Before: KATZMANN and HALL, Circuit Judges, and KORMAN, District Judge.*fn1
Plaintiff-Appellants M. William Macey et al. appeal from the November 14, 2008 memorandum of decision of the United States District Court for the District of Connecticut (Mark R. Kravitz, Judge) granting summary judgment to Defendant-Appellee Carolina Casualty Insurance Company. We find the directors and officers insurance policy at issue to be ambiguous under Virginia law, and therefore VACATE and REMAND to the district court for further proceedings.
Plaintiffs-Appellants M. William Macey Jr. et al. appeal from the November 14, 2008 memorandum of decision of the United States District Court for the District of Connecticut (Mark R. Kravitz, Judge), granting summary judgment to Defendant-Appellee Carolina Casualty Insurance Company. The district court determined the relevant provisions of the directors and officers insurance policy were unambiguous in denial of coverage to the plaintiffs-appellants and granted the defendant summary judgment. We determine that the relevant policy provisions are capable of two reasonable interpretations and thus, under Virginia law, are ambiguous. We vacate the judgment of the district court and remand for further proceedings consistent with this opinion.
Prior to May 2004, Community Research Associates ("CRA") was incorporated in Illinois and, as relevant to this case, controlled by former directors and officers Doyle Wood, James Brown, and Allen Cole (the "Legacy Shareholders"). In May 2004, the former CRA- Illinois underwent a reorganization which involved, inter alia, changing its state of incorporation from Illinois to Delaware, and effectuating a stock purchase agreement by which Sterling Investment Partners ("Sterling") became the majority shareholder in the newly reorganized entity.*fn2 Pursuant to that agreement, Sterling was permitted to nominate up to six individuals for the board of directors, including, once the original Chief Executive Officer of CRA-Delaware stepped down, the Chairman of the Board of Directors. In negotiations with Sterling, the Legacy Shareholders agreed to become minority shareholders in CRA-Delaware after the merger was complete and new board members were appointed.
The closing date of the merger was May 3, 2004 at 10:00 am. The Share Purchase Agreement (the "Agreement") expressly listed CRA-Illinois and CRA-Delaware as parties to the merger, "with CRA Delaware as the surviving corporation." Under the Agreement, which set out the terms of the merger, "[t]he closing of the purchase and sale of the Purchased Shares . . . and the redemption" of those same shares would occur "simultaneously with the execution and delivery of [the] Agreement." Several other events occurred simultaneously at the time of the closing, including Brown, Wood, and Cole's assumption of positions as officers or directors of CRA-Delaware in order to sign the paperwork to complete the reorganization plan. Macey v. Carolina Cas. Ins. Co., 585 F. Supp. 2d 277, 278 (D. Conn. 2008). Article VII of the Agreement, titled Conditions to Obligation to Close, listed as a requirement that Brown and Wood resign from their positions as directors of CRA-Delaware in order to close the merger. The Stockholders' Agreement designated two of the appellants, Charles Santoro and M. William Macey, Jr., along with Bruce M. Lawlor, as the initial directors of CRA-Delaware, effective as of May 3, 2004. Harriet Weiss Terbell, also one of the appellants, joined the board of directors later. After the merger, the Legacy Shareholders became minority shareholders in CRA-
Delaware and held no positions on the board or in upper management. Local Rule 56(a).1 Statement, ¶ 7.
The Insurance Policy and Relevant Provisions
In October 2004, CRA-Delaware purchased a Management Liability Insurance Policy (the "Policy") from Carolina Casualty Insurance Company ("Carolina"). On the Policy Proposal Form it provided to Carolina, CRA-Delaware made the following statement:
On May 3, 2004 the company had a merger with an investment entity. A new Chairman and Chief Executive Officer was installed. The prior ownership remained in a minority capacity but were no longer participants on the Board or officers of the corporation. On August 2, 2004 a Chief Financial Officer was hired.
The Policy Proposal Form and "material submitted herewith," including the above statement, were incorporated into the final Policy in several places.
First, the Policy Proposal Form acknowledged:
The undersigned agree that the particulars and statements contained in the Proposal Form and any material submitted herewith are their representations and that they are material and are the basis of the insurance contract. The undersigned further agree that the Proposal Form and any material ...