The opinion of the court was delivered by: RAYMOND J. DEARIE
From December 22, 1983 through December 22, 1986, the directors and officers of Ambassador Group, Incorporated ("Ambassador Group"), an insurance holding company, and its subsidiaries were insured under a directors and officers liability policy issued by plaintiff National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"). During the policy period, certain directors and officers were sued in four separate actions including one initiated by a class of Ambassador Group shareholders represented by David J. Michaels (the "Michaels class"), one initiated by the Vermont Commissioner of Banking and Insurance (the "Vermont Commissioner") as receiver for Ambassador Insurance Company, a subsidiary of Ambassador Group, and one initiated by the New York Superintendent of Insurance (the "New York Liquidator") as liquidator of Horizon Insurance Company, another subsidiary of Ambassador Group. National Union filed this statutory interpleader action pursuant to 28 U.S.C. § 1335 to facilitate the resolution of the parties' potentially competing entitlements to policy proceeds.
The motions currently before the Court arise out of each claimant's efforts to position itself favorably with respect to the other claimants competing for the limited proceeds available under the insurance policy and National Union's efforts to limit its total liability. The Michaels class has moved for partial summary judgment, seeking essentially a declaration from the Court that, assuming it prevails in its lawsuit, it is the only party entitled to policy proceeds for claims made in year one of the policy.
Under the Michaels class's construction of the policy, the Vermont Commissioner of Banking and the New York Superintendent of Insurance must share the proceeds available for claims made in year two of the policy. National Union has cross-moved for partial summary judgment. National Union contends that the policy's annual limit applies to losses incurred in a given year, as opposed to losses arising from claims made in a given year, and it seeks a declaration that the claims of the Michaels class, the Vermont Commissioner of Banking and Insurance, and the New York Superintendent of Insurance must be satisfied from the proceeds available for losses incurred in year one only. To decide these motions, the Court must construe arguably conflicting terms of the policy's loss provisions. For the reasons set forth below, the Michaels class's motion is granted, and National Union's cross-motion is denied.
On December 22, 1983, National Union issued to Ambassador Group a Directors and Officers Liability and Corporate Reimbursement insurance policy covering the period from December 22, 1983 through December 22, 1986. The policy provides a maximum of three million dollars of coverage for losses arising from all claims made during each policy year. (See National Union Directors and Officers Liability and Corporate Reimbursement Policy (hereinafter Policy) PP 1, 5(b).)
During the policy period, four separate actions were brought against certain directors and officers of Ambassador Group, Ambassador Insurance Company and Horizon Insurance Company.
Specifically, on June 5, 1985, Ambassador Group shareholders brought a class action lawsuit against a number of directors and officers of Ambassador Group entitled David Michaels v. Ambassador Group, Inc., et al. (the "Michaels action"). The complaint alleges, in substance, that Ambassador Group and certain directors and officers violated section 10(b) of the Securities Exchange Act of 1934. By letter dated June 15, 1984, National Union received notice of the action from Ambassador Group's counsel. (Ex. J to Aff. of Barry A. Weprin.)
A second action, styled David T. Bard v. Arnold Chait, et al. (the "Vermont action"), was filed by the Vermont Commissioner of Banking and Insurance as receiver for Ambassador Insurance Company on May 21, 1985.
Prior to the initiation of the action, by letter dated October 17, 1984, counsel for the Vermont Commissioner informed National Union that, following a bankruptcy hearing, the "Commissioner had uncovered facts which [led] him to conclude that certain former directors and officers were guilty of acts falling within the scope of coverage afforded by the . . . policy, resulting in losses to the estate of the Ambassador." The letter concluded that National Union was thereby "given notice of a claim." In a second letter to National Union, dated November 21, 1984, counsel for the Commissioner further stated:
(Ex. I to Aff. of Barry A. Weprin, at 2.) By letter dated May 28, 1985, counsel for Ambassador Insurance's directors and officers informed National Union that the Vermont Commissioner had filed a complaint. (Ex. K to Aff. of Barry A. Weprin.)
A third action, entitled James P. Corcoran v. Ambassador Group, Inc., et al. (the "New York action"), was brought by the New York Superintendent of Insurance on October 4, 1985. The complaint alleges essentially that the directors and officers of Horizon Insurance mismanaged the company in derogation of their duty of loyalty and permitted the company to be looted by the subsidiary Ambassador Insurance. On November 6, 1985, National Union received notice of the action. (Ex. R. to Aff. of Michael Mitrovic in Supp. of Pla.'s Mot. for Summ. J. Granting Interpleader Relief.) The fourth action, David T. Bard v. Alan S. Quaif. et al. (the Quaif action), has been discontinued.
In its prior decision dated July 29, 1988, this Court granted motions made by several of the parties to dismiss for National Union's failure to post a sufficient bond to sustain the interpleader action. On the basis of the claimants' contention that at least two policy years were implicated by their claims, the Court determined that it lacked jurisdiction because National Union had deposited only three million dollars. To vest the Court with jurisdiction in a statutory interpleader action over the proceeds of an insurance policy, the plaintiff must deposit not what it views as its maximum liability, but the total amount the claimants seek under the policy. Accordingly, National Union was required to post an additional three million dollars to sustain the action. See National Union Fire Ins. Co. v. Ambassador Group, 691 F. Supp. 618, 621 (E.D.N.Y. 1988) ("National Union I"). In deciding those motions, the Court rejected National Union's argument that claims involving 'the same act or interrelated acts' relate back to the policy year in which the first of the related claims was made and, therefore, compete for the proceeds available in single policy year. See Id., at 622-23. At the time, placement of the Vermont claim, the claim underlying the Vermont action, in a particular policy year was not at issue. Instead, the parties were disputing whether the claims underlying the New York and Quaif actions were claims made in year one or year two. See Id., at 622.
The primary task currently before the Court is to interpret the policy's loss provisions, thereby determining which claims must compete for which proceeds available under the policy. The focus of the parties' dispute is the placement of the Vermont claim in a particular year. The Michaels class contends that, under the terms of the policy, the Vermont claim constitutes a "claim made" in year two of the policy and, therefore, the Vermont Commissioner must share the proceeds available to satisfy claims made in policy year two with the New York Liquidator. In opposition, the Vermont Commissioner, the New York Liquidator and National Union contend that the Vermont claim is a claim made in year one. Further, they argue that the year in which the loss arising from a claim is incurred determines the proceeds from which the claim is paid, and that, pursuant to the loss provisions of the policy, the loss arising from the Vermont claim was incurred in year one. National Union also contends, as it did in its earlier motion for summary judgment to sustain the interpleader action, that the claim underlying the New York action must be ...