The opinion of the court was delivered by: Sweet, D.J.,
Plaintiffs CheckRite Ltd. Inc. and CheckRite California Inc.
(collectively, "CheckRite") have moved pursuant to Federal Rule
of Civil Procedure 56(c) for summary judgment declaring that
defendant Illinois National Insurance Company ("Illinois
National") is liable to indemnify CheckRite for its costs for
defenses and settlement of certain class action claims. Illinois
National has cross-moved for summary judgment dismissing the
complaint, and for an award of its attorneys' fees and
disbursements in this action. For the reasons set forth below, the
motion for summary judgment by CheckRite will be denied, and the
motion for summary judgment by Illinois National to dismiss the
complaint will be granted, and its motion for fees and disbursements
CheckRite Ltd. Inc. is a corporation organized and
existing under the laws of Colorado and has an office located in
CheckRite California Inc. ("CheckRite Ca.") is a corporation
organized and existing under the laws of California and has
offices in California and Midvale, Utah.
Illinois National Insurance Company is a corporation organized
and existing under the laws of Illinois with its executive
offices in New York, New York.
The facts set forth below are gleaned from the parties'
Rule 56.1 statements, affidavits, and exhibits and are undisputed
except where otherwise noted.
CheckRite Ltd. and CheckRite Ca. were in the business of
collecting bad checks issued by consumers as defined in the
FDCPA. CheckRite Ca. did not itself conduct debt collection activity
except through CheckRite Ltd.
CheckRite at all relevant times was a member of the American
Collectors Association ("ACA") and purchased insurance policies
through programs sponsored by that Association.
On or about September 28, 1993, a class action styled Debbie
Newman et al. v. CheckRite Cal. Inc. et al, Civ. S-93-1557
LKK/PAN, was commenced against CheckRite Ca. in the United States
District Court for the Eastern District of California. This
action sought to recover damages for alleged violations of, inter
alia, the FDCPA. The judge presiding over the action certified a
class defined as:
persons who have written checks in California
which have been dishonored and subsequently assigned to
defendants and from whom defendants have demanded unlawful
charges or to whom defendants made false representations
within one year preceding the filing of this complaint.
The class thus included persons injured between September 29,
1992 and September 28, 1993. CheckRite Ca. gave notice to its
then insurance carrier, Employers Insurance of Wassau ("Employers
Insurance"). That carrier contributed 100% of the applicable
coverage, in the amount of $1 million, to the defense and
indemnification of CheckRite Ca. in this action.
Subsequently, in January 1994, the named plaintiffs in the
original action filed an amended class action complaint. This
complaint sought certification of a class defined in precisely
the same terms as the original class, except that it pertained to
consumers who had been injured within one year of the filing of
the amended complaint, i.e., between January 27, 1993 and January
27, 1994. Ultimately, the judge overseeing this litigation certified
a class that included California consumers injured between
September 29, 1992 (one year before the filing of the original
complaint) and January 27, 1994 (the filing of the amended
complaint). The litigation concerning the claims of this class
will be referred to herein as the "Newman Class Action".
CheckRite Ltd. was also added as a defendant at the time of the
1994 amended complaint. CheckRite Ltd. gave notice to its
then carrier, Employers Insurance, which provided 100% coverage,
including the cost of defense and indemnification, under a
separate policy, for the full amount available under the policy
of $1 million. This was in addition to the coverage previously
made available to CheckRite Ca.
In late 1995, CheckRite purchased errors and omissions liability
insurance coverage underwritten by Illinois National for the
policy year November 1, 1995 through
November 1, 1996 (the "1995-96 Policy").*fn2 The 1995-96 Policy
includes a $5,000,000 limit of liability, per claim and in the
CheckRite continued to obtain coverage from Illinois National,
pursuant to a renewal application, for the policy year November
1, 1996 through November 1, 1997 (the "1996-97 Policy").
The 1996-97 Policy also includes a $5,000,000 limit of liability,
per claim and in the aggregate.
The Illinois National policy was a "claims made" policy.
This meant that it provided coverage for losses arising from
claims made by third parties against CheckRite. The terms of the policy
that are relevant to this dispute are as follows:
The "Coverage Agreement" states that:
The Company will pay on behalf of the Insured Damages which
the Insured shall become legally obligated to pay for any
Claim or Claims first made against the Insured and reported
to the Company during the Policy Period for Wrongful Acts of
the Insured or another for whom the Insured is legally
responsible committed solely in the conduct of the
Insured's Professional services.
Section I.A., 1995-96 Policy.*fn3
A "claim" is defined in the 1995-96 Policy as:
1. any judicial, administrative or arbitration
proceeding initiated against one or more Insured(s)
in which such Insured(s) may be subjected to a
binding adjudication of liability for Damages; or
2. any written notice from a Client, Customer or
"Consumer" that it is the intention of such Client,
Customer or Consumer to hold one or more Insured(s)
responsible for liability arising out of
professional services provided by the insured or
any person for whom the insured is legally
Section VII.F., 1995-96 Policy.
The 1996-97 Policy defines a "claim" in nearly identical terms,
except that the definition provided in subsection 2 is:
2. Any written demand from a "Client or Customer" or "Consumer"
Section VII.F., 1996-97 Policy.
A claim is considered "first made" upon the earlier of the
following two occurrences:
1. when a written Claim is first mailed to or filed
against the Insured, or
2. when written notice is first mailed to the Company
by or on behalf of the Insured of specific
circumstances involving a particular person or
organization which may result in a Claim. . . .
Section III.B., 1995-96 Policy.
The 1995-96 Policy defines the "Policy Period" as:
[T]he period commencing on the inception date and ending on
the expiration date stated in Item 2 of the Declarations
unless sooner terminated as herein provided.
Section VIII.A., 1995-96 Policy.
The 1996-97 Policy defines the "Policy ...