June 29, 2004.
AMERICAN INTERNATIONAL SPECIALITY LINES INSURANCE COMPANY, Plaintiff,
NATIONAL ASSOCIATION OF BUSINESS OWNERS AND PROFESSIONALS, THE UNITED STATES OF AMERICA, DAVID W. SILVERMAN, Versuslaw KING, ST. ANDREWS EPISCOPAL CHURCH, DONNA HICKMAN, DOUG GRAY, TERRELL GLENN, BRADY JOHNSON, DAVE JOHNSON, LYNN MITCHELL, CARYL RANDAZZO, GREG SHORE, ANDY TYRRELL, CANTEY WRIGHT, PEDERSEN & SCOTT, P.C., WILLIAM A. SCOTT, VINCENT & BOSTIC, LLP, CURTIS BOSTIC, THAD VINCENT, SANDY SCOTT, CAROL MURPHY, P. BRANDT SHELBOURNE, NUTLOCKER, INC. D/B/A WARM HARDWARE, DAR MACHINE & METALWORKS, INC., PALMETTO PEDIATRICS, INC., RICHARD B. MACDONALD D/B/A BEST GOLF CARS, FIDLER CORPORATION D/B/A MAIL BOXES ETC., TAMARA MICHELLE TRUEL, ROBERT TRUEL, MELISSA G. COLE, MICHAEL COLE, ROBIN DUNBAR, RAYMOND DUNBAR, STANLEY SCHARF, KENT D. MCPHAIL, BARRE C. DUMAS, SUSIE M. NELSON, CYNTHIA MULLINAX, W&W TRUCK & TRACTOR CO., INC., MARY B. GUNNELLS, WILLIAM A. GUNNELLS, TELE TECH CORPORATION, D'S JEWLERS, INC., HARVEY W. RUMPH, MICHELE HASTINGS, FRANCIS H. WALPOLE, PETER HASTINGS as guardian for ERIN HASTINGS (a minor child), FORM-A-TOOL, INC., JAMES E. MUSACCHIA, DAVE LOUDIN, CAROL HIGHTOWER, DON SIEVERT, THOMAS WOOTEN, DAVID C. FLEMING, JIMMY R. SULLIVAN, SR., ROGER L. BOWMAN, LEWIS L. HENSLEE, WILLIAM J. PRICE, TROY T. SWEET, DAVID L. WILLIAMS, BILLY L. CROWE, CURTIS WILBURN, CHARLES GINTHER, JAMES K. BRADBERRY, HAROLD STEWART, ROBERT G. COX, GARY EDENS, DOUGLAS AUSTIN, LAURIE LAMBERT, CHRISTINE A. AUGHTMAN, NEW RIVER HEALTH ASSOCIATION, INC., AND DONNA M. WILSON, and all other employers, and employees of such employers, similarly situated, Defendants. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. CHARLES L. BRADLEY, TERENCE E. RHUE, NOEL SHAW, JR., PAUL D. ASKEW, INTERNATIONAL WORKERS GUILD HEALTH AND WELFARE FUND, THE UNITED STATES OF AMERICA, DAVID W. SILVERMAN, MARY B. GUNNELLS, WILLIAM A. GUNNELLS, TELE TECH CORPORATION, CYNTHIA MULLINAX, and W&W TRUCK & TRACTOR CO., INC., and all other employers and employees of such employers, similarly situated, Defendants.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
The plaintiffs American International Specialty Lines Insurance
Company ("AISLIC") and National Union Fire Insurance Company of
Pittsburgh, PA. ("National Union") (collectively, the
"plaintiffs") brought separate interpleader actions to resolve
multiple and conflicting claims regarding insurance policies that
they issued to the defendant National Association of Business
Owners & Professionals ("NABOP"). Presently before the Court are
letter briefs by the plaintiffs and the South Carolina Defendants
concerning the applicable limits of liability under the insurance
policy issued by AISLIC to NABOP (the "AISLIC Policy" or the
"Policy"). These letter briefs were submitted to the Court
pursuant to the Court's Memorandum of Decision and Order dated
March 28, 2003.
This Court has previously considered this case, and the
recitation of the facts set forth in Amer. International
Specialty Line Ins. Co. v. Nat'l Assoc. of Business Owners and
Professionals, et al., 253 F. Supp.2d 468 (E.D.N.Y. 2003), is
incorporated by reference.
The facts relevant to the instant application are as follows.
In February 1998 NABOP applied for a "claims made" policy from
AISLIC. On March 6, 1998, AISLIC issued the AISLIC Policy to
NABOP in the amount of $1,000,000. NABOP paid AISLIC a premium of
$6000 for the AISLIC Policy. This Policy was effective for the
period from March 6, 1998 to March 6, 1999. Near the top of the
first page of the AISLIC Policy, it is stated in bold print that
"THIS IS A CLAIMS MADE POLICY, PLEASE READ CAREFULLY" (emphasis
Significant language in the original AISLIC Policy stated the
1. Errors and Omissions
To pay on behalf of the Insured [NABOP] all sums
which [NABOP] shall become legally obligated to pay
as Damages resulting from any claim or claims first
made against [NABOP] during the Policy Period for
any Wrongful Act of [NABOP] or of any other person
for whose actions [NABOP] is legally responsible, but
only if such Wrongful Act occurs during or prior to
the Policy Period and arises solely out of the
conduct of [NABOP's] business as an association.
Policy ¶ 1 (emphasis added). A "Wrongful Act is defined as
[A]ny actual or alleged: (a) negligent act, breach of
duty, error, omission, misstatement or misleading
statement, or; (b) infringement of copyright or
trademark, or unauthorized use of title; (c)
plagiarism, piracy or misappropriation of ideas, or;
(d) the publication or utterance of libel, slander or
other defamatory or disparaging material or remark,
or; (e) invasion or infringement of the right of
As stated above, the AISLIC Policy's limit of liability was
$1,000,000 aggregate inclusive of defense costs, charges and
Thereafter, on July 10, 1998, for an additional premium of
$3,727, Endorsement #4, entitled "Increased Limits Endorsement"
was added to the Policy. Endorsement #4 states:
Item 3. Limit of Liability: (Including Defense
Costs, Charges, and Expenses):
$3,000,000 Each Wrongful Act or series of
continuous, repeated or interrelated Wrongful Acts.
It is further understood and agreed that the above
stated Limit of Liability apply to any claim for: a
Wrongful Act which first occurs; or, a series of
continuous, repeated or interrelated Wrongful Acts
where the first Wrongful Act occurs; on or after July
10, 1998 and before the end of the policy period.
It is further understood and agreed that the Limit of Liability
remain as $1,000,000 per Wrongful Act and $1,000,000 in the
Aggregate for any claim for: a Wrongful Act which first occurs;
or, a series of continuous repeated or interrelated Wrongful Acts
where the first Wrongful Act occurred; before July 10, 1998 and
before the end of the policy period.
Prior to and during the term of the Policy, claims were
asserted against NABOP by, among others, the South Carolina
Defendants, alleging that NABOP failed to pay medical benefit
claims that were submitted.
As set forth in more detail in Amer. International Specialty
Line Ins. Co. v. Nat'l Assoc. of Business Owners and
Professionals, et al., 253 F. Supp.2d 468, on January 29, 2002,
AISLIC, NABOP and Eugene Duncan, Yvonne Duncan, Carl Samuels and
Dwayne Samuels (collectively, the "NABOP Individuals") and the
appointed Independent Fiduciary and Receiver of NABOP David W.
Silverman ("Silverman") filed stipulations of settlement in these
actions for $500,000 each, for a combined amount of $1,000,000
(the "Settlement"). Also on January 29, 2002, United States
District Judge Jacob Mishler preliminarily approved the
Settlement, directed Silverman to serve notice of the Settlement
on the named defendants and potential claimants and set a
fairness hearing for June 24, 2002.
On May 20, 2002, the South Carolina Defendants filed an
objection to the Settlement. On May 28, 2002, the case was
reassigned to this Court. On June 24, 2002, the Court heard
argument at the fairness hearing. The South Carolina Defendants,
among other things, argued that without discovery, the defendants
and claimants have been deprived of a meaningful opportunity to
challenge AISLIC's contentions concerning the validity of the
AISLIC Policy and to determine its actual coverage limit of
On March 28, 2003, this Court issued a Memorandum of Decision
and Order in which the Court, among other matters, concluded that
it could not determine whether the proposed settlements were
reasonable until it determined the actual limit of liability
under the AISLIC Policy. As such, the Court authorized limited
discovery and directed the South Carolina defendants and AISLIC
to submit letter briefs concerning the applicable limit of
liability under the AISLIC Policy. These letter briefs are the
subject of the instant decision.
A. As to the Applicable Limits ...
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