The opinion of the court was delivered by: Dearie, District Judge.
Plaintiff National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union") is the liability insurer of
the directors and officers of Ambassador Group, Incorporated
("Ambassador Group"), an insurance holding company whose two
principal subsidiaries, Ambassador Insurance Company and
Horizon Insurance Company, are presently in receivership.
National Union brought this statutory interpleader action,
see 28 U.S.C. § 1335, to facilitate the resolution of claims
that have been asserted against several directors and officers
Defendants Arnold Chait, Doris June Chait, Edward C. Chait,
Douglas M. Auster, Joseph F. Maresca, and Richard A. Tafro have
moved for partial summary judgment on their first counterclaim.
Defendants Sol Kroll and Edward M. Cameron, III have joined the
motion, and defendant Jay Wells has moved for partial summary
judgment on his counterclaim. The movants seek a declaration
that National Union is obligated to pay on behalf of these
individual defendants ninety-five (95) percent of the legal
fees and costs, as they are billed, in defending certain
actions which have been brought against them as officers or
directors of Ambassador Group or its subsidiaries.
The motions require interpretation of certain provisions of
the Directors and Officers Liability and Corporate
Reimbursement Insurance Policy issued by National Union to
Ambassador Group and its subsidiaries (referred to herein as
the "Policy" or the "National Union Policy"). The insuring
clause of the Policy provides for coverage
against loss (as hereinafter defined) arising from
any claim or claims which are first made against
the Insureds, jointly or severally, during the
policy period by reason of any Wrongful Act (as
hereinafter defined) in their respective
capacities as Directors or Officers.
Paragraph 2(c) of the Policy defines the term "loss" to include
"costs, charges and expenses . . . incurred in the defense of
actions, suits or proceedings and appeals therefrom." Paragraph
4(e) of the Policy sets forth various exclusions, which include
claims "brought about or contributed to by the dishonesty of
the Insured." Paragraph 4(e) also provides, however, that:
notwithstanding the foregoing the Insureds shall
be protected under the terms of this policy as to
any claims upon which suit may be brought against
them, by reason of any alleged dishonesty on the
part of the Insureds, unless a judgment or other
final adjudication thereof adverse to the Insureds
shall establish that acts of active and deliberate
dishonesty committed by the Insureds with actual
dishonest purpose and intent were
material to the cause of action so adjudicated.
Thus, unless a judgment establishes that the acts of the
Insureds were within the exclusion, National Union must provide
There is no dispute that the Insureds' legal expenses are
covered "losses" as defined in paragraph 2 of the Policy. The
question before the Court is whether the Policy requires
National Union to provide contemporaneous, as-billed
reimbursement of these expenses. For the reasons discussed
herein, this Court answers this question in the negative.
National Union argues that Endorsement No. 3 to the Policy
provides for a prioritization of payments which necessarily
precludes the interim advancement of defense costs.*fn2
Paragraph A of Endorsement No. 3 provides, in pertinent part,
that the Insurer shall pay 95% of all costs, charges and
expenses, subject to the following conditions:
1. If a payment not in excess of the Limit of
Liability has to be made to dispose of a claim,
costs, charges and expenses shall be payable up
to the Limit of Liability applicable under this
2. If the claim is successfully resisted by the
Insureds, costs, charges and expenses shall be
payable up to but not exceeding the Limit of
Liability under this policy.
National Union argues, and this Court agrees, that under
paragraph A of the Endorsement the claims of third parties for
injuries caused by the acts or omissions of the insured
officers and directors are superior to the Insureds' claims for
legal fees. Payment for the Insureds' costs, charges and
expenses is required only to the extent that payment for the
third-party claim has not exhausted the Policy's proceeds.
Obviously the interim reimbursement of legal fees could easily
deplete the ...