by Christopher Graham and Joseph Kelly

First Bank of Delaware, Inc. v. Fidelity and Deposit Company of Maryland, Case No. N11C-08-221 (Del. Super. Ct. Oct. 30, 2013

According to this Court, this was a case of an exclusion swallowing a coverage grant–so coverage was “illusory” and the exclusion shouldn’t apply. As explained below, the coverage in essence was for loss from certain unauthorized data use; and the exclusion applied to fraudulent data use. So this was problematic.

First Bank of Delaware contracted with Visa and Mastercard to provide debit card transaction services. First Bank processed those transactions using Data Access Systems’s (“DAS”) computers.

DAS’s servers were hacked resulting in millions of dollars in unauthorized customer withdrawals. Visa and Mastercard as a result imposed certain assessments on First Bank which First Bank paid.

First Bank then sought coverage for the assessments from Fidelity and Deposit Company of Maryland under a D&O SelectPlus Insurance Policy. Fidelity denied coverage, and First Bank sued.

Electronic Risk Coverage

First Bank sought coverage under the policy’s “Electronic Risk Liability” insuring agreement, which provided:

The Insurer will pay on behalf of the Insured all loss resulting from any electronic risk claim first made against the Insured during the policy period or the extended reporting period, if applicable, (1) for an electronic publishing wrongful act or (2) that arises out of a loss event.

“Electronic Risk Claim” meant “a written demand for monetary damages or nonmonetary relief.”

“Loss Event” included “any unauthorized use of, or unauthorized access to electronic data or software with a computer system.”

“Computer System” included “related communications networks including the internet, used by the Company or used to transact business on behalf of the Company.”

In considering summary judgment cross-motions, the Court found First Bank established that: Visa and Mastercard’s assessments were loss resulting from an electronic risk claim, namely, by Visa and MasterCard; against the Insured, namely, First Bank; during the policy period; and that arises out of a loss event, namely, unauthorized access to electronic data with a computer system, DAS’s computers. Fidelity argued the unauthorized access on DAS’s computers wasn’t with a “computer system” used to transact bsuiness on First Bank’s behalf. The Court disagreed, explaining that the DAS computers were used to transact business on behalf of First Bank because First Bank earned fees from debit card transactions conducted on DAS’s computers.

So First Bank’s loss was within the scope of the insuring agreement.

Fraud Exclusion

The Court’s analysis then shifted to Exclusion M which excludes coverage under the “Electronic Risk Liability” insuring agreement for any claim against First Bank “based upon or attributable to or arising from the actual or purported fraudulent use by any person or entity of any data or in any credit, debit, charge, access, convenience, customer identification or other card, including, but not limited to the card number.”

The Court found that First Bank’s loss fell within the scope of the exclusion because “the fraudulent use of data and subsequent Visa and MasterCard assessments are meaningfully linked in a way that qualifies as ‘arising from’ under Exclusion M.”

Illusory Coverage

But then First Bank argued that Exclusion M rendered the Electronic Risk Liability’ coverage part illusory.

The Court agreed stating:

…[W]hen the burden shifts back to First Bank to prove that Exclusion M should not be applied, the Court considers that a grant of coverage should not be swallowed by an exclusion. The principle that a grant of coverage should not be rendered illusory protects the reasonable expectations of the purchaser.

and

The Court finds that applying Exclusion M would swallow the coverage granted…for “any unauthorized use of, or unauthorized access to electronic data…with a computer system.” It is theoretically possible that an example of non-fraudulent unauthorized use of data exists. However, in the context of this Policy, all unauthorized use could be, to some extent, fraudulent. The abstract possibility of some coverage surviving the fraud exclusion is not sufficient to persuade the Court to apply an exclusion that is almost entirely irreconcilable with the Loss Event coverage. The Court finds that First Bank met its burden to prove that an exception prevents the application of Exclusion M.

Tags: D&O, illusory coverage, electronic risk liability, bank, fraud

by Christopher Graham and Joseph Kelly

A recent article from Business Insurance by Judy Greenwald — “Private Companies See Costs Rise for Management Liability Coverage” — concludes that EPL claims and increased mergers and acquisitions litigation are leading to higher private corp. D&O rates.

Coincidentally, Transched Systems, Ltd. v. Federal Ins. Co., Case No. 12-939-M (D. R.I. Aug. 2, 2013) is a recent case involving coverage under a private corp. D&O policy for an M&A gone bad. The United States District Court for Rhode Island denied Federal’s motion to dismiss, which was based on fraud and contract exclusions.

Federal issued a D&O policy to Versyss Transit Solutions, LLC, Versyss Commercial Systems, LLC, and Holbrook Systems, Inc. (“Versyss”). Transched Systems, Ltd. obtained a jury verdict against Versyss for: (1) breach of contract regarding misrepresentations and warranties in an asset purchase agreement (“APA”); (2) breach of the implied covenant of good faith and fair dealing; and (3) intentional misrepresentations. Federal defended Versyss, but denied any duty to indemnify, citing the policy’s fraud and contract exclusions. Versyss didn’t fulfill the judgment so Transched sued the D&O insurer under Rhode Island’s direct action statute for a declaration of coverage.

Fraud exclusion

The policy’s fraud exclusion excludes coverage for Claims:

based upon, arising from, or in consequence of any deliberately fraudulent act or omission or any willful violation of any statute or regulation by such Insured, if a final and non-appealable judgment or adjudication adverse to such Insured establishes such a deliberately fraudulent act or omission or willful violation. (emphasis added).

Federal argued the exclusion applies because there was a verdict against Versyss for deliberately fraudulent conduct. Transched countered that the fraud was by Versyss’s Vice President (who wasn’t a party and didn’t seek coverage), and, thus, it can’t be imputed to Versyss.

The court found that the fraud exclusion applies “only if ‘such Insureds’ committed a deliberately fraudulent act. By using the term ‘such Insured,’ the fraud exclusion is focused upon deliberate fraud committed by the particular Insured that is seeking coverage, in this case, Versyss.”

While the Vice President’s fraudulent conduct was imputed to Versyss for liability purposes; that wasn’t enough for the fraud exclusion to apply.

For purposes of the fraud exclusion, the Court looked to the policy’s “Severability of Exclusions” clause, which provides:

With respect to Exclusions (A)(10)[fraud exclusion]…: … (2) only facts pertaining to and knowledge possessed by any past, present or future Chief Financial Officer, President, Chief Executive Officer or Chairperson of any Insured Organization shall be imputed to any Insured Organization to determine if coverage is available.

The Vice President was not included in the list of individuals whose acts could be imputed to Versyss for purposes of the fraud exclusion, and, thus, the court found the fraud exclusion inapplicable.

Contract exclusion

The policy’s contract exclusion excludes coverage for Claims:

based upon, arising from, or in consequence of any actual or alleged liability of an Insured Organization under any written or oral contract or agreement, provided that this Exclusion (C)(2) shall not apply to the extent that an Insured Organization would have been liable in the absence of the contract or agreement[.]

Federal argued that “arising from” is broad and means “originating from, growing out of, flowing from, incident to or having connection with” a contract. Federal argued further that Versyss’s VP made intentional misrepresentations inducing Transched to enter into the APA and that the misrepresentations were in the APA and, thus, Transched’s intentional misrepresentation claim arose from the asset purchase agreement.

Transched argued the exception to the exclusion applied – namely, that the contract exclusion doesn’t apply if liability was independent of the contract.

The court rejected Federal’s contract exclusion argument finding that the misrepresentations here occurred months before execution of the asset purchase agreement and, thus, the misrepresentations were actionable independent of the APA.

Tags: Rhode Island, D&O insurance, EPL, fraud exclusion, contract exclusion, M&A

by Christopher Graham and Joseph Kelly

As every D&O insurer knows, the hourly rates of independent counsel can far exceed an insurer’s panel rates.

Here’s an interesting article from “Coverage Opinions” discussing the Colorado District Court’s take on the issue — albeit outside of the context of D&O insurance — in Azar & Associates, P.C. v. Farmers Ins. Exchange Case No. 13-cv-00658 (D. Colo. Sept. 26, 2013).

Tags: D&O insurance, independent counsel, rates

by Christopher Graham and Joseph Kelly

The Clark School for Creative Learning, Inc. v. Philadelphia Indemnity Insurance Company, Case No. 13-1171 (1st Cir. Oct. 23, 2013)(Massachusetts)

Philadelphia Indemnity issued a D&O policy to The Clark School for Creative Learning, Inc. with a policy period of July 1, 2008 to July 1, 2009.

Clark School was sued during the policy period by two of the school’s donors seeking return of a $500,000 gift who claimed their donation was induced by misrepresentations. The case settled and Clark School returned some of the gift.

Clark School then filed suit against Philadelphia Indemnity seeking defense and indemnity coverage. The District Court granted summary judgment to Philadelphia Indemnity based on the policy’s “KNOWN CIRCUMSTANCES REVEALED IN FINANCIAL STATEMENT EXCLUSION.” That exclusion provides, in pertinent part, that there’s no coverage for any losses” in any way involving any matter, fact, or circumstance disclosed in connection with Note 8 of the [School’s] Financial Statement.” Note 8 of the Financial Statement described the donor’s gift and referred to Note 7 which further described their gift.

Clark School appealed arguing that Note 8 was limited to the School’s financial difficulties and so the exclusion was limited to losses resulting from the school’s financial difficulties. The disagreed noting that Clark School’s reading of the exclusion was factually incorrect; it explicitly referenced the donor’s gift.

Clark School also argued that ejusdem generis requires that “in any way involving” in the exclusion be interpreted in light of the earlier phrases in the exclusion: “based upon, arising out of, directly or indirectly resulting from or in consequence of.” Clark School claimed that because the earlier clauses including a notation of causation, then “in any way involving” must as well. The court disagreed noting that: (1) “or in any way involving” is “a mop-up clause intended to exclude anything not already excluded by the other clauses; and (2) the word “or” is used in the disjunctive sense and indicates that “in any way involving” is “a separate item in the list that goes beyond the scope of the other terms.” The 1st Circuit further noted that even if causation were required, causation exists as Clark School’s losses were caused by the school’s alleged misrepresentations about the donor’s gift.

Clark School lastly argued the plain language reading of the exclusion must give way to Clark School’s reasonable expectations. Clark School claimed that it couldn’t have known the exclusion would apply to the gift because suit hadn’t been filed and it wasn’t a “known” circumstance. That argument was rejected because the exclusion clearly referred to the gift. The court also noted that “when a contract is not ambiguous, a party can have no reasonable expectation of coverage when that expectation would run counter to the unambiguous language of an insurance policy.”

Tags: Massachusetts, D&O, insurance, known circumstances exclusion

by Christopher Graham and Joseph Kelly

The Zodiac Group, Inc. v. Axis Surplus Insurance Company, Case No. 13-10941 (11th Cir. Oct. 23, 2013)(Florida)

Axis issued a professional liability policy to Zodiac Group, Inc. and two individuals (collectively, “Zodiac”). Zodiac offers “psychic” hotline telephone services.

In November 2001, Zodiac entered into an agreement under which Linda Georgian, a renowned pyschic and tv host, agreed to endorse Zodiac’s services. In March 2007, the agreement ended.

In April 2008, Georgian sued Zodiac in Florida state court alleging that Zodiac used her name and likeness after the agreement expired. In November 2009, Gregorian’s complaint was dismissed without prejudice for lack of prosecution. In January 2010, Georgian sued Zodiac in federal court with a complaint predicated on the same wrongful conduct as her state court complaint. The parties ultimately settled.

Axis issued consecutive professional liability policy to Zodiac with policy periods of October 1, 2008 to October 1, 2009 and October 1, 2009 to October 1, 2010.

The Axis policy provides coverage for claims arising from “interference with rights of privacy or publicity, including … commercial appropriation of name or likeness.”

The Axis policy provides that “all Claims arising from the same Wrongful Act” are deemed to have been made on the same date; and all wrongful acts “related by common facts, circumstances, transactions, events, and/or decisions … as one Wrongful Act.”

After the federal court complaint was filed in January 2010, Zodiac notified Axis of the litigation. Axis denied coverage and refused to defend because the claims in the federal complaint were “first made” before the October 1, 2008 to October 1, 2009 policy period.

Zodiac subsequently filed suit against Axis seeking a declaration of coverage. The 11th Circuit noted that the wrongful acts alleged in Georgian’s state and federal complaints

The 11th Circuit dismissed Zodiac’s complaint because “a condition precedent to coverage under the Policy was that the claims have been ‘first made … during the Policy Period’ from October 2008 to October 2010. Because all claims in Georgian’s state and federal complaints ‘aros[e] from the same Wrongful Act’ and because the Policy deemed the claims for that same Wrongful Act to have been first made in April 2008, the claims in Georgian’s federal complaint were not ‘first made’ during the policy period.”

by Christopher Graham and Joseph Kelly

Protection Strategies, Inc. v. Starr, Case No. 1:13-cv-00763 (E.D. Va. Sept. 10, 2013)

Starr issued a “Resolute Portfolio for Private Companies” policy to Protection Strategies, Incorporated (“PSI”) which provided coverage for PSI and its officers.

PSI received a February 1, 2012 search and seizure warrant and subpoena from the NASA Office of the Inspector General (“OIG”) and a June 2012 letter from U.S. Attorney for the Eastern District of Virginia indicating that it was investigating PSI for civil liability related to PSI’s participation in the Small Business Administration Section 8(a) program.

PSI retained counsel and submitted its counsel’s invoices to Starr. Starr refused to reimburse for defense costs stating “the NASA Subpoena [and] Search and Seizure Warrant … are not demands for relief or proceedings commenced by the service of a complaint or similar document,” and thus “there is no coverage or reimbursement available for the invoices submitted by Dickstein Shapiro as there is no Claim against PSI.”

Starr’s policy defines “Claim” as:

any “written demand for monetary, non-monetary, or injunctive relief
made against an Insured” and any “judicial, administrative, or
regulatory proceeding, whether civil or criminal, for monetary,
non-monetary or injunctive relief commenced against an Insured … by
(i) service of a complaint or similar pleading; (ii) return of an
indictment, information, or similar document (in the case of a
criminal proceeding); or (iii) receipt or filing of a notice of
charges.”

The court found Starr had a duty to defend PSI because:

“[t]he search warrant was a written order demanding non-monetary
relief in the form of PSI’s obligation to turn over numerous files and
records. Both the warrant and the subpoena were a result of legal
proceedings that required a finding of probable cause, leaving no
question that the government had identified PSI as a target for
criminal and civil liability.”

Tags: Virginia, D&O, duty to defend, search warrant, subpoena

by Christopher Graham and Joseph Kelly

Scottsdale Insurance Company v. Alabama Municipal Insurance Corporation, Case No. 2:11-cv-668-MEF (M.D. Ala. Sept. 16, 2013)3

Scottsdale issued a professional liability policy to Alabama Municipal Insurance Corporation (“AMIC”). AMIC is a non-profit mutual insurance company that issues insurance policies to Alabama governmental entities.

AMIC issued an insurance policy to the Town of Woodland, Alabama that covered, in pertinent part, property damage caused by an accident resulting from the use of a covered automobile with a $2 million occurrence limit. On November 24, 2009, a covered automobile was involved in a single-vehicle accident in Georgia resulting in injuries to two passengers and ultimately one passenger’s death. The passengers sued the driver and and the Town of Woodland in Georgia; AMIC defended; and the passengers won a $4 million judgment. Subsequently, the Georgia court issued a declaration that AMIC’s $2 million limit applied rather than the $100,000 per occurrence limit under Alabama’s law that limits municipal liability. AMIC had argued it only would be liable for $200,000 under that Alabama law — $100,000 for the driver and $100,000 for the Town.

AMIC, the driver, and the Town subsequently: (1) filed suit in Alabama seeking a declaration that the Alabama limit on municipal liability applied to the Georgia judgment; and (2) appealed the Georgia declaratory judgment. Argument on the Georgia appeal was set for July 14, 2011.

Meanwhile, on January 24, 2011, the passengers sued AMIC for bad faith failure to settle within policy limit, asserting standing to sue under AMIC’s insurance policy. The passengers sought $1.99 million for AMIC’s rejection of its earlier settlement demand (passengers had offered to settle for $2 million). The passengers went on to win the $4 million judgment after AMIC rejected its demand. The passengers in their bad faith case sought the excess $2 million of the $4 million verdict from AMIC.

AMIC tendered the bad faith suit to Scottsdale. NAMICO was Scottsdale’s administrator for AMIC’s claim. NAMICO defended under a February 2, 2011 general reservation of rights. NAMICO subsequently issued a specific reservation of rights letter that listed the contractual obligation exclusion, among other exclusions, as a potential reason to deny coverage. NAMICO and defense counsel expressed doubt that the Alabama law would be found to apply.

The passengers offered to settle the bad faith case for $2 million. AMIC still felt strongly that the Alabama law would apply so it didn’t want to settle. NAMICO in turn raised the “hammer clause” from Scottsdale’s policy under which Scottsdale can stop defending a claim if its insured refuses to accept a settlement recommended by Scottsdale. NAMICO warned AMIC that if it didn’t agree to settle, NAMICO would stop defending and that AMIC would be responsible for its own defense.

AMIC then offered to pay $200,000 towards settlement (the amount it at least owed if the Alabama law applied) and split the remaining $1.8 million settlement payment with Scottsdale. Scottsdale agreed but reserved its right to recover its $900,000 payment. The passengers bad faith subsequently settled for $2 million and Scottsdale sought a declaratory judgment that it wasn’t obligated to pay its share of the settlement because of the Scottsdale policy’s “contractual obligation” exclusion.

THE SCOTTSDALE POLICY

Scottsdale’s policy covered “all LOSS resulting from a CLAIM alleging an act, error or omission in the performance of PROFESSIONAL SERVICES…”; and among the “PROFESSIONAL SERVICES” covered by the policy are “claim handling and adjusting.”

Scottsdale’s policy excludes coverage for:

I. Any CLAIM arising from, based upon, attributable to, or related in any way (directly or indirectly) to any contract obligation, whether real or alleged, assumed by or imposed upon an INSURED arising out of:

1. any policy or contract of insurance, reinsurance, insurance pool, suretyship, annuity or endowment; or
2. any written contract, unless the INSURED would have been liable in the absence of such contract.

Scottsdale’s policy also contained the hammer clause mentioned above.

DISCUSSION

As a threshold matter, the court rejected AMIC’s argument that the initial general reservation of rights was too general to deny coverage and that the subsequent specific reservation of rights was untimely. The court noted that under Alabama law, “a general reservation of rights is sufficient to allow an insurer to later deny coverage under a specific policy exclusion” and, thus, the general reservation of rights was sufficient to reserve Scottsdale’s right to deny coverage.

AMIC argued that the contract exclusion doesn’t apply to exclude coverage because it renders Scottsdale’s coverage illusory. AMIC argues that since it conducts all its business through insurance contracts, if liability incurred under insurance contracts is excluded, then there’s no coverage under the policy.

The court rejected AMIC’s argument that the exclusion makes Scottsdale’s coverage illusory, noting that the policy provides coverage for errors and omissions arising from claims handling and the exclusion “simply distinguishes between liability incurred by AMIC for breach of contract with its insureds, and liability incurred for negligent acts and omissions committed by AMIC in handling claims arising from its insurance contracts.” The court further stated “the policy does not require Scottsdale to take the place of AMIC with respect to AMIC’s insurance contracts.”

AMIC argued further that the contract exclusion doesn’t apply to exclude coverage because it was sued for bad faith — a tort — rather than for breach of contract. The court rejected this argument as well, noting that the relevant inquiry is whether AMIC’s loss arose out of its contractual obligations to its insured; the bad faith suit arose out of AMIC’s refusal to meet its contractual obligations to its insureds.

Tags: Alabama, E&O, insurance, contract exclusion

by Chris Graham and Joseph Kelly

National Reimbursement Group, Inc. v. Gemini Insurance Company, Case No. 5:13-CV-145(MTT) (M.D. Ga Aug. 21, 2013)

The Insured provides medical billing and collection services to its customers. The Insured was advised by a special agent of the Department of Health and Human Services that he was investigating a former employee of the Insured for embezzlement from one of Insured’s customers.

The Insured gave Gemini notice of a potential claim for negligent supervision under its professional liability policy issued by Gemini. Gemini denied coverage. The Insured’s customer then made a demand for repayment of its losses relating to the embezzlement. The Insured made another coverage demand and Gemini again denied. The Insured settled with its customer and then filed suit against Gemini.

Gemini moved to dismiss arguing the Insured’s claim was excluded under three exclusions under the policy, including a dishonesty/fraud exclusion. Applying Georgia law, the court granted Gemini’s motion to dismiss.

The dishonesty/fraud exclusion bars coverage for claims “Arising Out of any actual or alleged … [c]riminal, fraudulent, dishonest, or knowingly wrongful act or omission committed by or with the knowledge of any Insured.” The policy defined “Arising Out Of” as “connected to, incidental to, originating from or growing out of, directly or indirectly resulting from.” The court concluded that the Insured’s negligent supervision claim wouldn’t exist but for the embezzlement so it arose out of the embezzlement.

by Chris Graham and Joseph Kelly

PCCP LLC, et al v. Endurance American Specialty Insurance Company (N.D. Cal. August 13, 2013)

Endurance provided real estate investor and lender plaintiffs with a claims made and reported professional liability policy with a policy period from March 18, 2009 to March 18, 2010. The policy included a 60-day “Automatic Extended Reporting Period” (“AERP”) upon non-renewal of the policy.

On November 19, 2009 — during the policy period — plaintiffs were named as third-party counterclaim defendants in a Hawaii state court lawsuit about a failed real estate development. But, plaintiffs didn’t notify Endurance until April 21, 2010 during the AERP. Endurance denied coverage and plaintiffs filed suit against Endurance. Endurance then successfully moved for summary judgment.

The Insuring Agreement of the policy provided, in pertinent part:

“[Endurance] shall pay on behalf of [plaintiffs] all Loss resulting from any Claim … first made against [plaintiffs] and reported to [Endurance] in writing during the policy period or any applicable Extended Reported Period for any Wrongful Act.”

Regarding claims reporting, the policy provided:

“As a condition precedent to coverage under this Policy, [plaintiffs] shall provide [Endurance] written notice of any Claim … made against any Insured as soon as practicable after the President, Chief Executive Officer, Chief Financial Officer, General Counsel, Risk Manager or Director of Human Resources of the Named Insured becomes aware of such Claim …, but in no event later than: (1) the expiration date of this Policy; (2) the expiration date of the Automatic Extended Reporting Period;…”

And regarding the AERP, the policy provided:

“If the Company or the Named Insured shall cancel or refuse to renew this Policy, then the Company shall provide the Named Insured an automatic and noncancellable extension of this Policy, subject otherwise to its terms, Limits of Liability, exclusions and conditions, to apply to Claims first made against the Insured during the sixty (60) days immediately following the effective date of such nonrenewal or cancellation, for any Wrongful Act committed before the effective date of such nonrenewal or cancellation and After the Retroactive Date (if any) and otherwise covered by this insurance. This Automatic Extended Reporting Period shall terminate after sixty (60) days from the effective date of such nonrenewal or cancellation.”

Applying California law, the court found the policy unambiguous stating “[t]he specific terms of the AERP only ‘apply to claims first made against the Insured during the sixty (60) days immediately following the effective date of [the Policy’s] nonrenewal or cancellation, for any Wrongful Act committed before the effective date of such nonrenewal or cancellation … and otherwise covered by this insurance.” The court noted the effect of the AERP language is “to provide coverage when a wrongful act occurs during the policy period but the claim based on that wrongful act only materializes in the sixty days after the policy period, provided that the claim is reported within those sixty days.

Here, the AERP didn’t apply to the plaintiffs’ claim because the claim wasn’t first made within the AERP. Rather, plaintiffs’ claim was “first made” during the policy period but not reported during the policy period. Plaintiffs’ claim thus was untimely.

The court also reaffirmed the notice-prejudice rule doesn’t apply under California law to claims made and reported policies because the purposes of such policies “to allow insurers to ‘close their books’ on a policy by a date certain, and thus be able to price policies more accurately.”

by Chris Graham and Joseph Kelly

Screen Actors Guild Inc. v. Federal Ins. Co., Case No. CV 11-07123 (C.D. Cal. July 11, 2013)

Ken Osmond — the actor who played Eddie Haskell in “Leave it to Beaver” — filed a class action suit in September 2007 against SAG claiming that it collected $8 million in foreign royalties but didn’t distribute the royalties to its members as required by a collective bargaining agreement.

Federal agreed to defend, but not indemnify, SAG. SAG ultimately settled, agreeing to a payment plan for royalties due, a $15,000 “enhancement” payment for lead plaintiff Osmond, and $315,000 for class counsel’s fees. SAG sued Federal when it wouldn’t contribute for the enhancement payment or class counsel’s fees.

The District Court granted Federal summary judgment stating:

“[I]f a contracting party fails to pay amounts due under a lawful contract and is sued for that failure to pay, it cannot then obtain a windfall by having by having its payments covered by an insurance policy covering only ‘wrongful acts.'”

Citing to Health Net, Inc. v. RLI Ins. Co., 206 Cal. App. 4th 232, 141 Cal. Rptr. 3d 649 (2012), the District Court concluded:

“[I]f the entire action alleges no covered wrongful act under the policy, coverage cannot be bootstrapped based solely on a claim of attorneys fees.”