The opinion of the court was delivered by: Conboy, District Judge:
MEMORANDUM OPINION AND ORDER
This dispute centers around the interpretation of an exclusion
in a directors' and officers' liability policy. Both the
insured and the insurer have moved for summary judgment. The
insured, a company and its directors and officers (referred to
collectively as "Alfin"), seek, inter alia, a declaration
that the exclusion in issue does not exclude coverage for
certain lawsuits against the company and its officials.
The following facts are distilled primarily from the parties'
statements pursuant to Civil Rule 3(g) of the United States
District Courts for the Southern and Eastern Districts of New
York ("Rule 3(g) Statement"). We observe that Alfin moved for
summary judgment first, submitting a basically useless Rule
3(g) Statement in that it does not set out a "short and concise
statement of the material facts as to which [it] contends there
is no genuine issue of material fact to be tried." Civil Rule
3(g) of the United States District Courts for the Southern and
Eastern Districts of New York. Instead of setting out the
facts, Alfin's statement simply declares that certain documents
exist and are appended to certain affidavits. We would like to
make it clear that such a submission will not be countenanced
in the future. Furthermore, we note that Alfin also did not
submit, in accordance with the local rule, a statement
controverting the Rule 3(g) Statement by defendant Pacific
Insurance Co. ("Pacific") on its cross-motion for summary
judgment. Accordingly, we have deemed "admitted" all of the
material facts as set forth in Pacific's Rule 3(g)
In September of 1983, Alfin*fn2 made an initial public
offering of its stock. In connection with this offering. Alfin
obtained through the United States Fire Insurance Company a
policy of insurance protecting it in the event of claims based
on omissions or misrepresentations in the offering materials.
In late 1983, Alfin desired to purchase a directors' and
officers' liability insurance policy ("D & O policy"). Alfin
obtained proposals for such policies from three insurers —
National Union Fire Insurance Company, Federal Insurance
Company and the defendant Pacific. The proposals from National
and Federal called for higher premiums than the proposal from
Pacific. National offered a $3 million policy at a 1-year
pre-paid premium of 9.100. Federal quoted a $3 million 1-year
policy at a premium of $11,250. Both of these proposals
indicated the following exclusion from the coverage offered:
Special Exclusion for any claims based upon or arising out of
the public offering of stock to the general public through
Ladenburg, Thalman & Co., Inc., as provided in the Preliminary
Prospectus dated August 3, 1983.
By contrast, the proposal from Pacific quoted a $3 million
policy at a 3-year prepaid premium of $7,108. Under the
conditions of the policy, as listed in the proposal, the
following condition is listed:
Alfin, after comparing the proposals, ultimately procured a D &
O policy through Pacific. Pacific issued to Alfin Policy No. PI
020068 A & B (the "Policy"). Endorsement No. 6 to the policy as
issued reads as follows:
SECURITIES EXCHANGE COMMISSION EXCLUSION
IN CONSIDERATION OF THE PREMIUM CHARGES, IT IS UNDERSTOOD AND
AGREED THAT THE COMPANY SHALL NOT BE LIABLE TO MAKE ANY PAYMENT
IN CONNECTION WITH ANY CLAIM OR SUIT, INCLUDING BUT NOT LIMITED
TO SHAREHOLDERS' DERIVATIVE AND/OR REPRESENTATIVE CLASS ACTION
SUITS, BASED UPON OR ARISING OUT OF ANY OFFERING OR SALE OF
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE FEDERAL
SECURITIES ACT OF 1933 AND OR THE FEDERAL SECURITIES OF 1934
AND AMENDMENTS THERETO.
It is the interpretation of this exclusion that is at the crux
of the lawsuit.
Currently pending against the plaintiffs in this District are
three putative class actions, Hemming v. Alfin Fragrances,
Inc., et al., (S.D.N.Y. No. 86 Civ. 2563 (LBS)); Ryback v.
Alfin Fragrances, et al., (S.D.N.Y. No. 87 Civ. 4353 (LBS));
Antwiel v. Alfin Fragrances, et al., (S.D.N.Y. No. 88 Civ.
0525 (LBS)). Each of these actions alleges violations of
Section 10(b) of the Securities Exchange Act of 1934, and Rule
10b-5 promulgated thereunder. The named plaintiffs in each of
the suits purchased shares of Alfin not from the initial public
offering but on the open market of the American Stock Exchange.
Plaintiffs retained counsel to defend these actions, then
requested that Pacific cover the attorneys' fees pursuant to
the D & O Policy. Pacific advised Alfin of the former's belief
that these lawsuits "[fall] squarely within the ambit of
Exclusion 6" and, therefore, that "any liability that either
Alfin or its officers or directors may incur as a result of the
Hemming, Ryback, and Antwiel claims falls outside the scope
of coverage afforded by" the Policy. Affidavit of Kenneth I.
Schacter ("Schacter Moving Aff."), sworn to on November 3,
1989, Exhibit C. In light of this disclaimer of coverage, Alfin
filed this declaratory relief action. In the meantime, Alfin,
which is permitted pursuant to Section 6.06 of its bylaws to
indemnify its officers and directors to the fullest extent
permitted by law*fn3 for claims
arising out of civil or criminal actions or proceedings in
connection with their service as an officer or director of
Alfin, has incurred significant attorneys' fees and expenses in
the defense of these three actions.
The parties' positions can be summarized as follows. Pacific
believes that Endorsement No. 6 excludes coverage for all
claims based upon any violation of either the 1933 or 1934
Acts, which interpretation is fundamentally based on an elided
version of the exclusion (omitting the phrase "registered with
the Securities and Exchange Commission"). Alfin claims that
this exclusion is operative only against claims based on
violations arising out of the public offering of the
securities in 1983, and does not operate to exclude coverage of
claims arising out of purchases of stock in the open market.
This interpretation is founded primarily on the elided phrase
as well as the term "offering or sale of securities"
immediately preceding that phrase, which Alfin claims tracks
the language of the 1933 Act, the act relating to public
offerings of securities. Alfin points out that its initial
public offerings had to be registered under the 1934 Act as
well. Finally, Alfin directs attention to the fact that the
language of the exclusion was substantially modified in 1986,
to unambiguously exclude claims of fraud asserted by a
purchaser of the stock on the open market. See Alfin's
Memorandum of Law in Support of its Motion for Summary
Judgment, Exhibit 2. To Alfin, "[t]he fact that Pacific thought
it necessary to make dramatic changes in policy language . . .
shows that the first policy, if intended [by the insurer] to
cover the same ...