Silver v. American Safety Indemnity Company , 31 F. Supp. 3d 140 ( 2014 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
JONATHAN MOSES SILVER, )
)
Plaintiff, )
)
v. ) Civil Action No. 13-611 (EGS)
)
AMERICAN SAFETY INDEMNITY )
COMPANY, )
)
Defendant. )
)
MEMORANDUM OPINION
Plaintiff Jonathan Silver brings this action against his
former insurer, American Safety Indemnity Company (“American
Safety”). Plaintiff alleges that American Safety breached the
insurance policy it issued him when it refused to provide
coverage for his legal expenses arising out of his former role
as Executive Director of the Department of Energy’s Loan
Programs Office. Plaintiff also alleges American Safety
breached the duty of good faith and fair dealing by the same
conduct. He seeks to recover compensatory and punitive damages.
Pending before the Court is defendant’s Motion for Judgment
on the Pleadings and plaintiff’s Cross-Motion for Partial
Summary Judgment. Upon consideration of the motions, the
responses and replies thereto, the entire record, and for the
reasons explained below, defendant’s motion is GRANTED.
Accordingly, because the court grants judgment on the pleadings,
plaintiff’s cross motion for summary judgment is DENIED as moot.
I. BACKGROUND
A. Plaintiff’s Employment, and the Policy Purchased
Plaintiff Jonathan Silver is a resident of the District of
Columbia. Compl. ¶ 2. Defendant American Safety is an Oklahoma
corporation with its principal place of business in Georgia.
Compl. ¶ 3, Answer ¶ 3. Defendant is licensed to and does
transact business in the District of Columbia. Compl. ¶ 3.
In November 2009, plaintiff was appointed Executive
Director of the Loan Programs Office (“LPO”) of the United
States Department of Energy by Secretary of Energy, Steven Chu.
Compl. ¶ 6. While serving in this position, plaintiff purchased
from American Safety a Federal Employee Professional Liability
Policy with certificate number P0169PF21031400 (the “Policy”).
Compl. ¶ 10. The Policy Period was March 11, 2011 to March 11,
2012. Compl. Ex. A, Certificate of Insurance. The Policy
provides two types of coverage. Section I provides “civil suit
coverage,” and Section II provides “administrative and criminal
legal defense expense coverage.” Compl. Ex. A, Policy §§ I, II.
Only Section II of the Policy is at issue in this case.
Coverage under Section II is provided as follows:
The Company shall select counsel and pay the costs of
defense . . . on each valid “Insured Member’s” certificate
arising out of any “disciplinary proceedings”, “judicial
2
sanctions proceedings”, “criminal proceedings”, or any
investigations into the “Insured Member’s” alleged
misconduct, instituted against the Insured Member from any
act, error or omission in Professional Services rendered or
which should have been rendered in the “Insured Member’s”
professional capacity as a full or part-time Employee of
the United States Government.
Policy § II.A. The Policy defines “Insured Member” as:
Any full or part time civilian federal employee meeting the
definition of 5 U.S.C. § 2105(a) . . . .
Id. § IV.H.
Finally, the Policy places conditions on coverage under
Section I and, separately, under Section II. Policy § VII.
Among the conditions for Section II Coverage is:
Benefits under the Administrative and Criminal Legal
Defense Coverage cease when the “Insured Member” no longer
meets the definition of “Insured Member”.
Policy § VII.B (emphasis in original) (hereinafter “Condition
B”). The Policy does not contain a similar condition for
Section I coverage.
B. Plaintiff’s Position at the Department of Energy,
Departure from the Government and Government
Investigations into Solyndra LLC
Mr. Silver worked as Executive Director of the LPO from
November 2009 to October 2011. Compl. ¶¶ 6, 9. In that post,
Plaintiff oversaw certain loan programs created by the 2005
Energy Policy Act and 2009 Energy Recovery Act, intended to
support commercial deployment of clean and renewable energy.
Compl. ¶ 7. During plaintiff’s tenure at LPO, one of the solar
3
energy companies that had been awarded a loan guarantee,
Solyndra LLC, began facing financial difficulties. Compl. ¶ 23.
It could not meet its loan obligations, and in September 2011 it
filed for bankruptcy. Id. Shortly thereafter, a number of
investigations into the loan guarantee program and its loan to
Solyndra were initiated by various governmental entities.
Compl. ¶ 25.
In October 2011, Mr. Silver left his position at the
Department of Energy. Compl. ¶ 9. In November 2011, the FBI
requested that he make himself available to be interviewed
regarding a government investigation into the loans to Solyndra.
Compl. Ex. B, Oct. 3, 2012 letter from J. Murray to A. Vergnetti
(“Oct. 3, 2012 Letter”). In December 2011, the White House made
a similar request. Id. Finally, in a letter dated July 12,
2012, the U.S. House of Representatives Committee on Oversight
and Governmental Reform (“Committee”) informed Plaintiff that
his use of unofficial email addresses while at the LPO could
violate a variety of federal statutes, including some punishable
by criminal or civil penalties. Id. (Enclosure: Jul. 12, 2012
Letter from D. Issa, J. Jordan to J. Silver). The Committee
instructed him to produce documents for its ongoing
investigation into the loan guarantee program. Id.
On or about December 20, 2011, Plaintiff’s counsel
contacted American Safety to provide notice of the proceedings
4
pending and to request legal counsel under the Policy. Compl.
¶¶ 28—29. Between December 20, 2011 and January 18, 2013,
Plaintiff’s counsel and various representatives of American
Safety corresponded regarding the Policy. Compl. ¶¶ 29—30;
Compl. Exs. B—F.
In written correspondence, American Safety acknowledged
that the proceedings involving Plaintiff qualified as
“disciplinary proceedings” under Section II of the Policy.
Compl. Ex. C, Oct. 8, 2012 letter from D. Sherman to J. Silver
(“Oct. 8, 2012 Letter”). However, defendant denied the claim:
We regret to inform you that there is no coverage afforded
to you for this disciplinary proceeding. Your “Insured
Member” status effectively terminated upon your resignation
from federal service on or about October of 2011. Your
first notice to American Safety was . . . after your
resignation was finalized and your “Insured Member” status
expired. Accordingly, you reported this investigation
after your policy ceased to provide you with coverage.
Id. p.3.1
Plaintiff filed this lawsuit on April 30, 2013. Count One
alleges breach of contract; Count Two alleges breach of the duty
of good faith and fair dealing. After filing an Answer,
1
The parties dispute the date plaintiff first notified American
Safety of the proceedings against him. Plaintiff contends he
provided notice in December 2011; defendant claims it was July
2012. At the motion for judgment on the pleadings stage, the
Court takes the facts in the Complaint as true. As set forth
below, however, the relevant date in this case is October 2011,
when Plaintiff resigned from government employment. As both
December 2011 and July 2012 occur after that date, the parties’
disagreement is irrelevant.
5
American Safety moved for judgment on the pleadings and Mr.
Silver cross-moved for partial summary judgment. The motions
are ripe for resolution by the Court.
II. STANDARD OF REVIEW
A Rule 12(c) motion is “functionally equivalent” to a Rule
12(b)(6) motion and governed by the same standard. Rollins v.
Wackenhut Servs., Inc., 703 F.3d 122, 130 (D.C. Cir. 2012). A
motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)
“tests the legal sufficiency of a complaint.” Browning v.
Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). A complaint must
contain “a short and plain statement of the claim showing that
the pleader is entitled to relief, in order to give the
defendant fair notice of what the . . . claim is and the grounds
upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007) (quotation marks omitted; alteration in original).
While detailed factual allegations are not necessary, plaintiff
must plead enough facts “to raise a right to relief above the
speculative level.” Id.“The court is limited to considering acts alleged in the
complaint, and documents attached to or incorporated by
reference in the complaint, matters of which the court may take
judicial notice, and matters of public record.” Maniaci v.
Georgetown Univ., 510 F. Supp. 2d 50, 59 (D.D.C. 2007) (internal
citations omitted). The Court must construe the complaint
6
liberally in plaintiff’s favor and grant plaintiff the benefit
of all reasonable inferences deriving from the complaint. Kowal
v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
However, the Court must not accept plaintiff’s inferences that
are “unsupported by the facts set out in the complaint.” Id.“Nor must the court accept legal conclusions cast in the form of
factual allegations.” Id. “[O]nly a complaint that states a
plausible claim for relief survives a motion to dismiss.”
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
III. ANALYSIS
A. Choice of Law
Federal courts sitting in diversity must apply the
conflicts of laws rules of the state in which they sit. Klaxon
v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496—97 (1941).
Therefore, this Court applies the District of Columbia’s choice
of law analysis. In insurance cases, where the insured is a
citizen of the District of Columbia and the underlying events
occurred here, courts have held that D.C. law applies. See,
e.g., Nationwide Mut. Ins. Co. v. Richardson, 270 F.3d 948, 953
(D.C. Cir. 2001).
The parties agree that District of Columbia law applies
because the insured, Plaintiff, is a citizen of the District,
the investigations which gave rise to his claim for coverage
took place here, and the legal services for which he seeks
7
coverage were provided in the District of Columbia. Compl. ¶¶
2, 6-8, 23-25, Compl. Ex. A; see also Def.’s Mot. for Judgment
on the Pleadings (“Def.’s Mot.”) at 7—8.
B. Defendant’s Motion for Judgment on the Pleadings
1. Breach of Contract
American Safety contends that Mr. Silver’s resignation from
government employment in October 2011 – before he became
involved in any disciplinary proceedings or criminal proceedings
– renders him ineligible for coverage under Section II relating
to these proceedings. Def.’s Mot. at 10.2 The insurer focuses
on two provisions of the Policy. First is Condition B of the
Policy’s Section II Coverage, which provides “Benefits under
Administrative and Criminal Legal Defense Coverage cease when
the “Insured Member” no longer meets the definition of “Insured
Member””. Policy § VII.B (emphasis in original). Second is the
definition of an “Insured Member,” which is restricted, in
relevant part, to full or part-time civilian federal employees.
Policy § IV.H.1. Defendant argues that these two provisions
unambiguously state that coverage under Section II “ends when an
insured ceases to be a federal government employee.” Def.’s
Mot. 11. The Complaint alleges that Mr. Silver left federal
government employment in October 2011, and the investigations
2
Plaintiff only claims benefits under Section II of the Policy:
Administrative and Legal Defense Expense Coverage. See, e.g.,
Compl. ¶ 48.
8
for which he seeks coverage did not begin until the following
month, November 2011. Compl. ¶ 9, Ex. B, Oct. 3, 2012 Letter.
Accordingly, defendant argues, the Policy does not cover
plaintiff’s claim. Def.’s Mot. 11.
“An insurance policy is a contract between the insured and
the insurer, and in construing it [a court] must first look to
the language of the contract.” Cameron v. USAA Prop. & Cas.
Ins. Co., 733 A.2d 965, 968 (D.C. 1999). If that language is
not ambiguous, “the policy must be enforced as written, absent a
statute or public policy to the contrary.” Nat’l R.R. Passenger
Corp. v. Lexington Ins. Co., 445 F. Supp. 2d 37, 41 (D.D.C.
2006) (citing Cameron, 774 A.2d at 968—69). “The first step in
contract interpretation is determining what a reasonable person
in the position of the parties would have thought the disputed
language meant . . . . The writing must be interpreted as a
whole, giving a reasonable, lawful, and effective meaning to all
its terms” – “[i]f a document is facially unambiguous, its
language should be relied upon as providing the best objective
manifestation of the parties’ intent.” 1010 Potomac Assocs. v.
Grocery Mfrs. of America, 485 A.2d 199, 205 (D.C. 1996)
(citations omitted). If that language is ambiguous, “extrinsic
evidence of the parties’ subjective intent may be resorted
to[,]” id., and courts typically “interpret any ambiguous
provisions in a manner consistent with the reasonable
9
expectations of the purchaser of the policy,” Cameron, 733 A.2d
at 968 (citations omitted). “A contract is ambiguous only if
reasonable people may fairly and honestly differ in their
construction of the terms because the terms are susceptible of
more than one meaning. A contract is not ambiguous merely
because the parties disagree over its meaning.” Nat’l R.R.
Passenger Corp. v. Lexington Ins. Co., 2003 U.S. Dist. LEXIS
26405, at *15 (D.D.C. May 20, 2003) (citations omitted).
Plaintiff first contends that Condition B, which states
that “benefits” under Section II “cease when the “Insured
Member” no longer meets the definition of “Insured Member””,
should be read to provide recovery for his legal expenses. He
claims that the term “benefits” should be interpreted narrowly
as “the entitlement to coverage for any future acts, errors, or
omissions. Under this interpretation, [Condition B] would only
bar recovery for prospective acts or omissions . . . that occur
after the former employee leaves government service.” Pl.’s
Opp’n and Cross Mot. at 16 (“Pl.’s Opp’n”).
Plaintiff’s reading of Condition B cannot be reconciled
with the provision’s language or the Policy’s grant of coverage
under Section II. The grant of coverage under Section II only
applies to “disciplinary proceedings”, “judicial sanctions
proceedings”, “criminal proceedings”, or other investigations
“instituted against the “Insured Member” from any act, error or
10
omission in Professional Services rendered or which should have
been rendered in the “Insured Member’s” professional capacity as
a full or part-time Employee of the United States Government.”
Policy § II.A. The grant of coverage unambiguously limits
coverage to the alleged professional errors or omissions of a
government employee. Plaintiff’s proffered interpretation of
Condition B would merely repeat the exact same limitation, thus
rendering it “useless, . . . meaningless or superfluous and,
hence” his interpretation “should be rejected.” Anderson v.
D.C. Hous. Auth., 923 A.2d 853, 867 (D.C. 2007) (citations
omitted).
Plaintiff next contends that the definition of “Insured
Member” is ambiguous because its use in Condition B is
“inconsistent with how [the term] is used in numerous other
provisions of the . . . Policy.” Pl.’s Opp’n at 20-21
(discussing the Policy’s definition of “claims,” see Policy §
IV.B and the provisions of the Automatic Extended Reporting
Period, see Policy § I.B). Plaintiff fails to point out,
however, that these “numerous other provisions” to which he
refers all relate solely to the Policy’s coverage for Civil Suit
Liability under Section I, which is distinct from Section II
coverage and which does not apply to this case. Id., see also
Def.’s Reply at 5-6. Moreover, the Policy’s definition of
“Insured Member” unambiguously includes current, not former,
11
federal employees. Policy § IV.H. To the extent that the Policy
provides certain extensions of coverage for a defined universe
of civil claims under Section I, this does not create an
ambiguity either in the definition of “Insured Member” or its
application to non-civil, Administrative and Criminal Legal
Defense claims under Section II. See, e.g., 1010 Potomac
Assoc., 485 A.2d at 205 (“[T]he [contract] must be interpreted
as a whole, giving a reasonable, lawful and effective meaning to
all its terms.”)(citations omitted).
Finally, the Plaintiff contends that American Safety’s
interpretation of the policy would render coverage under Section
II illusory because it would deny coverage for “disciplinary
proceedings” or “criminal proceedings” which occurred after
Plaintiff left government employment but before the expiration
of his Policy Period. Plaintiff argues that this interpretation
of the policy denies coverage “exactly when [defendant’s] policy
holders most need, and reasonably expect, the insurance coverage
that they purchased.” Pl.’s Opp’n at 23. The Court disagrees
that coverage is illusory as a matter of law. The Policy
provides current government employees with coverage for civil
suits under Section I, and defense costs associated with certain
administrative or criminal proceedings under Section II. In
certain circumstances, coverage under Section I is extended
beyond the Policy Period and beyond the policyholder’s
12
resignation from government employment. Policy §§ I.A, I.B,
IV.B, IV.H, VI. Coverage under Section II, by contrast, always
ceases at the end of government employment. Policy §§ II, IV.H,
VII.B. While the coverage afforded under Section II is
undoubtedly more limited than Section I, the Court cannot say
that it “is non-existent or de minimis,” Chase v. State Farm
Fire & Cas. Co., 780 A.2d 1123, 1131 (D.C. 2001), and therefore
illusory or otherwise invalid as a matter of public policy.
Without saying so expressly, Plaintiff’s argument is based
on the “reasonable expectations” doctrine, in which courts
generally interpret ambiguous provisions in a manner consistent
with the reasonable expectations of the purchaser of the policy.
Chase, 780 A.2d at 1131. This is not a “reasonable
expectations” case. When unambiguous, all provisions of a
contract, even exclusion provisions, “must be enforced even if
the insured did not foresee how the exclusion operated,
otherwise courts will find themselves in the undesirable
position of rewriting insurance policies and reallocating
assignment of risks between insurer and insured." Capitol
Specialty Ins. Corp. v. Sanford Wittels & Heisler LLP, 793 F.
Supp. 2d 399, 409 (D.D.C. 2011) (internal citations and
quotation marks omitted).3 “If the policies are clear and
3
The parties disagree whether Condition B operates as a
condition precedent or an exclusion, and thus whether it is
13
unambiguous, they will be enforced by the courts as written.”
Chase, 780 A.2d at 1132 (internal quotations omitted).4
For the foregoing reasons, coverage under Section II of the
Policy unambiguously ceased when Plaintiff resigned as a
government employee in October 2011. Accordingly, American
Safety is entitled to judgment on the pleadings on Count One of
the Complaint because the facts alleged and exhibits presented
in the Complaint, even when accepted as true, establish that the
Policy does not cover plaintiff’s claim.
plaintiff’s burden to bring himself within the terms of the
policy or defendant’s burden to demonstrate the applicability of
an affirmative defense. Compare Def.’s Mot. at 9—10; Pl.’s
Opp’n at 10—14. The distinction is irrelevant in this case; for
the reasons set forth throughout, American Safety has met its
burden under either standard.
4
In opposing defendant’s Motion for Judgment on the Pleadings,
plaintiff also suggests that defendant may be estopped from
relying on Condition B because, he alleges, “[defendant’s] own
claims administrator . . . never cited, let alone relied upon,
[Condition B].” Pl.’s Opp’n at 18—19. This argument is
unpersuasive. In its October 8, 2012 letter to plaintiff’s
counsel, defendant’s representative, although not specifically
quoting Condition B, stated “We regret to inform you that there
is no coverage afforded to you for this disciplinary proceeding.
Your “Insured Member” status effectively terminated upon your
resignation from federal service on or about October of 2011.
Your first notice to American Safety Indemnity Company of this
disciplinary proceeding was . . . after your resignation was
finalized and your “Insured Member” status expired.
Accordingly, you reported this investigation after your policy
ceased to provide you with coverage.” Compl. Ex. C, p.3.
Plaintiff’s contrary reading of the letter, therefore, cannot be
sustained.
14
2. Bad Faith/Breach of Duty of Fair Dealing
The parties disagree whether the District of Columbia
recognizes a tort of bad faith/breach of fair dealing in
insurance claims handling. Compare Def.’s Mot. at 11—14; Pl.’s
Opp’n at 24. Their disagreement need not be resolved here,
because the parties agree that such a claim, if it exists, would
arise only where an insurance company failed to pay a covered
claim. Def.’s Mot. at 13 n.4, Pl.’s Opp’n at 24. Because the
Court has determined that American Safety did not breach the
contract, plaintiff’s bad faith claim cannot succeed.
Accordingly, American Safety is entitled to judgment on the
pleadings on Count Two of the Complaint.
3. Plaintiff’s Motion for Summary Judgment
Plaintiff filed a cross-motion for partial summary judgment
on Count One of the Complaint. Because the Court grants
defendant’s motion for judgment on the pleadings, it is
unnecessary to reach the cross-motion for partial summary
judgment. Accordingly, plaintiff’s cross motion will be denied
as moot.
IV. CONCLUSION
For the foregoing reasons, defendant’s Motion for Judgment
on the Pleadings is hereby GRANTED and plaintiff’s Cross-Motion
15
for Partial Summary Judgment is hereby DENIED as moot. An
appropriate Order accompanies this Memorandum Opinion.
SO ORDERED.
Signed: Emmet G. Sullivan
United States District Judge
March 26, 2014
16