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WEDTECH CORP. v. FEDERAL INS. CO.

June 11, 1990

WEDTECH CORP., F/K/A WELBILT ELECTRONICS DIE CORP., AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF WEDTECH F/K/A WELBILT ELECTRONIC DIE CORP., PLAINTIFFS,
v.
FEDERAL INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Sand, District Judge.

OPINION

This action arises from a dispute concerning two policies for directors and officers liability insurance which obligated an insurance company to pay certain losses for which an insured corporation indemnified its officers and directors. The defendant insurance company moves to dismiss on the grounds that plaintiffs' single claim for a declaratory judgment that the policies are not void ab initio is not ripe, that the complaint has not alleged that certain conditions precedent occurred, and that plaintiffs do not have standing. Defendant moves in the alternative for a more definite statement. Plaintiffs cross move for summary judgment on their claim. For the reasons stated below, defendant's motion is denied and plaintiffs' motion is granted.

Background

On October 1, 1984, plaintiff Wedtech Corp. ("Wedtech"), now a debtor in a Chapter 11 bankruptcy proceeding before the United States Bankruptcy Court, applied to defendant Federal Insurance Company ("Federal") to obtain directors and officers ("D & O") liability insurance coverage for its directors and officers and for the corporation itself. On or about October 4, 1984, Federal issued to Wedtech a policy to cover the period from September 29, 1984 until September 29, 1985. The policy provided that under certain conditions Federal would pay on behalf of Wedtech:

  all loss for which [Wedtech] grants
  indemnification to each [officer and director],
  as permitted or required by law, which such
  [officer and director] has become legally
  obligated to pay on account of any claim(s) made
  against him, individually or otherwise, during or
  after the Policy Period for a Wrongful Act . . .

The policy defined "loss" as:

  the total amount which any Insured Person(s)
  become legally obligated to pay on account of all
  claims made against them for Wrongful Acts with
  respect to which coverage hereunder applies,
  including, but not limited to, damages,
  judgments, settlements, costs and Defense Costs.

The policy further indemnified directors against claims for which they were not indemnified by Wedtech.

Additional provisions in the policy addressed representations by the insureds and severability. These provisions provided:

    In granting coverage under this policy to any
  one of the Insureds, the Company has relied upon
  the declarations and statements in the written
  application for coverage. All such declarations
  and statements are the basis of such coverage and
  shall be considered as incorporated in and
  constituting part of the policy.
    The written application for coverage shall be
  construed as a separate application for coverage
  by each of the Insured Persons. With respect to
  the declarations and statements contained in such
  written application for coverage, no statement in
  the application or knowledge possessed by any
  Insured Person(s) shall be imputed to any other
  Insured Person(s) for the purpose of determining
  the availability of coverage with respect to
  claims made against any Insured Person(s) whether
  or not the Insured Organization grants
  indemnification.

Federal issued a second policy with substantially identical terms for the period from September 29, 1985 to September 29, 1986. Prior to the expiration of the second policy, Federal notified Wedtech that it was modifying the terms of all of its D & O policies and that pursuant to New York Insurance Law the term of the policy was automatically extended until November 22, 1986.

On or about November 19, 1986, Wedtech notified Federal that it had become the subject of government investigations. A series of lawsuits in which Wedtech's former officers and directors are named as parties has since been consolidated for pre-trial purposes before this Court under the caption In Re Wedtech Securities Litigation (MDL 735). Several former directors and officers of Wedtech have also been convicted of various crimes.

By letter dated November 20, 1986, Federal informed Wedtech that it was cancelling Wedtech's insurance, effective January 19, 1987. On November 24, 1986, Wedtech elected to purchase an extended 90-day reporting period in accordance with the terms of the second policy, but Federal advised Wedtech that the tendered premium would not be accepted pending an investigation into whether the policies would be ...


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