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Scottsdale Indemnity Co. v. Convercent, Inc.

United States District Court, D. Colorado

November 14, 2017

SCOTTSDALE INDEMNITY COMPANY, Plaintiff,
v.
CONVERCENT, INC., O'NEAL PATRICK QUINLAN, III, and STEVE FOSTER, Defendants.

          ORDER ON MOTIONS FOR SUMMARY JUDGMENT

          R. Brooke Jackson, United States District Judge.

         This matter is before the Court on two motions: (1) defendants/counter-plaintiffs Convercent, Quinlan, and Foster's (collectively “defendants”) motion for summary judgment on their counterclaim for declaratory judgment, ECF No. 10, and (2) plaintiff/counter-defendant Scottsdale Indemnity Company's cross-motion for summary judgment, ECF No. 15. For the reasons stated below, the Court DENIES defendants' motion and GRANTS in part and MOOTS in part Scottsdale's motion.

         I. FACTS

         This case is a declaratory judgment action filed by Scottsdale Indemnity Company, Convercent's insurer. Scottsdale seeks a declaratory judgment concerning its obligation to insure defendants with respect to an Equal Employment Opportunity Commission (“EEOC”) charge and a civil lawsuit against defendants. Both the EEOC charge and the civil case were brought by former Convercent employee Mr. Ferraro. In his EEOC charge, Mr. Ferraro alleged that Convercent engaged in age discrimination and retaliation. ECF No. 1-3 at 2. In his civil case, Ferraro v. Convercent, No. 17-CV-00781-RBJ, Mr. Ferraro raised similar claims against defendants related to his termination from the company, including age discrimination and retaliation. Scottsdale has denied Convercent insurance coverage related to Mr. Ferraro's claims against defendants, and defendants dispute Scottsdale's grounds for denying coverage.

         Scottsdale Insurance Policies

         This case involves two essentially identical Business and Management Indemnity insurance policies that Scottsdale issued to Convercent. The first covered the period from May 30, 2015 to May 30, 2016 (the “2015 Policy”), and the second covered the period from May 30, 2016 to May 30, 2017 (the “2016 Policy”). These policies are “claims-made” policies, which cover claims of wrongful acts that occur during the policy period and that are reported to the insurer within a given time period. ECF No. 1-5 at 7; ECF No. 1-6 at 7. The policies each contain an “Employment Practices Coverage Section” (“EPC” section) and a “Directors & Officers & Company Coverage Section” (“D&O” section). ECF No. 1-5 at 14, 22; ECF No. 1-6 at 14, 22. Defendants concede that they are not seeking coverage for Mr. Ferraro's claims under the D&O sections of either policy, but instead that they are only seeking coverage under the EPC section of the 2016 Policy. ECF No. 8 at 9-13. As such, I will only discuss the substantive provisions of the 2016 Policy's EPC section here.

         Under the EPC section of the 2016 Policy, a “wrongful act” includes an “employment practices wrongful act” which is defined (as relevant here) as “any actual or alleged: (a) violation of common or statutory . . . law prohibiting any kind of employment-related discrimination” or “(k) retaliation.” ECF No. 1-6 at 15. A “claim” in this context includes an “employment practices claim, ” which is defined as:

a. a written demand against an Insured for damages or other relief;
b. a civil, judicial, administrative, regulatory or arbitration proceeding or a formal governmental investigation against an Insured seeking damages or other relief, commenced by the service of a complaint or similar pleading, including any appeal therefrom;
c. a civil proceeding against an Insured before the Equal Employment Opportunity Commission or any similar federal, state or local governmental body, commenced by the filing of a notice of charges, investigative order or similar document; or
d. a criminal proceeding brought for an Employment Practices Wrongful Act in a court outside of the United States against any Insured, commenced by a return of an indictment or similar document, or receipt or filing of a notice of charges.

Id. (internal emphases removed).

         The Policy indicates that “all claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts shall be deemed to be a single Claim.” Id. at 19. A claim is deemed to have been made whenever the earliest claim involving the same wrongful act or interrelated wrongful acts is first made. Id. The Policy covers losses incurred in connection with claims first made during the policy period and reported to Scottsdale “as soon as practicable, but in no event later than sixty (60) days after such Claim is first made against the Insureds, or the expiration of the Policy Period, whichever is later.” Id.

         Underlying Employment Practices Claim

         The dispute in this case turns on when Mr. Ferraro's “claim” against defendants arose. As such, it is necessary to briefly outline the undisputed facts about Mr. Ferraro's allegations. Mr. Ferraro, a Convercent employee, was told in October 2015 that Convercent would be terminating his employment in early 2016. Believing that the grounds for his termination were improper, Mr. Ferraro documented his complaints in a letter dated October 20, 2015 he sent via email to Convercent's Board of Directors, its CEO Mr. Quinlan, and former President Mr. Foster. In that letter Mr. Ferraro asserted his belief that Convercent had violated legal protections afforded him when Convercent violated its representations to Mr. Ferraro about his continued employment and compensation; that Convercent had violated federal law including the Age Discrimination in Employment Act (“ADEA”) and Age Discrimination Act of 1975, along with “an assortment of federal regulations” by terminating his employment because of his age; and that Convercent's Board members may have breached their duties and responsibilities. ECF No. 1-1 at 9-10.

         In his October letter, Mr. Ferraro also requested that while the parties “reflect on what has taken place and why, ” they “ensure that my salary and benefits are not interrupted until this matter is fully resolved.” Id. at 10. Mr. Ferraro further requested that Convercent “reconsider the decision to terminate my employment because of my age or any unjustified or unlawful reason;” that it hire an outside source to investigate his allegations and report its findings to the Board; and that all parties “quickly get together and determine if my continued employment may be mutually addressed in a manner reflective of all issues to avoid litigation.” Id. Finally, Mr. Ferraro assured the recipients of his letter that if they did not “pursue the steps outlined above, ” he would “pursue all appropriate remedies against everyone involved.” Id.

         When Mr. Ferraro did not receive a response to his October letter, he followed up with another in December 2015. In this letter he reiterated his assertions and requests, and noted that Convercent “cannot be looking forward to addressing publicly the allegations of contractual breach, misrepresentation, retaliation and discrimination.” ECF No. 1-2 at 1. He requested that the Board consider his earlier suggestions and that he “hear from an authorized representative of Convercent to move forward in a good faith fashion.” Id. at 2. Convercent did not notify Scottsdale about either of Mr. Ferraro's letters.

         Despite Mr. Ferraro's requests, his employment at Convercent was terminated on January 4, 2016. He filed a charge of discrimination with the EEOC on August 5, 2016. ECF No. 1-3 at 1. He alleged discrimination on the basis of his age in violation of the ADEA, and he included an account of his allegations similar to the one provided in his October 2015 letter. Id. On or around August 29, 2016 Convercent gave Scottsdale Insurance notice of Mr. Ferraro's EEOC charge against it. ECF No. 1-7 at 3. In its notice, Convercent sought coverage under the 2016 Policy. Id. at 2. On September 23, 2016 Nationwide Insurance denied coverage of Convercent's claim on Scottsdale's behalf. ECF No. 1-8. Nationwide noted that Mr. Ferraro's EEOC charge was related to his previous letters to Convercent, so Convercent was too late in providing Scottsdale notice of the claim to obtain coverage under the 2015 Policy. Id. at 2-3. Moreover, since the claim arose during the 2015 Policy, Nationwide noted that Convercent could not seek coverage under the 2016 Policy. Id.

         On March 28, 2017 Mr. Ferraro filed the above-referenced civil complaint in this Court, asserting a total of twelve counts against Convercent, Mr. Quinlan, and Mr. Foster. ECF No. 1-4. On April 4, 2017 Convercent gave Scottsdale notice of this claim against it, again invoking the 2016 Policy. ECF No. 1-9. On April 21, 2017 Nationwide again denied Convercent's claim for coverage on Scottsdale's behalf, arguing as before that Convercent had provided notice too late for the 2015 Policy and that the claim arose before the 2016 Policy. ECF No. 1-10 at 5-6.

         Procedural ...


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