’s favor.” Id. (quotations omitted).

 

 

Or as this court has previously summed it up: “When in doubt, defend.” Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 369 (5th Cir. 2008).

 

 

Allied World contends that the district court was wrong to decline to apply the contractual liability exclusion to this case—and that the Underlying Lawsuit is indeed “based upon, attributed to, arising out of, in consequence of, or in any way related to the contract or agreement.” But the Underlying Lawsuit is not a suit for breach of contract. As Plaintiffs rightly point out, “the focus of the Underlying Lawsuit is, in fact, on the purported breach by . . . Plaintiffs of their fiduciary duties, by way of ultra vires acts and other misdeeds that gave rise to harm without regard to the ultimate contract.” These are claims that are “established at law”—not by contract—and “that could stand alone even if no contract ever existed.” See, e.g., Ewing Const. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 37 (Tex. 2014) (holding that a contractual liability exclusion did not apply to a claim based on a common-law duty to perform work with care and skill). The district court did not err in declining to apply the contractual exclusion.

 

 

Under the Texas Prompt Payment of Claims Act, Tex. Ins. Code § 542.060, an insurer’s breach of the duty to defend constitutes a per se violation. See, e.g., Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 652 (Tex. 2009). Allied World’s only arguments rely on the application of the contractual exclusion.

 

 

We therefore agree with Plaintiffs and the district court that Allied World is liable under the Act. We affirm.

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, May 9, 2023, Windermere Oaks v. Allied World Specialty Insurance Comp., Docket No. 22-50218)

U.S. Court of Appeals for the Fourth Circuit, Towers Watson & Co. v. National Union Fire Insurance Comp. of Pittsburgh, Docket No. 21-2396

Insurance Law

 

D&O Liability Insurance

 

Primary Policy and Excess Policies

 

“Bump-Up” Exclusion

 

“Loss”: Definition

 

“Acquisition”: Definition

 

Reverse Triangular Merger

 

Ambiguity Must Be Resolved Against the Policy’s Drafter

 

Diversity Jurisdiction

 

Forum State’s Choice-of-Law Rules

 

Declaratory Judgment Action

 

Virginia Law

 

 

 

 

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. (1:20-cv-00810-AJT-JFA)

 

 

Vacated and remanded by published opinion.

 

 

In 2015, Towers Watson & Co. (“Towers Watson”), a Delaware company headquartered in Virginia, purchased directors and officers (“D&O”) liability insurance coverage from several insurance companies, including National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) as the primary insurer. Following Towers Watson’s merger with another company, Towers Watson shareholders filed several lawsuits against Towers Watson’s chairman and CEO and others, alleging that the shareholders received below-market consideration for their shares in the merger. The litigation settled, and Towers Watson sought indemnity coverage from its insurers under the relevant D&O policies. The insurers refused the indemnity request, citing a so-called “bump-up” exclusion in the policies. This declaratory judgment action followed. The district court sided with Towers Watson and held that the bump-up exclusion “does not unambiguously” preclude indemnity coverage for the underlying settlements. Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. 1:20-cv-810 (AJT/JFA), 2021 WL 4555188, at *2 (E.D. Va. Oct. 5, 2021). In doing so, however, the court adopted an unduly narrow reading of the exclusion, finding ambiguity where none exists and ascribing specialized meanings to policy terms that the parties did not reasonably intend. We therefore vacate the district court’s judgment and remand for further proceedings.

 

 

National Union, a Pennsylvania company with its principal place of business in New York, insured Towers Watson under a D&O policy for the 2015 policy year. Along with the National Union primary policy, Towers Watson purchased several layers of excess D&O liability coverage from the remaining Appellant-insurance companies (together with National Union, the “Insurers”). Those excess policies “follow form” to the primary policy, meaning that they incorporate the same terms. For convenience, we refer to these primary and excess policies collectively as the “Policy.” Under the Policy, the Insurers agreed to cover the “Loss of any Organization . . . arising from any Securities Claim made against such Organization for any Wrongful Act of such Organization,” and the “Loss of an Organization that arises from any . . . Claim . . . made against any Insured Person . . . for any Wrongful Act of such Insured Person.” J.A. 62.2 “Loss” is a defined term that generally includes “damages, settlements, judgments,” and defense costs. J.A. 82.

 

 

The term “Organization” includes the “Named Entity,” J.A. 83, which is defined as “Towers Watson & Co.,” J.A. 57, and the term “Insured Person” includes any “Executive” or “Employee” of Towers Watson, J.A. 82. A “Securities Claim” includes any “Claim” alleging the violation of a “federal, state, local or foreign regulation, rule or statute regulating securities” brought against Towers Watson or its executives or employees related to a securities interest in Towers Watson, as well as a “Derivative Suit.” J.A. 86. (Fn. 2).

 

 

As stated above, the Policy includes a bump-up exclusion, which generally bars coverage for losses stemming from judgments or settlements in connection with claims against the insured seeking an increase, or “bump up,” in the consideration paid for a security. In relevant part, the bump-up exclusion provides: In the event of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased. J.A. 83. This appeal turns on the proper interpretation of this exclusion. Before undertaking that analysis, however, we first provide relevant context.

 

 

Over the next few years, former Towers Watson shareholders filed separate class actions against various parties involved in the merger, including Towers Watson’s former chairman and CEO John Haley. One action was filed in Virginia federal district court and two others were filed and later consolidated in the Delaware Court of Chancery. These actions, which asserted federal-securities-law claims and Delaware-state-law claims, respectively, both stemmed from allegations that Haley negotiated the Merger Agreement under an undisclosed conflict of interest: Haley would receive a compensation package worth up to $165 million if the deal closed. And because of this alleged conflict, Haley purportedly agreed to a below-market valuation of Towers Watson shares to ensure the merger’s success. Both shareholder actions ultimately settled for a total of $90 million—$75 million in the Virginia action and $15 million in the consolidated Delaware action.

 

 

While the Virginia and Delaware actions were pending, Towers Watson sought coverage under the Policy. The Insurers funded Towers Watson’s legal defense but denied indemnity coverage for any resulting judgment or settlement based on the bump-up exclusion. According to the insurers, the Virginia and Delaware actions sought increased consideration for Towers Watson shares, thereby triggering the Policy’s bump-up exclusion. In response, Towers Watson filed this declaratory judgment action in Virginia federal district court, seeking a declaration that the bump-up exclusion would not foreclose indemnity coverage.

 

 

Because this appeal invokes our diversity jurisdiction, we must apply the forum state’s choice-of-law rules to determine the governing substantive law. See Am. Online, Inc. v. St. Paul Mercury Ins. Co., 347 F.3d 89, 92 (4th Cir. 2003). In Virginia, the law of the place where a contract is formed controls the contract’s interpretation. See Dreher v. Budget Rent-A-Car Sys., Inc., 634 S.E.2d 324, 327 (Va. 2006). The parties agree that the Policy was formed in Virginia, so Virginia law governs its interpretation. In Virginia, “an insurance policy is a contract, and, as in the case of any other contract, the words used are given their ordinary and customary meaning when they are susceptible of such construction.” Hill v. State Farm Mut. Auto. Ins. Co., 375 S.E.2d 727, 729 (Va. 1989). If policy language is ambiguous, that ambiguity must be resolved against the policy’s drafter, which “is almost always the insurer,” Erie Ins. Exch. v. EPC MD 15, LLC, 822 S.E.2d 351, 355 (Va. 2019), as is the case here. This contra proferentem rule applies with particular force in cases involving the construction of coverage exclusions, see Seals v. Erie Ins. Exch., 674 S.E.2d 860, 862 (Va. 2009), where the insurer has the burden to prove that an exclusion applies, TravCo Ins. Co. v. Ward, 736 S.E.2d 321, 325 (Va. 2012). However, the Supreme Court of Virginia has “cautioned” courts to “resist” the “temptation” to “give up quickly on the search for a plain meaning by resorting to the truism that a great many words—viewed in isolation—have alternative, and sometimes quite different, dictionary meanings.” Erie Ins. Exch., 822 S.E.2d at 355. Otherwise, “the contra proferentem thumb-on-the-scale would apply to nearly every interpretation of nearly every insurance policy.” Id. For that reason, the Virginia high court has repeatedly instructed that policy language is truly ambiguous only where the “competing interpretations . . . are ‘equally possible’ given the text and context of the disputed provision.” Id. at 356 (citation omitted). In its effort to apply these principles, the district court found that “the Bump-Up Exclusion’s reference to ‘the acquisition’ does not unambiguously apply to the Merger” because “there is a reasonable, narrow reading of the Bump-Up Exclusion that excludes the Merger” and thus results in coverage for the insured. Towers Watson & Co., 2021 WL 4555188, at *13 & n. 29. Accordingly, the district court determined that the bump-up exclusion does not apply. We disagree. Our analysis naturally begins with the relevant exclusionary language: In the event of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased J.A. 83. As the district court correctly noted, the term “acquisition” “is not defined in the policy, so the term must be given its ordinary and accepted meaning.” Lower Chesapeake Assocs. v. Valley Forge Ins. Co., 532 S.E.2d 325, 330 (Va. 2000). To ascertain that ordinary meaning, we follow Virginia courts’ established practice of looking to the term’s dictionary definition. See, e.g., id. (consulting a dictionary for the plain meaning of an undefined term in an insurance policy); see also CACI Int’l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 158 (4th Cir. 2009) (following the same practice when interpreting an undefined term in a Virginia insurance policy). In doing so, we remain mindful of the context in which the term appears in the Policy. See Erie Ins. Exch., 822 S.E.2d at 355 (“The plain meaning of a word depends not merely on semantics and syntax but also on the holistic context of the word within the instrument.”). The term “acquisition” is defined as “the act or action of acquiring.” Webster’s Third New International Dictionary 19 (2002). The word “acquire,” in turn, means “to come into possession or control . . . of often by some uncertain or unspecified means.” Id. at 18; see also Acquisition, Black’s Law Dictionary (11th ed. 2019) (defining “acquisition,” in relevant part, as “the gaining of possession or control over something,” e.g., the “acquisition of the target company’s assets”). Given this plain and ordinary meaning, our limited and straightforward inquiry is whether, as a result of the executed Merger Agreement, another entity gained “possession” or “control” “of all or substantially all the ownership interest in or assets of” Towers Watson. We find that the answer is clearly yes.

 

 

As noted earlier, under the Merger Agreement, Willis-subsidiary Citadel merged into Towers Watson, with Towers Watson as the entity surviving the transaction. The Towers Watson shares were then canceled and delisted, and newly created Towers Watson shares were issued solely to Willis. These events collectively resulted in Towers Watson, with all its pre-merger assets, becoming a wholly owned subsidiary of Willis. See J.A. 757–58. (…) We think it clear that an ordinary person would understand that, through this reverse triangular merger, Willis obtained “possession” or “control” of—i.e., acquired—not just all the equity ownership interest in Towers Watson, but also all of Towers Watson’s assets.

 

 

We find the district court’s analysis flawed in several respects. To begin, nothing in the bump-up exclusion stipulates, or even hints, that the term “acquisition” was intended to refer only to a particular form of acquisition—i.e., a takeover—under Delaware law. Nor can such an intent be gleaned from any other provision of the Policy, which is governed not by Delaware law but by Virginia law. We will not assign a specialized meaning to a contract term absent some indication that the parties intended to do so. See PMA Cap. Ins. Co. v. US Airways, Inc., 626 S.E.2d 369, 372 (Va. 2006) (“The contract is construed as written, without adding terms that were not included by the parties.”); Worsham v. Worsham, 867 S.E.2d 63, 71–72 (Va. Ct. App. 2022) (stating that contract terms must be accorded their ordinary meaning unless “it is manifest from the instrument itself that other definitions are intended” (cleaned up)). The general principle that exclusions must be narrowly construed assuredly does not authorize us to take such a drastic step. Far from it. Courts are not at liberty to rewrite otherwise plain and unambiguous policy language in order to arrive at an insured-favorable outcome. See Va. Farm Bureau Mut. Ins. Co. v. Williams, 677 S.E.2d 299, 302 (Va. 2009) (“When a disputed policy term is unambiguous, we apply its plain meaning as written.”); see also Gov’t Emps. Ins. Co. v. Moore, 580 S.E.2d 823, 828–29 (Va. 2003) (reversing the trial court’s judgment for the insured where an exclusionary clause unambiguously excluded coverage).

 

 

Although the Merger Agreement between Towers Watson and Willis was governed by Delaware corporate law, the Policy we are called to interpret in this appeal is undisputedly governed by Virginia law. And, again, nothing in the Policy purports to apply Delaware corporate law to the bump-up exclusion’s interpretation. (Fn. 10).

 

 

Here, the bump-up exclusion refers to “the acquisition of all or substantially all the ownership interest in or assets of an entity.” Not further defined in the Policy, the term “acquisition” must be given its ordinary meaning, which is to gain “possession” or “control” of something. Thus, the bump-up exclusion’s “acquisition” requirement is satisfied where another entity secures “possession” or “control” “of all or substantially all the ownership interest in or assets of” Towers Watson. That is precisely what happened here as a result of the Willis-Towers Watson reverse triangular merger: Willis gained total possession and control of all ownership interest in Towers Watson, and with it all of Towers Watson’s assets.

 

 

In that respect, we also disagree with the district court that this initial reverse triangular merger involving Towers Watson and Citadel was merely a “short-lived transitional event” with no legal significance. Towers Watson & Co., 2021 WL 4555188, at *10. To the contrary, that legally distinct merger—and the sole merger contemplated by the Merger Agreement—carried with it distinct legal consequences. Not only was this initial merger the focus of the underlying shareholder litigation, but it was also the very transaction that resulted in Towers Watson becoming a wholly owned subsidiary of Willis, giving Willis total control of Towers Watson and its assets. The discrete legal events that subsequently transpired, namely, Towers Watson’s merging into another Willis subsidiary and disappearing, are beside the point.

 

 

Nor do we think it material that “Willis never actually ‘acquired’ any of the stock of the former Towers Watson Shareholders” but instead received newly created shares “never held by any Towers Watson shareholder.” Towers Watson & Co., 2021 WL 4555188, at *10. The bump-up exclusion is not triggered by the acquisition of any particular shares; it is triggered by the acquisition of “all or substantially all the ownership interest in or assets of an entity.” J.A. 83. Thus, what matters is whether Willis obtained possession or control of all or substantially all of Towers Watson’s equity or assets. And as detailed above, that is just what happened here.

 

 

To be clear, our narrow holding does not resolve the ultimate question whether the bump-up exclusion bars indemnity coverage to Towers Watson for the underlying settlements. Towers Watson has raised two independent bases for the exclusion’s facial inapplicability—that Towers Watson doesn’t constitute “an entity” and that the underlying settlements don’t represent an effective increase in consideration for the original Towers Watson shares. The district court declined to address those arguments below. We believe the proper course is to remand to the district court for resolution of those issues in the first instance, assuming of course that Towers Watson elects to raise them again.

 

 

 

 

(U.S. Court of Appeals for the Fourth Circuit, May 9, 2023, Towers Watson & Co. v. National Union Fire Insurance Comp. of Pittsburgh, Docket No. 21-2396, Published)

U.S. Court of Appeals for the Fifth Circuit, Noble House, L.L.C. v. Certain Underwriters at Lloyd’s, London, Subscribing to Policy MS-S 5722 (Marine Package), Docket No. 22-20281

Insurance Law

 

Forum Non Conveniens

 

Statute of Limitations (In the Foreign Forum)

 

Return-Jurisdiction Clause

 

Lloyd’s

 

 

 

 

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:21-CV-3585

 

 

 

Plaintiff-appellant Noble House, L.L.C. (“Noble House”) appeals a judgment of dismissal, without prejudice, based on forum non conveniens, granted in favor of defendant-appellee Certain Underwriters at Lloyd’s, London (“Underwriters”). The district court ruled that the parties’ insurance policy contained an enforceable forum-selection clause requiring litigation in the courts of England and Wales and that a return-jurisdiction clause was not required. We affirm.

 

 

On August 20, 2018, Noble House’s yacht lost its port-side rudder while entering a channel in the Bahamas. The following day, Noble House advised Underwriters, its insurer, of the casualty, which was allegedly covered by its marine-insurance policy. Noble House purchased the policy from Underwriters by way of a Texas-based insurance broker on February 1, 2018. The policy contained a forum-selection clause that selected the courts of England and Wales. Attached to the policy was a cover note with its own forum-selection clause that selected any court of competent jurisdiction within the United States. Allegedly, the cover note was not prepared by Underwriters, but by Noble House’s own insurance broker. Approximately two months after the casualty, on October 19, 2018, Underwriters issued a letter advising that coverage “may not exist.” Underwriters has not yet denied coverage. Noble House sued to recover its damages, first in the United States District Court for the Southern District of Florida on October 12, 2020. Months later, on March 2, 2021, that district court granted Underwriters’ motion to dismiss for lack of personal jurisdiction and dismissed the case without prejudice. Then, Noble House filed the instant suit in the United States District Court for the Southern District of Texas on November 1, 2021. Underwriters moved to dismiss on forum non conveniens grounds. On March 23, 2022, after hearing argument, the district court granted Underwriters’ motion and dismissed all claims without prejudice. Noble House filed a motion for reconsideration, which the court denied. This appeal followed.

 

 

As Underwriters correctly explains, the presence of a mandatory, enforceable forum-selection clause simplifies the “usual” analysis in two ways. Barnett, 831 F.3d at 300. “First, the plaintiff’s choice of forum merits no weight” because, by contracting for a specific forum, “the plaintiff has effectively exercised its ‘venue privilege’ before a dispute arises.” Atl. Marine, 571 U.S. at 63. Second, the private-interest factors “weigh entirely in favor of the preselected forum”; so, the “district court may consider arguments about public-interest factors only.” Id. at 64. “Hence, a valid forum-selection clause controls the forum non conveniens inquiry ‘in all but the most unusual cases.’” Barnett, 831 F.3d at 300 (quoting Atl. Marine, 571 U.S. at 66). “This harmonizes with the Supreme Court’s guidance that contractually selected forums often ‘figure centrally in the parties’ negotiations’ and become part of those parties’ ‘settled expectations’ –so if a plaintiff disregards such a contractual commitment, ‘dismissal works no injustice.’” Id. (quoting Atl. Marine, 571 U.S. at 66 & n.8).

 

 

We apply a “strong presumption” in favor of enforcing mandatory forum-selection clauses. Weber, 811 F.3d at 773 (citing Haynsworth,121 F.3d at 962-63). “The presumption of enforceability may be overcome, however, by a clear showing that the clause is ‘unreasonable’ under the circumstances.” Weber, 811 F.3d at 773 (quoting Haynsworth, 121 F.3d at 963). We’ve stated: Unreasonableness potentially exists where (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state. Haynsworth, 121 F.3d at 963 (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991), and M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 15, 18 (1972)).

 

 

If the forum-selection clause is both mandatory and enforceable, the court must decide whether, under Atlantic Marine’s balancing test, the case “is one of the rare cases in which the public-interest forum non conveniens factors favor keeping a case despite the existence of a valid and enforceable forum-selection clause.” Weber, 811 F.3d at 775-76.

 

 

Noble House’s insurance policy details that: “This Insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales.” The attached cover note provides: “It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Assured (or Reinsured), will submit to the jurisdiction of a Court of competent jurisdiction within the United States.” Importantly, the cover note states that it “is intended for use as evidence that insurance described herein has been effected against which a policy(ies) will be issued and that in the event of any inconsistency therewith the terms and conditions and provisions of the policy(ies) prevail.” (Fn. 2).

 

 

Even if this Court were to rely on the “available and adequate” standard, as Noble House suggests, Noble House’s argument that the courts of England and Wales are not “available and adequate” fails. By contracting for those courts’ exclusive jurisdiction, it necessarily agreed that such courts are available and adequate. See Atl. Marine, 571 U.S. at 63 (noting that a forum-selection clause “represents the parties’ agreement as to the most proper forum”) (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). (Fn. 4).

 

 

Noble House’s fear that its claims would be time-barred under the foreign fora’s statutes of limitations is not novel. Both the Supreme Court and this Court have acknowledged the risk of time-barred claims in the forum-selection-clause context. Unfortunately for Noble House, controlling caselaw affords it no sympathy. It is no secret that dismissal under forum non conveniens “makes it possible for plaintiffs to lose out completely through the running of the statute of limitations in the forum finally deemed appropriate.” Atl. Marine, 571 U.S. at 66 n.8. But dismissal of a suit “when the plaintiff has violated a contractual obligation by filing suit in a forum other than the one specified in a valid forum-selection clause ... works no injustice on the plaintiff.” Id. That is why we have said: “That an action may be time-barred in the chosen forum does not make a forum-selection clause unreasonable.” Barnett, 831 F.3d at 309 n.14.

 

 

(…) There is an express clause stating that the provisions in the policy supersede that in the cover note.

 

When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.” Atl. Marine, 571 U.S. at 64. Any grave inconvenience or unfairness of the selected forum Noble House “would suffer by being forced to litigate in the contractual forum as it agreed to do was clearly foreseeable at the time of contracting.” Bremen, 407 U.S. at 17-18. Because the applicable foreign statutes of limitations were certainly foreseeable at the time the parties executed the policy, their enforcement is not unfair.

 

 

(…) Courts enforce a forum-selection clause unless the contracted forum accords the plaintiff no remedies whatsoever. Id. at 774 & n.24; see also Barnett, 831 F.3d at 308 n.14. That’s because “it is the availability of a remedy that matters, not predictions of the likelihood of a win on the merits.” Weber, 811 F.3d at 774 (emphasis in original). Noble House’s failure to point to a substantive law that bars its claim for relief is fatal.

 

 

(…) “A return jurisdiction clause remedies the concern that the identified forum will remain available or that defendants will submit to its jurisdiction by permitting parties to return to the dismissing court should the lawsuit become impossible in the foreign forum.” Vasquez, 325 F.3d at 675. “The ‘failure to include a return jurisdiction clause in an f.n.c. i.e., forum non conveniens dismissal constitutes a per se abuse of discretion.’” Vasquez, 325 F.3d at 675 (quoting Robinson v. TCI/US West Communications, Inc.,117 F.3d 900, 907-08 (5th Cir. 1997)). “This is because, as this Court has repeatedly made clear, ‘courts must take measures, as part of their dismissals in forum non conveniens cases, to ensure that defendants will not attempt to evade the jurisdiction of the foreign courts.’” Rajet Aeroservicios S.A. de C.V. v. Castillo Cervantes, 801 F. App’x 239, 244 (5th Cir. 2020) (unpublished) (per curiam) (quoting Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1551 (5th Cir. 1991)). “Such measures often include agreements between the parties to litigate in another forum, to submit to service of process in that jurisdiction, to waive the assertion of any limitations defenses, to agree to discovery, and to agree to the enforceability of the foreign judgment.” Baris, 932 F.2d at 1551. “A return-jurisdiction clause assists in preventing defendants from circumventing these measures and ensures plaintiffs have the opportunity to proceed with the action in one of the forums.” Rajet Aeroservicios, 801 F. App’x at 244. The existence of a mandatory, enforceable forum-selection clause swallows the purpose of a return-jurisdiction clause whole. See Baris, 932 F.2d at 1551. As noted, an agreement is one of the express “measures” to ensure that defendants will not attempt to evade the jurisdiction of the foreign courts. See Baris, 932 F.2d at 1551. By agreement, Noble House and Underwriters are contractually bound to litigate their dispute in the courts of England and Wales. Accordingly, there is no concern that Underwriters will “attempt to evade jurisdiction of the foreign courts” or flout the litigation procedure and outcome. The clause ensures that Noble House will have the opportunity to proceed with the action in the foreign fora. See Rajet Aeroservicios, 801 F. App’x at 244. Moreover, should Underwriters evade the jurisdiction of the foreign courts, Noble House has a remedy in a breach-of-contract action, a protection which does not exist in the forum non conveniens context where there is no forum-selection clause. The parties’ agreement to proceed with the action in the selected fora obviates the need for a return-jurisdiction clause. See Baris, 932 F.2d at 1551.

 

 

A “total waiver of any statute of limitations defense” or laches defenses is similarly unnecessary. First, while such a waiver is one of the many “measures” provided to “ensure” that defendants will not evade the jurisdiction of foreign courts, none of those measures is mandatory. See id. (listing examples of protective measures that a court may often –but not “must” –utilize). Again, the primary concern that a defendant will evade jurisdiction is not present where the parties willingly submitted to foreign fora by agreement. So, waiver as a protective measure is redundant, gratuitous, and serves no purpose. Although not required, the district court confirmed that Underwriters’ statute-of-limitations defense did not encompass the time period including “the duration of the pendency of this action.” This exceeds what was expected of the court to ensure Underwriters would not “evade” jurisdiction. Accordingly, the district court did not err.

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, May 1, 2023, Noble House, L.L.C. v. Certain Underwriters at Lloyd’s, London, Subscribing to Policy MS-S 5722 (Marine Package), Docket No. 22-20281)