On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-1584-11.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Fisher and Carchman.
Following the filing of an amended complaint in the Supreme Court of New York (the New York action or complaint) alleging a breach of contract based, in part, on an allegation of bad faith, plaintiff Old Berliner Liquidating Trust (plaintiff) brought an action against its insurer defendant North River Insurance Company (defendant), seeking coverage under a Platinum Management Protection Policy (the policy) issued by defendant to plaintiff. Plaintiff asserted that the New York action was covered as a breach of a fiduciary duty, while defendant responded that there was no coverage under the breach-of-contract exclusion contained in the policy. Judge Charles E. Powers, Jr., granted summary judgment to defendant and concluded that coverage was excluded. Plaintiff appeals, and we affirm.
There is no dispute as to the relevant facts.*fn1 As
part of the consideration for a loan transaction between plaintiff and
Critical Capital Growth Fund, L.P. (Critical Capital),*fn2
plaintiff provided Critical Capital with:
the right to
purchase at any time from
January 29, 1999[,] until . . . January
2006, up to 800,000 shares of [Old
stock] . . . (subject to
adjustment as provided in Section 8
at an initial exercise price (subject to
provided in Section 8 hereof)
of $1.50 per share.
This agreement was subsequently amended to provide Critical Capital with "additional warrants to purchase another 100,000 shares of Old Berliner's common stock."
Critical Capital "sought to exercise its rights pursuant to the [w]arrant [a]greement." However, Old Berliner delivered only a small fraction of the common shares Critical Capital had expected to receive (i.e., 330,882 shares, rather than 9,924,505). This discrepancy prompted the New York complaint.
The New York complaint was initially dismissed by a Justice of the New York Supreme Court, who opined that since the contract between the plaintiff and Critical Capital required a good faith valuation of stock by plaintiff's board of directors, Critical Capital's initial complaint was flawed because it contained "no allegations that the [Old Berliner] Board violated the agreement by failing to act in 'good faith[.]'"
Critical Capital amended its complaint,*fn3 and plaintiff asserted that it was entitled to coverage under the Directors and Officers Liability provisions of the policy. Defendant denied coverage. In so doing, it relied on exclusion 7(a) in the parties' insurance agreement, which provides:
The [i]nsurer shall not be liable to make any payment for [l]oss resulting from any [c]laim based upon, arising out of, or directly or indirectly resulting from a [c]ompany [w]rongful [a]ct in connection with any . . . breach of written or oral contract, agreement, warranty, or guarantee if such [c]laim is brought by or on behalf of a party to such contract, agreement, warranty, or guarantee.
The insurance agreement defines a "[c]ompany [w]rongful [a]ct" as: any actual or alleged error, omission, neglect, breach of duty, misstatement, or misleading statement committed or attempted by, attributable to, or allegedly committed or attempted by the [c]ompany.
Defendant claimed that these provisions exclude coverage of the Critical Capital suit, which it considered to be "predicated upon a breach of [a] contract[ual]" duty to act in good faith.
In his decision, Judge Powers concluded that the underlying cause of action in New York was "an ordinary breach[-]of[-] contract claim. Although the Amended Complaint includes allegations of bad faith during [plaintiff's] valuation process, the bad faith relates to a ...