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ADI Worldlink, LLC v. Rusi Indemnity Co.

United States District Court, E.D. Texas, Sherman Division

September 18, 2017

ADI WORLDLINK, LLC
v.
RSUI INDEMNITY COMPANY

          Nowak, Judge.

          MEMORANDUM ADOPTING REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

          AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE.

         Came on for consideration the report of the United States Magistrate Judge in this action, this matter having been heretofore referred to the Magistrate Judge pursuant to 28 U.S.C. § 636. On August 16, 2017, the report of the Magistrate Judge (Dkt. #95) was entered containing proposed findings of fact and recommendations that Defendant RSUI Indemnity Company's Motion for Summary Judgment (Dkt. #71) be granted, Plaintiff Adi WorldLink, LLC's Amended Motion for Partial Summary Judgment (Dkt. #76) be denied, and Defendant's Motion to Strike Summary-Judgment Evidence (Dkt. #79) be denied as moot. Having received the Report and Recommendation of the Magistrate Judge (Dkt. #95), having considered Plaintiff's timely filed objections (Dkt. #100), and having conducted a de novo review, the Court is of the opinion that the findings and conclusions of the Magistrate Judge are correct, and as such adopts the Magistrate Judge's report (Dkt. #95) as the findings and conclusions of the Court.

         RELEVANT BACKGROUND

         The instant case arises from an insurance coverage dispute between Plaintiff Adi WorldLink, LLC (“WorldLink” or “Plaintiff”) and Defendant RSUI Indemnity Company (“RSUI” or “Defendant”). Plaintiff, the insured, seeks defense cost coverage from Defendant, the insurer, for several claims made against Plaintiff from 2014 through 2016. Defendant denied coverage for these claims. Plaintiff sues for breach of contract and violation of various provisions of the Texas Insurance Code and the Texas Deceptive Trade Practices Act (the “DTPA”).

         Insured's Claims

         On July 31, 2014, Derek Lamb and Doan Nguyen (collectively “Lamb”) filed a complaint against WorldLink before the American Arbitration Association, alleging that WorldLink failed to pay Lamb overtime for at least three years and improperly categorized Lamb as an “exempt” employee under the Fair Labor Standards Act (“FLSA”) (Dkt. #71, Ex. 4). Lamb later added claims under Washington and Michigan state law for similar allegations (Dkt. #71, Ex. 3 at 174-75). The Court hereinafter refers to the Lamb arbitration and claims as the “Lamb Claim.” On or before August 11, 2014, Plaintiff received notice that Lamb had filed the Lamb Claim (Dkt. #71, Exs. 3 at 162-62, 5 at 5). Beginning around April 2015, other IMP engineers, like Lamb, initiated arbitration proceedings against WorldLink for the same allegedly improper employment practices (see Dkt. #71, Ex. 3 at 154-61, 94-107). The Court hereinafter and collectively refers to these claims made during the 2015 Policy period as the “2015 Claims.” Plaintiff notified RSUI of each of these claims and the Lamb claim on September 16, 2015 (Dkt. #71, Ex. 6 at 25). On October 5, 2016 RSUI denied coverage for all of Plaintiff's claims (Dkt. #71, Ex. 6 at 25).

         For nearly a year following RSUI's denial of coverage, WorldLink and RSUI continued to discuss the disputed coverage of Plaintiff's claims (see Dkt. #71, Ex. 6 (RSUI denial letters)). The complaints filed against WorldLink all arise from WorldLink's alleged failure to categorize IMP engineers as non-exempt, and involve claims arising under the FLSA, state copycat statutes, and/or related state statutes (see, e.g., Dkt. #71, Ex. 3). RSUI denied defense coverage for these claims due to WorldLink's untimely notice to RSUI of the Lamb Claim, and because each of the claims is “interrelated” such that they constitute a “single claim” under WorldLink's Directors and Officers liability insurance policy (see Dkt. #71, Ex. 6).

         WorldLink's Directors and Officers Liability Insurance Policies

         The instant case involves two insurance policies: (1) WorldLink's Directors and Officers liability insurance policy for the period of December 31, 2013, to December 31, 2014 (“2014 Policy”); and (2) WorldLink's Directors and Officers liability insurance policy for the period of December 31, 2014, to January 14, 2016 (“2015 Policy”) (collectively the “Policies”). Regarding WorldLink's (the Insured's) making and reporting of a claim to RSUI (the Insurer), both Policies provide:

If during the Policy Period or Discovery Period (if applicable), any Claim is first made, it shall be a condition precedent to the Insurer's obligation to pay, that the Insured give written notice of such Claim to the Insurer as soon as practicable after the Insured's Chief Executive Officer, Chief Financial Officer, General Counsel, or Risk Manager of the Insured Organization or equivalent person first becomes aware of the Claim, but in no event shall such notice be given after either the expiration date or any earlier cancellation date of this policy or sixty (60) days after the expiration or earlier cancellation date of this policy if the Claim is first made against and Insured during the final 30 days of the Policy Period.
. . .
If, during the Policy Period or Discovery Period (if applicable), [the] Insured first becomes aware of any facts or circumstances which may reasonably be expected to give rise to a Claim against [the] Insured and, as soon as practicable thereafter, but before the expiration date or any earlier cancellation date of this policy, gives to the Insurer written notice, of such facts or circumstances along with the full particulars described below, then any Claim subsequently made against [the] Insured arising out of such facts or circumstances will be deemed first made during the Policy Period. The written notice shall include, at a minimum:
a. The names or identity of the potential claimants and a detailed description of the specific alleged Wrongful Act and
b. The circumstances by which the Insured first became aware of the specific alleged Wrongful Act.

(Dkt. #71, Exs. 1 & 2 at 15, 34 (the “Claims Made and Reported Requirement”) (emphases added); see also Dkt. #71, Ex. 1 & 2 at 26 (“this is a claims made and reported policy that applies only to those claims first made against the insured during the policy period that are reported to the insurer during the policy period, or within sixty (60) days thereafter”)). In the Policies, a “Single Claim” for coverage purposes is defined as:

All Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events, or the same or related series of facts, circumstances, situations, transactions or events, shall be deemed to be a single Claim for all purposes under this policy, shall be subject to the Retention stated in Item 4 of the Declarations Page, and shall be deemed first made when the earliest of such Claims is first made, regardless of whether such date is before or during the Policy Period.

(Dkt. #71, Exs. 1 & 2 at 33 (emphasis added) (the “Interrelatedness Condition”)). Further, the Policies specifically exclude claims arising on or before December 31, 2012:

The Insurer shall not be liable to make any payment for Loss in connection with any Claim ...

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