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AT&T Corp. v. Certain Underwriters at Lloyd's London

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 3, 2009

AT&T CORP., PLAINTIFF-APPELLANT,
v.
CERTAIN UNDERWRITERS AT LLOYD'S LONDON, CERTAIN LONDON MARKET INSURANCE COMPANIES, FEDERAL INSURANCE COMPANY, GULF INSURANCE COMPANY, CONTINENTAL CASUALTY COMPANY, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, XL SPECIALTY INSURANCE COMPANY, ZURICH AMERICAN INSURANCE COMPANY, ST. PAUL MERCURY INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, ARCH INSURANCE COMPANY AND AXIS SPECIALTY INSURANCE COMPANY, DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-6606-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: June 3, 2009

Before Judges Cuff, Fisher and C.L. Miniman.

Plaintiff AT&T Corp. (AT&T) appeals from the dismissal with prejudice of its claims against defendants Those Certain London Market Insurers Subscribing to Policy No. 509/QB 05501, incorrectly sued as Certain Underwriters at Lloyd's London and Certain London Market Insurance Companies (collectively, London); Federal Insurance Company (Federal); Travelers Indemnity Company, as successor in interest by merger with Gulf Insurance Company (Gulf); and Continental Casualty Company (Continental) (collectively, the 2001 Insurers); and defendants National Union Fire Insurance Company of Pittsburgh, PA (National Union); XL Specialty Insurance Company (XL); Zurich American Insurance Company (Zurich); St. Paul Mercury Insurance Company (St. Paul); Liberty Mutual Insurance Company (Liberty Mutual); Arch Insurance Company (Arch); and Axis Specialty Insurance Company (Axis) (collectively, the 2004-2005 Insurers). We affirm.

I.

In this insurance coverage action, AT&T sought coverage under two primary policies issued by London and National Union and multiple policies that were excess to them for five underlying actions against AT&T relating to a stock-option plan. Those actions were: (1) a pending action in the Delaware Court of Chancery, filed on September 24, 2004, captioned Lillis v. AT&T Corp. (the Lillis action); (2) a pending action in the District Court for the City and County of Denver, Colorado, filed on May 19, 2006, captioned Munoz v. AT&T Corp. (the Munoz action); (3) an arbitration filed on August 29, 2007, with the Judicial Arbiter Group Inc., captioned Allen v. AT&T Corp. (the Allen action); (4) an arbitration filed on August 31, 2007, with the American Arbitration Association, captioned Pardun v. AT&T Corp. (the Pardun Action); and (5) an action brought in the Delaware County Court of Chancery, filed on September 14, 2007, captioned Johnson v. AT&T Corp. (the Johnson action).

AT&T alleged that all five actions were covered by both primary policies and all excess policies, triggering the duty to defend and causing damages for the failure to do so. AT&T also alleged that a judgment had been entered against it in the Lillis action. AT&T sought indemnification for the Lillis judgment and a declaration of coverage for all sums AT&T might become legally obligated to pay in connection with the claims asserted in the Munoz, Allen, Pardun, and Johnson actions.

On November 19, 2007, all of the 2001 Insurers filed a joint motion to dismiss AT&T's amended complaint pursuant to Rule 4:6-2(e). On that same date, all of the 2004-2005 Insurers, except St. Paul, filed a similar motion to dismiss. Defendant St. Paul separately filed a motion to dismiss on its own behalf and in support of the joint motion to dismiss filed by the other 2004-05 Insurers. The moving parties submitted supporting certifications to which they attached true copies of the relevant insurance policies and copies of documents relevant to the underlying actions, such as complaints, claims, and orders.

The judge heard oral argument on January 18, 2008. By order dated May 30, 2008, he granted both the 2001 Insurers' joint motion to dismiss with prejudice AT&T's amended complaint and the motion to dismiss with prejudice as to National Union, XL, Zurich, Liberty Mutual, Arch, and Axis. On June 10, 2008, the judge entered an order dismissing the complaint as to defendant St. Paul. The undisputed facts derived from the submitted documents on which the dismissals were predicated follow.

A. The Lillis Action

The Lillis action was filed by former officers and directors of either MediaOne Group, Inc. (MediaOne), a broadband communications provider, or its former parent corporation, U S West, Inc. AT&T had acquired MediaOne in 2000. Prior to this acquisition, the Lillis plaintiffs had received stock options under the Amended MediaOne Group, Inc. 1994 Stock Plan (the 1994 Plan).*fn1 The Lillis plaintiffs alleged that the 1994 Plan provided, in the event of certain corporate transactions such as consolidations and spin-offs, "the number or kind of shares of interests subject to an Award and the per share price of value thereof shall be appropriately adjusted . . . provided that each Participant's economic position with respect to the Award shall not . . . be worse than it had been immediately prior to such event."

In the May 6, 1999, MediaOne-AT&T Merger Agreement, AT&T agreed, in part, to honor the terms of the 1994 Plan and promised to make no changes to it. Closing was scheduled for 2000. The 1994 Plan participants exchanged their MediaOne options for AT&T options of equivalent value.

In June 2001, AT&T "spun-off" its wireless business unit, AT&T Wireless Services, Inc. (Wireless). This transaction required an adjustment to the AT&T stock options subject to the 1994 Plan in order to avoid a diminution in the value of the options. The Lillis plaintiffs received new Wireless options as well as adjusted AT&T options. At the time of the spin-off, AT&T assured the Lillis plaintiffs that these stock options would continue to be governed by the 1994 Plan.

On May 19, 2004, Wireless's shareholders approved a plan to merge with Cingular Wireless LLC (Cingular), which closed on October 26, 2004. At that time, options were adjusted into the right to receive the merger consideration of $15 per share upon exercise. Subsequently, the Lillis plaintiffs alleged they were paid less than full value for certain stock options and other stock options were cancelled without compensation. They argued that the 1994 Plan required that they receive the full economic value of their stock options.

This economic value consisted of both the "intrinsic value" of the option (the market value of the option at a specific moment in time) and the "time value" (the value attributable to the option's potential to appreciate in the future). See generally Custom Chrome, Inc. v. Comm'r of Internal Revenue, 217 F.3d 1117, 1125 (9th Cir. 2000) (explaining difference between intrinsic value and time value of stock option). The Lillis plaintiffs alleged that the Wireless merger with Cingular violated the terms of the 1994 Plan insofar as it deprived them of the time value of their stock options.

The Lillis complaint set forth four causes of action. The first count was for breach of contract, alleging that AT&T and Wireless had breached their contractual obligations by failing to pay the plaintiffs for the full value of their Wireless stock options upon their cancellation, as required by the 1994 Plan. The second count was also for breach of contract, alleging that both AT&T and Wireless had breached their contractual obligations for failing "to ensure the continued efficacy of the 1994 Plan following the split-off from AT&T in July 2001." The third count alleged that, to the extent AT&T and Wireless had repudiated the plaintiffs' contractual rights, they were liable for negligently misrepresenting those rights. The fourth count sought to recover legal fees and expenses.

In July 2007, after trial, the Delaware Court of Chancery found AT&T liable for breach of contract on the first count of the Lillis complaint (the 2007 Order). The Court of Chancery interpreted the 1994 Plan to require payment of both the "intrinsic value" and "time value" of the stock options, and found that AT&T remained contractually bound to honor the 1994 Plan under the terms of the merger agreement because it did not secure a novation or assignment of its contractual obligations. As to count two, the court found that Wireless was not contractually bound to perform the 1994 Plan, and therefore that Wireless "cannot be found liable to the plaintiffs." The Court of Chancery did not address count three of the Lillis complaint.

AT&T appealed the 2007 Order. The only issue raised on appeal "was whether Wireless breached the terms of the 1994 plan." Ultimately, on March 9, 2009, the Delaware Supreme Court affirmed the chancery judgment "granting relief to the Option Holders based on the conclusion that 'economic position' in Section XVIII.A of the 1994 Plan means intrinsic value and time value."

B. The Munoz, Pardun, Allen, and Johnson Actions

The plaintiffs in the Pardun, Allen, and Johnson actions are former employees of MediaOne who acquired wireless stock options from MediaOne in a manner similar to the Lillis plaintiffs. The plaintiffs in the Munoz action are employees of AT&T, MediaOne, and U S West, and received stock options directly from AT&T. These actions all allege that AT&T failed to compensate plaintiffs for the full value of their options or to make Wireless liable to do so. However, these complaints allege only breach of contract claims or seek declaratory relief regarding plaintiffs' contractual rights. None of these actions alleges negligent misrepresentation or negligence of any kind. The Allen, Pardun, and Johnson actions remain pending against AT&T. According to AT&T's brief, the Munoz action settled after the trial court dismissed AT&T's amended complaint in this declaratory action.

C. 2001 Insurance Polices

After AT&T sold Wireless to Cingular, AT&T became insured by a primary fiduciary liability insurance policy from London, Policy No. 509/QB405501, covering claims made from July 9, 2001, through July 9, 2007 (the London primary policy). The London primary policy provided $25 million in coverage in excess of a $500,000 deductible.

AT&T also purchased three excess fiduciary liability policies for that policy period (collectively, the 2001 excess policies): (1) Federal Policy No. 8146-24-07, providing $25 million in excess coverage over the London primary policy; (2) Gulf Policy No. GA2846071, providing $10 million in excess coverage over the London primary policy and the Federal excess policy; and (3) Continental Policy No. DOX 167982943, providing $10 million in excess coverage over the London primary policy and the Federal and Gulf excess policies. The 2001 excess policies contain terms similar to the London primary policy for all relevant purposes and the following discussion is limited to the terms of the London primary policy.

Item 1(a) of the London primary policy Declarations identified "assured" as all "Employee Benefit Plans," as provided by Endorsement Number 1, and Item 1(b) identified AT&T and its subsidiaries as "assureds." Endorsement Number 1 limited assured "Employee Benefit Plans" to qualified ERISA plans. Thus, the 1994 Plan, which was nonqualified under ERISA, was not an "assured" under the policy and AT&T's claim is predicated only on its status as an assured under the London primary policy.

Under Insuring Agreements, § I.1, London agreed to: pay on behalf of the Assured all sums which the Assured shall become legally obligated to pay [for] a loss because of any Breach of Fiduciary Duty (as herein defined) . . . and arising solely out of the Assured's capacity as a fiduciary (as defined in [ERISA]) of any Plan named in Item 1(a) of the Declarations.

Thus, the London primary policy did not provide coverage for breach of fiduciary duty in connection with a nonqualified plan. However, Endorsement Number 8 extended coverage beyond breach of fiduciary duty to: any negligent act, error or omission . . . in the administration of any Employee Benefit Plan(s) named in Item 1(a) of the Declarations, Workers' Compensation Insurance, Unemployment Insurance, Social Security or Disability Benefits and any non-qualified plan not subject to regulation under Title I of ERISA or which does not meet the qualification requirements under Section 401(a) of the Internal Revenue Code of 1986, as amended.

Endorsement Number 8 then stated "'administration' as used herein shall mean solely: (a) giving counsel to employees with respect to Employee Benefit Plans named in Item 1(a) of Declarations, Workers' Compensation Insurance, Unemployment Insurance, Social Security or Disability Benefits[;] (b) interpreting" such plans and benefits; "(c) handling of records in connection with" such plans and benefits; "(d) effecting enrollment, termination or cancellation of Employees under" such plans and benefits; "(e) actuarial acts and assumptions with respect to" such plans and benefits; and "(f) investment advisory activities with respect to" such plans and benefits.

"Loss" was defined in § II.3 as:

[T]he amount which the Assured is legally obligated to pay as damages arising from judgments or settlements of any claim or claims made against it for Breach of Fiduciary Duty . . . and shall include Defense Costs, Charges and Expenses, as described in [§ I.2(b)] . . . .

By necessary implication, the definition of "loss" included sums the assured became obligated to pay by virtue of any negligent act, error, or omission to which coverage was extended by Endorsement Number 8. However, Endorsement Number 12 excluded from the definition of "loss": any Plan benefits, or that portion of damages arising out of any judgment, settlement or award in an amount equal to such Plan benefits, unless and to the extent that, recovery for such benefits: (i) is based upon a covered Breach of Fiduciary Duty or any negligent act, error or omission in Administration and, (ii) is payable as a personal obligation of an individual Assured.

Endorsement Number 22 provided that MediaOne was added to the Declarations as an assured:

Notwithstanding anything contained herein to the contrary and solely with respect to this extension of coverage, Underwriters agree to afford coverage on the basis of the terms of either this Policy or the expiring MediaOne Group policy (Policy Number 244-08-04) whichever policy most favourable to the Assured, prevailing.

The Insuring Agreement in the expiring MediaOne policy covered "the Loss of each and every Insured arising from a Claim first made against an Insured during the Policy Period . . . for any actual or alleged Wrongful Act by any such Insured . . . ." That policy also imposed a duty to defend "any Claim against an Insured alleging a Wrongful Act, even if such Claim is groundless, false, or fraudulent." Endorsement Number 8 to the MediaOne policy provided that if MediaOne consolidated with or merged into another entity, the policy would: continue in full force and effect as to Wrongful Acts occurring prior to the effective time of the Transaction, but there shall be no coverage afforded by any provision of this policy for any actual or alleged Wrongful Act occurring after the effective time of the [consolidation or merger].

D. 2004-2005 Insurance Policies

AT&T purchased additional primary fiduciary liability insurance coverage from National Union under Policy No. 643-14- 56 covering claims made from July 31, 2004 (after the Wireless shareholders approved the plan to merge with Cingular but before the merger) to July 31, 2005 (the National Union primary policy). The policy provided $10 million in coverage in excess of a $500,000 self-insured retention.

AT&T purchased a number of excess fiduciary liability policies from the other 2004-2005 Insurers to provide coverage in layers sitting above the National Union primary policy: (1) XL Policy No. ELU086696-04, providing an additional $10 million of excess coverage over the National Union primary policy; (2) Zurich Policy No. FLC 3828629 02, providing an additional $10 million of excess coverage over the National Union primary policy and XL excess policy; (3) St. Paul Policy No. 590 CM 1151, providing an additional $10 million of excess coverage over the National Union primary policy and the XL and Zurich excess policies; (4) Liberty Mutual Policy No. 074883-024, providing an additional $10 million of excess coverage over the National Union primary policy and the XL, Zurich, and St. Paul excess policies; (5) Arch Policy No. FDC 0000835-00, providing an additional $10 million of excess coverage over the National Union primary policy and the XL, Zurich, St. Paul and Liberty Mutual excess policies; and (6) Axis Policy No. ANN 503835, providing an additional $10 million of excess coverage over the National Union primary policy and the XL, Zurich, St. Paul, Liberty Mutual, and Arch excess policies.

AT&T alleged in its amended complaint that the 2004-2005 excess policies "follow form to the National Union Primary Policy and thus provide coverage at least as broad in scope as the coverage provided under the National Union Primary Policy." The 2004-2005 excess insurers, who did not submit copies of their excess policies when moving to dismiss AT&T's complaint, have not disputed this allegation. Accordingly, the following discussion is limited to the terms of the National Union primary policy.

Under its policy, National Union promised in § 1(a) to "pay the Loss of each and every Insured arising from a Claim against an Insured for any actual or alleged Wrongful Act by any such Insured."

A "Wrongful Act" was defined by § 3 as meaning:

(1) as respects an Insured: a violation of any of the responsibilities, obligations or duties imposed upon Fiduciaries by Employee Benefit Law with respect to a Plan; or any matter claimed against an Insured solely by reason of his, her or its status as a Fiduciary, the Plan or the Sponsor Organization, but only with respect to a Plan; and

(2) as respects an Administrator, any act, error or omission solely in the performance of one or more of the following administrative duties or activities, but only with respect to a Plan:

(i) counseling employees, participants and beneficiaries; or

(ii) providing interpretations; or

(iii) handling of records; or

(iv) activities affecting enrollment, termination or cancellation of employees, participants and beneficiaries under the Plan, or any matter claimed against an Insured solely by reason of his, her or its status as an Administrator, the Plan, or the Sponsor Organization, but only with respect to a Plan . . .

The policy defined Plan as automatically meaning "any qualified plan, fund, trust or program . . . or Non-qualified Plan*fn2 . . . , which was, is or shall be sponsored solely by the Sponsor Organization" subject to five specific provisions, only two of which are relevant here. The two relevant provisions, as amended by Endorsement Number 4, are as follows:

(2) if such Plan was sold, spun-off or terminated prior to the inception date of this policy the Named Sponsor shall provide written notice of such sale, spin-off or termination to the Insurer prior to the inception date of this policy and pay any required premium relating to such Plan, unless such sale, spin-off or termination had already been reported to the Insurer under a policy issued by the Insurer of which this policy is a continuous renewal;

(4) if such Plan is an ESOP*fn3 or stock option plan, the Named Sponsor shall provide written notice of such Plan to the Insurer of which this policy is a continuous renewal and such Plan is added to the Definition of Plan by specific written endorsement attached to this policy . . . .

The 1994 Plan was not listed in any endorsement to the National

Union primary policy.

II.

"As a threshold matter, the interpretation of an insurance contract is a question of law which we decide independent[ly] of the trial court's conclusions." Simonetti v. Selective Ins. Co., 372 N.J. Super. 421, 428 (App. Div. 2004); accord Powell v. Alemaz, Inc., 335 N.J. Super. 33, 37 (App. Div. 2000). As such, the judge's "interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We do not, therefore, summarize the judge's decision here. Suffice it to say, the judge granted the motions to dismiss the complaint for failure to state a claim as to both the 2001 and 2004-2005 Insurers, placing his decision on the record. This appeal followed.

AT&T contends the dismissal of its claims against the 2001 Insurers was in error because the underlying actions allege negligent acts, errors or omissions in the administration of a plan that are not subject to the benefits-due exclusion; in any event, it urges no dismissal should have been granted while the underlying actions were still pending. As to the 2004-2005 Insurers, AT&T contends the two dismissals were in error because the 1994 Plan had been divested; the policies did not require the divested 1994 Plan be named in the insurance application or an endorsement; AT&T's amended complaint pled facts sufficient to establish the preconditions for coverage and, if it did not, AT&T should have been permitted to conduct discovery to prove notice or to further amend its pleadings.

III.

We begin with the claims against the 2001 Insurers. To determine whether coverage exists, "the complaint must be laid alongside the policy, and the inquiry is whether the allegations of the complaint, upon its face, fall within the risk insured against, notwithstanding the actual merit of the claim." Powell, supra, 335 N.J. Super. at 39 (citing Voorhees v. Pref'd Mut. Ins. Co., 128 N.J. 165, 173-74 (1992)). "When the complaint against an insured falls within the perimeter of coverage, the insurer must provide a defense." Ibid. (citing Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 512 (1965)).

"Initially, we must decide whether the policy is clear or ambiguous and whether the reasonable expectations of the insured should be a factor in determining coverage." Ibid. The words of an insurance policy are to be given their plain, ordinary meaning. Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001). Thus, "[i]n the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one purchased." Gibson v. Callaghan, 158 N.J. 662, 670 (1999) (quotation and citation omitted). In addition, "'[i]n general, insurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion.'" Id. at 671 (quoting Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41 (1998)). "Conversely, clauses that extend coverage are to be viewed broadly and liberally." Ibid.

A.

In accordance with the latter principle, AT&T argues that coverage for the Lillis action is required under Endorsement Number 8 of the London primary policy because that action was based on negligent conduct and the trial court improperly failed to look beyond the breach-of-contract labels in the complaint.*fn4

Furthermore, it points out that one count of the Lillis complaint specifically alleged negligent misrepresentation.

AT&T argues that "plaintiffs do not draft complaints in order to 'apprise the defendant's insurer of potential coverage,'" quoting Aetna Casualty & Surety Co. v. Ply Gem Industries, 343 N.J. Super. 430, 452 (App. Div.), certif. denied, 170 N.J. 390 (2001). As a result, it contends the trial court was required to look at the facts underlying the Lillis plaintiffs' allegations instead of the labels they used, citing SL Industries v. American Motorists Insurance Co., 128 N.J. 188, 199 (1992). Thus, AT&T urges that negligence was at the heart of the Lillis action, whether the allegations were labeled as such or as a breach of contract. In this respect, AT&T cites numerous cases from other jurisdictions requiring coverage where the act alleged qualified as both a breach of contract and a tort.*fn5 Because the London primary policy did not contain an exclusion for contractual liability and there was no allegation of any intentional acts, AT&T contends the 2001 Insurers' agreement "to provide coverage for 'negligent act[s], error[s] or omission[s]'" applies to the Lillis action.

AT&T then argues that the trial court erred in finding that the Lillis plaintiffs' allegations did not involve plan "administration" because the term "administration" should be read broadly to include any management of a group or thing, including the plan at issue. In this respect, AT&T points out that Endorsement Number 8 provides coverage for a negligent act, error, or omission in the administration of a nonqualified plan, but defines the term "administration" only with respect to qualified plans. As a result, it contends we must give the term "'administration' its ordinary, everyday meaning, rather than a narrow technical or legal meaning," citing Boddy v. Cigna Property & Casualty Cos., 334 N.J. Super. 649, 656 (App. Div. 2000), and Morton InterNational Union, Inc. v. General Accident Insurance Co. of America, 134 N.J. 1, 25 (1993), cert. denied, 512 U.S. 1245, 114 S.Ct. 2764, 129 L.Ed. 2d 878 (1994).

We need not determine whether the limited definition of "administration" in Endorsement Number 8 is ambiguous or whether the 2001 Insurers' argument as to the meaning of this term and its application to this case is correct. Even applying the general definition of "administration" as urged by AT&T, its claims against the 2001 Insurers cannot succeed. The ordinary definition of the word "administration" means "[t]he management or performance of the executive duties of a government, institution, or business." Black's Law Dictionary 46 (8th ed. 2004). We apply that definition to determine the coverage provided by Endorsement Number 8 for any act, error, or omission in the administration of a plan and compare it to the allegations in the Lillis complaint. Because it is only the administration of a plan that will trigger coverage rather than administrative duties generally, such as the conduct of AT&T's business, we examine the underlying complaint to ascertain whether any of the alleged acts can be said to be an act, error, or omission by AT&T in the administration of the 1994 Plan. It is clear the Lillis plaintiffs did not allege such an act, error, or omission.

The Lillis plaintiffs alleged that AT&T and Wireless "breached a clear contractual obligation" to preserve the value of their MediaOne options. The value of those options was diminished by the acts of Wireless in 2004 when it cancelled out-of-the-money options without any consideration and cashed in-the-money options by paying only the spread between the Cingular merger price and the exercise price, depriving the Lillis plaintiffs of the full option value. At the time of this action, Wireless was no longer a subsidiary of AT&T.

To impose liability upon AT&T, the Lillis plaintiffs relied on § 7.5(a) of the May 5, 1999, Agreement and Plan of Merger between MediaOne and AT&T. "Specifically, under the MediaOneAT&T Merger Agreement, AT&T agreed to 'honor the terms of all MediaOne Employee Plans [and] MediaOne Benefit Arrangements,' which were defined to include the 1994 Plan." They did not allege any breach of the MediaOne-AT&T Merger Agreement in connection with the exchange of AT&T options, which were made subject to the terms of the 1994 Plan, for MediaOne options in 2000; nor did they allege any such breach in June 2001 in connection with the exchange of AT&T options for adjusted AT&T options and Wireless options, which were both subject to the terms of the 1994 Plan. Rather, they alleged that in 2001, AT&T breached its obligation under the Merger Agreement to "'cause the AT&T Subsidiaries to . . . honor the terms of all MediaOne Employee Plans [and] MediaOne Benefit Arrangements'" because AT&T did not take effective steps to preclude Wireless from subsequently failing to honor the terms of the 1994 Plan. They alleged that AT&T in 2001 negligently misrepresented that it had done so. Finally, they alleged that Wireless breached its obligations under the 1994 Plan when it executed a merger agreement with Cingular. Indeed, they alleged that AT&T advised Wireless on April 9, 2004, that it was in breach of the 1994 Plan and demanded compliance with it.

Three of the four counts in the Lillis complaint were lodged against AT&T--counts two through four. In count two, the Lillis plaintiffs alleged as an alternative to recovery on count one that if Wireless was not liable for a breach of the 1994 Plan, AT&T and Wireless were liable "for breaching their agreement to ensure the continued efficacy of the 1994 Plan following the split-off from AT&T in July 2001." It is clear from the language of the complaint that the breached "agreement" was not part of the 1994 Plan itself, but part of the commitment AT&T made in the MediaOne-AT&T Merger Agreement to cause its subsidiaries to honor the terms of the 1994 Plan.

In count three, the Lillis plaintiffs alleged that after the June 2000 merger with MediaOne, AT&T repeatedly assured them that the economic protections in the 1994 Plan would continue to govern their stock-option rights, which would retain their value. The Lillis plaintiffs alleged that AT&T was liable to them to the extent of any repudiation of those rights. They also sought counsel fees and expenses under certain Change of Control Agreements that AT&T agreed to honor in the MediaOneAT&T Merger Agreement.

Nowhere did the plaintiffs allege that AT&T was the plan administrator of the 1994 Plan at the time of the Wireless-Cingular merger; nor did they allege that AT&T failed to comply with the 1994 Plan with respect to the AT&T options it exchanged for the MediaOne options at or after the MediaOne-AT&T merger. Indeed, it would seem that any responsibilities AT&T had as an administrator vis-à-vis the Wireless options terminated with the divestiture of Wireless.

AT&T's liability for such benefits was purely a function of the continuing obligations it undertook in the MediaOne-AT&T Merger Agreement to ensure the payment of such benefits in the future in the event of a spin-off by agreeing to cause its subsidiaries to honor the terms of the 1994 Plan, as AT&T itself alleges here. Simply put, AT&T's acts, errors, or omissions cannot be said to be "in the administration" of the 1994 Plan, but rather in breach of its contractual obligations during and subsequent to the spin-off of Wireless.

This conclusion necessarily leads to the further conclusion that the claims made by the Lillis plaintiffs are not covered losses. Endorsement 12 of the London primary policy specifically excluded from the definition of "loss":

Plan benefits, or that portion of damages arising out of any judgment, settlement or award in an amount equal to such Plan benefits, unless and to the extent that, recovery for such benefits: (i) is based upon a covered Breach of Fiduciary Duty or any negligent act, error or omission in Administration and, (ii) is payable as a personal obligation of an individual Assured.

The 2007 order of the Delaware Court of Chancery awarded damages for "Plan benefits" or an "amount equal to such Plan benefits." The Lillis plaintiffs were awarded "a sum of money equal to the full economic value of the options less the consideration received by them in the merger." They sought no other damages, no matter the legal theory on which they relied. Thus, the Lillis plaintiffs sought and received an amount equal to the plan benefits to which they were entitled under the 1994 Plan, and Exclusion 12 applies. The 2001 Insurers were not required to defend and indemnify AT&T with regard to the Lillis action.

Neither were they required to do so with respect to any of the other underlying actions, which sought the same relief.

B.

AT&T also argues that the Lillis action falls within the broader coverage of the MediaOne policy. Specifically, AT&T argues that Endorsement 22 of the London primary policy makes AT&T an insured under the MediaOne policy. Endorsement 22 to the London primary policy amended Item 1(b) of the Declarations, "Sponsor Organization(s)," to include MediaOne as an "assured." Because an "assured" is defined by § II.1(c) as including any director, officer, or employee of a Sponsor Organization, Endorsement 22 also included former MediaOne directors, officers, or employees as assured under the London primary policy.

C.

AT&T argues that the underlying actions trigger Endorsement 22, and that it is entitled to coverage as an insured under the MediaOne policy as a successor entity to MediaOne. However, Endorsement 22 states that the terms of the "expiring MediaOne Group policy" will apply "solely with respect to this extension of coverage." The phrase "with respect to this extension of coverage" refers to the addition of MediaOne as an "assured" under the policy. Thus, under Endorsement 22, the terms of the MediaOne policy apply only to MediaOne and former MediaOne directors, officers, and employees. The clear language of Endorsement 22 does not afford coverage to AT&T under the MediaOne policy and we cannot write a better policy than the one AT&T purchased. Gibson, supra, 158 N.J. at 670.

Additionally, Endorsement 8 of the MediaOne policy precludes coverage for the underlying actions. If MediaOne consolidated with or merged into another company, Endorsement 8 provided there "shall be no coverage afforded by any provision of this policy for any actual or alleged Wrongful Act occurring after the effective time of" the consolidation or merger. The policy continued only as to acts occurring before the 2000 merger. Thus, the MediaOne policy would not in any event apply to the claims made in the underlying lawsuits.

D.

Finally, we find no error in the dismissal of AT&T's complaint prior to the conclusion of the underlying lawsuits. Coverage can be determined from the face of the complaints. Lillis has already been finally determined. The complaints in the Allen, Pardun, and Johnson actions allege the same breach of contract claims without any claim for negligent misrepresentation. If the claims made in those lawsuits are amended respecting the administration of the 1994 Plan or a breach of fiduciary duty, AT&T can renew its demand for coverage.

IV.

AT&T argues that the judge erred in dismissing its claims against the 2004-2005 Insurers with prejudice and without discovery or the opportunity to amend the complaint. AT&T argues that the judge (a) incorrectly interpreted the coverage requirements for divested plan under the 2004-2005 policies; (b) disregarded AT&T's allegations regarding compliance with those requirements; and (c) failed to give AT&T an opportunity to amend in order to more specifically allege compliance or for discovery on that issue prior to dismissal of its claims against the 2004-2005 Insurers.

With respect to the first issue, AT&T in essence alleges that it was not required to secure a written endorsement adding the 1994 Plan to the definition of Plan, as required by subpara-graph (4) governing ESOPs because the 1994 Plan was sold, spun-off, or terminated prior to the inception of the National Union primary policy and subparagraph (2) only required written notice of such a divested plan. It urges that the definition of Plan only distinguishes between types of plans with respect to existing plans, such as pension plans, ESOPs, and other types of plans. Alternatively, it argues if the definition of Plan is ambiguous, it must be construed against the 2004-2005 Insurers.

We find no ambiguity in the definition of Plan. It automatically encompasses qualified plans*fn6 and nonqualified plans.*fn7 An ESOP such as the 1994 Plan clearly falls within the definition of Plan. The policy then states that the automatic inclusion of qualified and nonqualified plans was "subject to the following provisions." They are: "(1) If such Plan is a Pension Plan(s), other than an ESOP . . . or a Pension Plan described in subparagraphs (5)(a) or 5(b) below; (2) If such Plan was sold, spun-off, or terminated prior to the inception date of this policy . . .; (3) If such Plan is sold, spun-off or terminated during the Policy Period . . .; (4) If such Plan is an ESOP . . .; or (5) If such Plan is a Pension Plan . . . and (a) is acquired during the Policy Period as a result of the . . . acquisition of a Subsidiary . . . or (b) is acquired during the Policy Period . . . ."

Clearly provisions (1), (4), and (5) are exclusive of each other as are provisions (2) and (3). However, provisions (2) and (3) are not exclusive of provisions (1), (4), and (5) because a sold, spun-off, or terminated plan can be a pension plan or an ESOP, both of which undoubtedly carry the potential for significant liability, as here. "A basic principle of contract interpretation is to read the document as a whole in a fair and common sense manner." Hardy, supra, 198 N.J. at 103. We find no error in the application of subparagraph (4) to the 1994 Plan.

Unlike subparagraph (2), which requires only notice of the existence of a sold, spun-off, or terminated plan, under sub-paragraph (4), in order for an ESOP to be included within the definition of "plan" in the policy, it must have been added in a specific written endorsement attached to the policy. There was no such endorsement here, and AT&T does not argue otherwise. Therefore, there was no coverage under the 2004-2005 policies for loss suffered by AT&T as a result of the underlying litigation.

Our ruling on the first issue makes the remaining issues raised by AT&T with respect to the 2004-2005 Insurers moot.

Affirmed.


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