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Abboud v. National Union Fire Insurance Company of Pittsburgh, PA

Superior Court of New Jersey, Appellate Division

June 21, 2017

MICHAEL ABBOUD, Plaintiff-Appellant,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant-Respondent.

          Argued December 20, 2016

         On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-680-14.

          Lawrence R. Lonergan argued the cause for appellant.

          Andrew L. Indeck argued the cause for respondent (Weber Gallagher Simpson Stapleton Fires & Newby, LLP, attorneys; Mr. Indeck, of counsel and on the brief; Jane S. Kelsey, on the brief).

          Before Judges Ostrer, Leone and Vernoia.

          OPINION

          OSTRER, J.A.D.

         In this insurance coverage dispute, we interpret an "insured vs. insured" exclusion in a directors and officers (D&O) liability policy. Generally speaking, such exclusions bar coverage for claims by one insured director or officer against another. Plaintiff Michael Abboud sought indemnity and a defense in connection with counterclaims made against him by fellow officers of Monarch Medical PET Services, LLC (Monarch). Defendant National Union Fire Insurance Company of Pittsburgh, Pa., eventually denied coverage based on the insured vs. insured exclusion. Abboud filed a declaratory judgment action against National Union, which ended in summary judgment dismissal and the present appeal.

         We discern no ambiguity in the exclusion, and find no basis for Abboud's argument that a showing of collusion between the insureds is required to invoke it. We also find no merit in his argument that National Union should be barred from denying coverage because it would violate his reasonable expectations. We therefore affirm.

         I.

         Abboud started the underlying litigation by suing: Monarch; four of its members and managers - Patrick Collins, Andrew Kreamer Rooke, Sr., Gary Moyers and William McCue; and a non-member officer, Andrew Kreamer Rooke, Jr. (collectively, "the defendants"). Abboud was a forty-percent owner of Monarch, which operates and leases PET/CT[1] equipment. He alleged the four member-managers tried to remove him from Monarch's board of managers and his position as its chief executive officer. In his verified complaint, Abboud alleged the defendants engaged in oppressive acts and breached their fiduciary duty and the firm's operating agreement. He sought: reinstatement, salary and other employment benefits; an injunction restraining the defendants from interfering with his access to the premises, its computers and its employees; as well as attorneys' fees and expenses.

         The verified complaint did not address the defendants' asserted reasons for their actions, but we gather they concerned Monarch's involvement with two other companies, Monarch Medical Imaging Equipment, Inc. (Monarch Imaging) - a corporation that Abboud and Collins owned - and Monarch Medical Technologies, LLC (Monarch Technologies) - a wholly owned subsidiary of Monarch Imaging. We infer this from Abboud's complaint, which sought to justify certain payments Monarch made to Monarch Imaging and the existence of other agreements between Monarch and Monarch Technologies.

         In their responsive pleading, Monarch and the individual defendants other than Collins asserted various counterclaims against Abboud. They alleged Abboud engaged in self-dealing and exploited Monarch's opportunities for his personal gain or that of his other companies. Monarch independently alleged Abboud breached his loyalty and fiduciary duties, and engaged in intentional interference with prospective economic advantage. The company and the individual counterclaimants also alleged breach of the operating agreement. Additionally, they sought a declaratory judgment that grounds existed for involuntarily withdrawing Abboud's membership interest in the company.

         All the defendants in Abboud's underlying lawsuit sought and obtained an acknowledgement of partial coverage from National Union, subject to a reservation of rights, under the Employment Practices Liability (EPL) section of Monarch's multi-coverage policy, which also included a D&O liability section. It appears the defendants made their request in a timely manner. National Union sent its coverage letter on March 13, 2013, a month after Abboud filed his complaint and a month before the filing of the answer and counterclaims.

         By contrast, Abboud did not notify National Union of the counterclaims against him until November 20, 2013, when his attorney gave "notice of claims covered" under the D&O section of the policy. The attorney asserted the notice was late because Monarch and National Union had delayed responding to his requests for information about coverage. National Union did not respond to the notice.

         In February 2014, Abboud filed his declaratory judgment action. Expressly invoking and quoting the policy's D&O section, Abboud sought indemnity and defense costs for the counterclaims in the underlying lawsuit. Referring to the November 20, 2013 notice of claim, he asserted National Union failed to respond to his purported "written claim for defense and indemnification." He argued that its failure barred National Union from denying coverage based on waiver and estoppel principles.

         In its answer, National Union denied its policy provided indemnity or defense costs coverage for the counterclaims against Abboud. Limited paper discovery followed. National Union objected to many of Abboud's discovery demands, including requests for claim processing documents and for the identification of an employee familiar with the policy's D&O section. Shortly thereafter, National Union filed its summary judgment motion. Although Abboud's attorney asserted that National Union's discovery responses were deficient, he did not formally seek to compel further discovery.

         In support of its summary judgment motion, National Union contended the insured vs. insured exclusion within the D&O section precluded coverage. In opposition, Abboud argued the exclusion applied only if there was collusion, and whether there was such collusion presented a genuine issue of material fact. He also contended enforcing the exclusion would frustrate his reasonable expectations. He based his estoppel argument on National Union's failure to respond to the November 2013 notice. He also argued National Union's motion was premature because discovery remained pending.

         In granting the motion, Judge Katie A. Gummer found that the insured vs. insured exclusion plainly barred Abboud's claim for coverage. The court rejected Abboud's arguments about collusion and reasonable expectations. Also, estoppel did not apply because Abboud failed to demonstrate any reliance on National Union's inaction. The judge rejected Abboud's ...


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