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CHECKRITE LIMITED, INC. v. ILLINOIS NATIONAL INSURANCE CO.

May 4, 2000

CHECKRITE LIMITED, INC. AND CHECKRITE CALIFORNIA INC., PLAINTIFFS,
V.
ILLINOIS NATIONAL INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Sweet, D.J.,

OPINION

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 denied.*fn1

The Parties

CheckRite Ltd. Inc. is a corporation organized and existing under the laws of Colorado and has an office located in Midvale, Utah.

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.

Prior Proceedings

Facts

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 aggregate.

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 responsible.

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" for money.

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 ...


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