Mist Pharmaceuticals, LLC v. Berkley Insurance Company ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1286-22
MIST PHARMACEUTICALS, APPROVED FOR PUBLICATION
LLC, July 9, 2024
APPELLATE DIVISION
Plaintiff-Respondent,
v.
BERKLEY INSURANCE
COMPANY,
Defendant-Appellant.
___________________________
Argued January 30, 2024 – Decided July 9, 2024
Before Judges Rose, Smith and Perez Friscia.
On appeal from the Superior Court of New Jersey,
Law Division, Union County, Docket No. L-3329-17.
Adam M. Smith argued the cause for appellant
(Coughlin, Midlige & Garland, LLP, attorneys; Adam
M. Smith and Michael Edward Hrinewski, of counsel
and on the briefs; Tanya M. Mascarich, on the briefs).
Lynda Anne Bennett argued the cause for respondent
(Lowenstein Sandler, LLP, attorneys; Lynda Anne
Bennett, Eric Jesse and Alexander B. Corson, on the
brief).
The opinion of the court was delivered by
SMITH, J.A.D.
In this appeal we consider, as a matter of first impression, the operation
of capacity exclusion language in a directors and officers commercial
insurance policy where the insured director/officer is alleged to have engaged
in wrongful corporate acts in a dual capacity: first, acting in an official
capacity as a director/officer of the insured business; and second, in an official
capacity as a director/officer of an uninsured business.
Defendant Berkley Insurance appeals from six trial court orders
including: a December 5, 2018 order granting Mist Pharmaceutical's motion
for partial summary judgment, declaring Berkley's ongoing duty to defend
Mist in the underlying action and a January 9, 2019 order denying Berkley's
motion for reconsideration; an April 22, 2019 order granting Mist's motion for
counsel fees; a July 7, 2021 order denying Berkley's motion for summary
judgment; an October 12, 2022 order granting partial summary judgment to
plaintiff Mist, finding Mist was covered under Berkley's D&O policy and
Berkley was responsible for indemnification; and the trial court's November
18, 2022 final judgment order, awarding Mist the remaining policy limit,
prejudgment interest, and counsel fees.
In its October 12 order, applying Fireman's Fund Insurance Co. v.
Security Insurance Co. of Hartford, 72 N.J 63 (1976), the trial court found
Berkley's refusal to provide Mist consent to settle multiple business lawsuits
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unreasonable. The trial court thus ordered coverage as a matter of law.
Because it used Fireman's Fund as the basis for its order compelling coverage,
the court did not consider the effect of the capacity exclusion on this record.
We distinguish Fireman's Fund, concluding the policy exclusion applies to
preclude coverage, and we reverse the trial court's orders for the reasons that
follow.
I.
Mist was named as a party to an action brought by CelestialRX
Investments, LLC in Delaware chancery court on November 20, 2015 (the
Delaware action). CelestialRX Invs., LLC v. Krivulka, et al., No. 11733-VCG,
2017 Del. Ch. LEXIS 22 (Del. Ch. Jan. 31, 2017).1 Other named parties
included Joseph Krivulka, Akrimax Pharmaceuticals, LLC (Akrimax) and
various other Krivulka Family Entities (KFEs). Celestial alleged in its twelve -
count complaint that Krivulka, one of three Akrimax directors, engaged in a
1
Although we generally do not cite an unpublished opinion, we do so here to
provide a full understanding of the issues presented and pursuant to the
exception in Rule 1:36-3, permitting citation "to the extent required by res
judicata, collateral estoppel, the single controversy doctrine or any other
similar principle of law." See Zahl v. Hiram Eastland, Jr., 465 N.J. Super. 79, 86
n.1 (App. Div. 2020). Here, the Delaware court's opinion provides a concise
factual and procedural history of the alleged scheme which serves as the
background for this litigation.
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scheme of self-dealing which defrauded Celestial. 2 The Delaware court
summarized the allegations this way:
Krivulka improperly inserted various entities that he
controlled or was invested in . . . as middlemen
between Akrimax and other drug companies from
whom Akrimax sought to receive drug rights. The
[m]iddlemen [e]ntities received a cut of the sales or
marketing performed by Akrimax. The favorability of
the terms under which the [m]iddlemen [e]ntities were
interposed between the company and third parties is
heavily disputed.
[CelestialRX, No. 11733-VCG at *2.]
Mist was identified as one of the "middlemen entities." At all relevant
times, Krivulka was the Chairman of Mist's board, and held greater than a
ninety percent interest in the company. Krivulka also controlled other
middlemen entities, including Mist Partners, LLC and Mist Acquisition, LLC.
These other businesses were not insured by Berkley.
Mist was a covered insured under a Directors and Officers Liability
insurance policy (D&O policy) through Berkley with a $2 million policy limit.
The policy term ran from April 8, 2014 to November 30, 2015. Under the
D&O policy, Mist was insured for loss arising from claims that were both
2
Celestial owned a forty-nine percent share of voting units for Akrimax and
Krivulka and Leonard Mazur each owned a twenty-five percent share.
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made and reported during the policy period, for any actual or alleged wrongful
act. The policy defined a wrongful act as follows:
1. [W]ith respect to Insured Persons[,] any actual or
alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or act by the Insured
Persons in their respective capacities as such, or any
matter claimed against them by reason of their status
as Insured Persons, or any matter claimed against
them arising out of their serving as a director, officer,
trustee or governor of an Outside Entity in such
capacities, but only if such service is at the specific
request or direction of the Insured Entity, or
2. [W]ith respect to an Insured Entity[,] any actual or
alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or act by the Insured
Entity.
The policy also contained certain exclusions, including a "capacity
exclusion," which stated:
[T]he Insurer shall not be liable to make any payment
for Loss in connection with a claim made against any
Insured:
....
G. based upon, arising out of, directly or indirectly
resulting from or in consequence of, or in any way
involving any Wrongful Act of an Insured Person
serving in their capacity as director, officer, trustee,
employee, member or governor of any other entity
other than an Insured Entity or an Outside Entity, or
by reason of their status as director, officer, trustee,
employee, member or governor of such other entity.
[(Emphasis added).]
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There are numerous pharmaceutical business transactions at issue in the
Delaware action, however, two transactions relevant to Mist are the 2011
"Primlev Agreement" and the 2012 "InnoPran Agreement." In each
transaction, Mist entered into a marketing rights agreement with a third party
to acquire distribution rights for the drugs Primlev and InnoPran. Pursuant to
the terms of the agreements Mist assigned the respective drugs' distribution
rights to Akrimax; in exchange, Akrimax bore all costs and expenses
associated with commercialization of each drug. Plaintiffs in the underlying
action alleged that the insertion of Mist as a "middleman" in these transactions
lacked a substantive business purpose and was done because Krivulka's
personal interest in Mist was greater than his interest in Akrimax. The record
shows that the favorability of the terms of the agreements were heavily
disputed by the parties.
In 2018, Krivulka passed away prompting Celestial to file suit in New
Jersey (the New Jersey action) seeking, among other things, a stay of the
distribution of Krivulka's estate. Celestial also filed suits in Connecticut and
Delaware to reform certain related business agreements and preserve
Celestial's rights in the reformation actions. Together, the Delaware action,
New Jersey action, and the reformation actions constitute the "underlying
actions."
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On March 9, 2016, Berkley sent Mist a reservation of rights letter under
the policy, reserving a denial of coverage on several grounds. The letter stated
in pertinent part:
[C]overage for Krivulka is limited to any actual or
alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or act in his capacity
as the chairman of Mist Pharma. Coverage is
therefore not available for Krivulka for allegations
pertaining to his roles with Mist Acquisition, Mist
Partners, Akrimax, or any other entity. We further
reserve Berkley's rights under Exclusion G.
[(Emphasis added.)]
The letter continued:
[T]he allegations in the complaint pertain almost
exclusively to the transfer and/or acquisition of the
Tirosint license from Akrimax to Mist Acquisition.
Mist Acquisition is not a Policy Insured. The
allegations against Mist Pharma, and Krivulka in his
capacity as a director of Mist Pharma are minimal and
ancillary. Accordingly, Berkley has agreed to
pay/reimburse 10% of the legal fees incurred . . . [and]
moving forward."
The undisputed record shows that, as early as March 2016, Berkley notified
Mist the capacity exclusion may apply to either bar or limit coverage.
On July 6, 2017, Mist advised Berkley of an upcoming mediation with
Celestial and requested settlement authority as per the policy. In response,
Berkley wrote Mist again, highlighting potential bars to liability coverage, and
expressly reserving its rights under the capacity exclusion, Exclusion G.
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Berkley also advised Mist it was not obligated to continue its participation in
Mist's or Krivulka's defense, finding the underlying disputed claim arose prior
to the policy period, as early as 2013.
In response, Mist filed a declaratory judgment action seeking coverage
from Berkley under six theories: breach of contract; duty to defend; duty to
indemnify; bad faith; estoppel for failure to timely deny coverage; and
estoppel for failure to inform Mist of its right to reject defense. The trial court
ordered Mist to provide Berkley with the Delaware action-related discovery.
Mist turned over 12,000 documents. After the close of discovery, the trial
court granted partial summary judgment to Mist, finding "[t]he clear, and now
fully developed[] record along with Mist's reasonable expectations, confirm
that there was no [c]laim to report in 2013." The court found Berkley had a
duty to defend Mist.
Thereafter, while participating in settlement negotiations, Mist sought
consent to settle and indemnification from Berkley. When Berkley refused
both requests, Mist sought Berkley's waiver of the "consent to settle" provision
in the policy to resolve the underlying actions while preserving the coverage
issue. Mist also provided Berkley with a liability analysis which stated in
pertinent part:
[P]laintiffs' claims generally threaten joint-and-several
liability, so that even if the claims were alleged
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against only one of the Krivulka Defendants (instead
of multiple Krivulka Defendants as Plaintiffs have
pled), the legal fees and expenses necessary to defend
against the claim would generally be the same. There
therefore seems little benefit in attempting to estimate
allocations among different Krivulka Defendants
because of the imprecise nature of such an exercise
coupled with the overlapping defense costs and
overlapping liability exposure across claims and
defendants.
In subsequent correspondence, Mist summarized its potential exposure
in the underlying actions, detailing the theories of liability and explaining
"[o]ne advantage that [p]laintiffs possess is that they are able to argue two
different bases for liability against Mist Pharmaceuticals: both as independent
actor participating in the alleged acts and as alter egos of Joseph Krivulka
under a veil-piercing theory."
Berkley countered that Mist still had not provided it the information
needed to justify issuing consent to settle or justify contribution to settlement.
Berkley rejected Mist's liability analysis. In a letter dated February 18, 2020,
Berkley stated its position firmly:
Mist Pharmaceuticals must agree to provide additional
information to Berkley so that Berkley can perform its
own assessment of Mist Pharmaceuticals’ exposure
with regard to the underlying claim. If Mist
Pharmaceuticals is prepared to provide this
information or identify where the information can be
found in materials previously provided, we can move
forward with a mediation.
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Mist insisted that the approximately 12,000 pages of discovery, the related
correspondence between the two parties, and the ongoing settlement
negotiations were sufficient for Berkley to provide its informed consent to
settle.
On October 8, 2020, the Delaware court approved a $12 million global
settlement covering all pending underlying actions, allocating twenty-five
percent liability to Mist. On November 6, 2020, Mist moved in the Law
Division for partial summary judgment on its declaratory judgment action, and
Berkley cross-moved for summary judgment. The trial court denied both
motions.
Next, Mist deposed Berkley's corporate counsel, Carol Threlkeld, and in
May 2022, moved for reconsideration of the court's order denying its partial
summary judgment motion seeking indemnification. Berkley again cross-
moved, this time supplying Threlkeld's July 15, 2022 affidavit.
After argument, the trial court granted Mist's motion for reconsideration.
The court also struck Threlkeld's affidavit from the record. In a statement of
reasons accompanying the order, the court made findings.
First, the court found Threlkeld's affidavit contradicted her prior
deposition testimony. As Berkley was bound to Threlkeld's deposition
testimony, the court reasoned her affidavit could not support one of Berkley's
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main arguments on reconsideration—that it conducted a good-faith claim
investigation.
Next, the court found:
[I]n the absence of competent evidential facts to the
contrary, . . . Berkley's continued refusal to contribute
to the [g]lobal [s]ettlement was a breach of its duty to
indemnify Mist because, under the Policy, Berkley
promised to pay "all Loss [i.e., "settlements"] . . .
arising from any Claim . . . for any actual or alleged
Wrongful Act.
In addition, the court made findings which established the
reasonableness of the global settlement allocation to Mist, among them: the
Mist Insureds' potential liability under theories pursued by Celestial, exposing
the Mist Insureds to joint and several liability; Krivulka's dominion and
control over Mist; the amount of the royalty payments allegedly diverted from
Akrimax to KFEs; the impact of Akrimax not having access to the diverted
royalty payments; the complexity of litigating the underlying actions in
multiple jurisdictions; Celestial's claimed damages of more than $300 million;
Mist's estimated liability exposure of $30 million; defendants' failure to file an
answer in any of the actions after nearly five years of litigation in multiple
jurisdictions; and Mist's projection of substantial counsel fees required to
defend itself in the ongoing underlying actions.
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Considering the record and using these findings, the court found
Berkley's withholding consent to settle was unreasonable under Fireman's
Fund. Regarding the capacity exclusion, the court found it "need not reach the
[issue] because . . . a recalcitrant insurer that breaches its policy can no longer
look to contractual defenses to avoid coverage." In a subsequent order, the
trial court awarded counsel fees to Mist.
On appeal, Berkley argues the trial court erred when it: failed to apply
the capacity exclusion; struck Threlkeld's affidavit; and awarded Mist counsel
fees.
II.
In reviewing the grant or denial of summary judgment, the standard of
review is de novo. Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. Co.
of Pittsburgh, 224 N.J. 189, 199 (2016). "We ask first if, viewing the evidence
in the light most favorable to the nonmoving party, genuine issues of material
fact exist." New Gold Equities Corp. v. Jaffe Spindler Co., 453 N.J. Super.
358, 372 (App. Div. 2018) (citing Rowe v. Mazel Thirty, LLC, 209 N.J. 35, 41
(2012)). If not, this court is required to "decide whether the trial court
correctly interpreted the law." DepoLink Court Reporting & Litig. Support
Servs. v. Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013) (quoting
Massachi v. AHL Servs., Inc., 396 N.J. Super. 486, 494 (App. Div. 2007)); see
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also Bhagat v. Bhagat, 217 N.J. 22, 38 (2014) ("[T]his [c]ourt must review the
competent evidential materials submitted by the parties to identify whether
there are genuine issues of material fact and, if not, whether the moving party
is entitled to summary judgment as a matter of law.").
III.
A.
The initial question is whether the trial court correctly applied Fireman's
Fund to preclude Berkley from excluding coverage based on the policy's
capacity exclusion language.
In Fireman's Fund, our Supreme Court held that where a policy has a
consent to settle provision, an insurer has a duty to not unreasonably withhold
consent to settle. 72 N.J. at 69-70. When an insurer breaches this duty, it is
liable for indemnification in the amount of the settlement. Ibid. The Court
stated:
[T]he considerations of good faith and fair dealing
require that the insurer make such an investigation
within a reasonable time. If the insurer delays
unreasonably in investigating and dealing with a claim
asserted against its insured, the insured may make a
good faith reasonable settlement and then recover the
settlement amount from the insurer, despite the policy
provision conditioning recovery against the insurer on
its policy on the prior entry of a judgment against the
insured or acquiescence by the insurer in the
settlement.
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[Id. at 73 (internal citations omitted) (emphasis
added).]
"While the right to control settlements reserved to insurers is an
important and significant provision of [a] policy contract, it is a right which an
insurer forfeits when it violates its own contractual obligation to the insured."
Id. at 71 (internal citations omitted). To this end, an insurer must uphold its
contractual duties before "seeking to rely on the powers reserved to it by the
language of the policy contract." Id. at 72.
The Court also noted that whether an insurer's breach is "that of its
express obligation to defend, of its implied obligation to make a timely
investigation of the claim or of its implied obligation to exercise, in good faith
and with concern for the interests of the insured, its reserved power with
respect to settlements," damages are essentially the same. Id. at 78. "[T]he
measure of the insured's damages is either the amount of the judgment entered
against the insured in the negligence action or the amount paid by the insured
in making a reasonable good faith settlement of the negligence action before
trial." Ibid. "Where the measure of recovery is the amount paid in settlement,
the defaulting insurer receives all the protection to which it is entitled from the
requirement that the insured, in establishing his damages, prove—as was done
here—that the settlement was made in good faith and for a reasonable
amount." Id. at 79.
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We note similarities to the facts in Fireman's Fund. Mist's allocation of
the global settlement went beyond its policy limit and was also significantly
below the potential liability exposure it was facing. Also, Berkley refused to
provide Mist consent to settle. However, unlike Fireman's Fund, Berkley
asserted withholding consent to settle was reasonable given the relevant
facts—that the global settlement represented the separate interests of multiple
entities not insured under the policy, and Berkley reserved its rights under the
capacity exclusion repeatedly from its earliest communications with Mist
regarding the claim. These are material distinctions that the trial court should
have considered, and the court's legal analysis would have been better
informed if it had first addressed the application of the policy's capacity
exclusion.
B.
Turning to the exclusion provision, we begin with well-settled
jurisprudence. "Insurance policies are reviewed using contract principles, and
the 'agreement "will be enforced as written when its terms are clear in order
that the expectations of the parties will be fulfilled."'" Norman Int'l, Inc. v.
Admiral Ins. Co., 251 N.J. 538, 552, reconsideration denied, 251 N.J. 579, 279
(2022) (quoting Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 525
(2012)). As such, the terms of insurance contracts are to be given their plain
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and ordinary meaning. Ibid. "Where a policy contains no ambiguities, 'courts
should not write for the insured a better policy of insurance than the one
purchased.'" Birmingham v. Travelers N.J. Ins. Co., 475 N.J. Super. 246, 255
(App. Div. 2023) (quoting Zacarias v. Allstate Ins. Co., 168 N.J. 590, 596
(2001)). Consequently, an insurance policy will not be construed to indemnify
an indemnitee against losses resulting from its own independent fault, active
wrongdoing, or tortious conduct, unless such an intention is expressed in
unequivocal terms in the policy. New Gold Equities Corp., 453 N.J. Super. at
386-87.
Policy exclusion interpretation is "a question of law subject to de novo
review." Homesite Ins. Co. v. Hindman, 413 N.J. Super. 41, 46 (App. Div.
2010). "Exclusionary clauses are presumptively valid and are enforced if they
are 'specific, plain, clear, prominent, and not contrary to public policy.'"
Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010) (quoting Princeton Ins. Co.
v. Chunmuang, 151 N.J. 80, 95 (1997)). It is the insurer's burden "to bring the
case within the policy exclusion." Norman Int'l, 251 N.J. at 552 (quoting Burd
v. Sussex Mutual Ins. Co., 56 N.J. 383, 399 (1970)). If such an exclusion is
conditioned on a "causal link" we first look to the nature and extent of the link
as "evaluating that link will determine the meaning and application of the
exclusion." Ibid. (quoting Flomerfelt, 202 N.J. at 442-43). We have not
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analyzed a capacity exclusion paragraph in a commercial D&O policy on facts
like these before. However, there is guidance for exclusions with similar
qualifying language. In Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J.
29 (1998), the Supreme Court explained:
The critical phrase "arising out of," which
frequently appears in insurance policies, has been
interpreted expansively by New Jersey courts in
insurance coverage litigation. "The phrase 'arising out
of' has been defined broadly in other insurance
coverage decisions to mean conduct 'originating from,'
'growing out of' or having a 'substantial nexus' with
the activity for which coverage is provided."
[Id. at 35 (quoting Records v. Aetna Life & Cas. Ins.,
249 N.J. Super 463, 468 (App. Div. 1996)).]
This construction applies whether the phrase appears in a coverage grant
or an exclusion. See ibid. (holding "arising out of and in the course of
employment" language contained in policy's exclusion precluded coverage for
employee's wrongful discharge claim); see also Prudential Prop. & Cas. Ins.
Co. v. Brenner, 350 N.J. Super. 316, 322 (App. Div. 2002) (concluding
homeowner's murder fell under policy exclusion for injuries "'arising out of the
use, sale, manufacture, delivery transfer, or possession' of illegal drugs").
Recently, our Supreme Court applied a policy exclusion for liability
"arising out of, related to, caused by, contributed to by, or in any way
connected with . . . [a]ny operations or activities performed by or on behalf of
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any insured" in certain specifically identified counties. Norman Int'l, 251 N.J.
at 542. Deciding for the insurer, the Court held "a causal relationship between
[the insured's] conduct and [the] plaintiff's injuries was not required in order
for the exclusionary clause to apply; rather, any claim 'in any way connected
with' [the insured's] operations or activities in a county identified in the
exclusionary clause [was] not covered under the policy." Ibid.
The Eleventh Circuit, considering a Georgia insurance coverage dispute
involving similar capacity exclusion language, gives us further insight. In
Langdale Co. v. National Union Fire Ins. Co. of Pittsburgh, Penn., 609 Fed.
Appx. 578 (11th Cir. 2015), the defendants, who were directors, officers, and
majority shareholders of a family-owned corporation with multiple business
holdings, were sued for breach of their fiduciary duty to certain minority
shareholders of the corporation. The defendants were also trustees of a family
trust in which the plaintiff/minority shareholders were beneficiaries. The
family trust owned nearly twenty-five percent of the holding company's stock.
Id. at 580. In their capacity as trustees, the defendants misrepresented the
value of the trust's shares to the plaintiffs to persuade them to sell the stock
back to the holding company at a substantial discount. Ibid. After being sued
in their capacity as directors and officers of the holding company, the
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defendants sought coverage under the company's D&O policy. The insurance
carrier disclaimed coverage.
The D&O policy exclusion in Langdale was Exclusion 4(g). It stated:
The Insurer shall not be liable to make any payment
for Loss in connection with any Claim made against
an Insured:
....
(g) alleging, arising out of, based upon or attributable
to any actual or alleged act or omission of an
Individual Insured serving in any other capacity, other
than as an Executive or Employee of a Company, or as
an Outside Entity Executive of an Outside Entity.
[Langdale, 609 Fed. Appx. at 586.]
The Eleventh Circuit concluded that the insureds' "wrongful acts as
[insured company] directors arose out of their wrongful acts as trustees of the
Trust." Id. at 594. Because the wrongful acts arose out of their conduct in a
capacity other than as executive of the insured company, the exclusion applied.
Id. at 596. We adopt Eleventh Circuit's sound interpretation of the Langdale
D&O policy's capacity exclusion.3 We apply its interpretation here, given the
3
In addition to Georgia, a similar approach to analyzing dual capacity claims
is taken by California, New York, and Pennsylvania. See also Abrams v.
Allied World Assurance Co. (U.S.) Inc., 657 F. Supp. 3d 1280, 1288 (N.D.
Cal. 2023) (holding under California law, capacity exclusion did not apply to
underlying fiduciary duty claims against insureds as they arose "solely from
the Insureds' actions in their capacities as . . . executives" of relevant
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similarity in language, operation, and effect between Langdale's and Berkley's
capacity exclusions.
Like Langdale, the loss alleged by Akrimax, the plaintiff in the
underlying actions against Mist and other non-insured entities, stemmed from
Krivulka's self-dealing. Krivulka was acting in his capacity as both a director
of Akrimax and majority shareholder of Mist. The undisputed record shows
Krivulka used his position as an Akrimax director to require that Akrimax
guarantee to Mist certain obligations—including over $28 million in royalties
and distribution rights as well as a termination provision—without
consideration. It is undisputed that Krivulka acted in a dual capacity. The
record, including the 12,000 pages of additional discovery, reveals nothing to
change this fact. The loss claimed by Mist against Berkley's D&O policy
__________________
company); L. Offs. of Zachary R. Greenhill, P.C. v. Liberty Ins. Underwriters,
Inc., 147 A.D.3d 418, 420 (2017) (applying New York law, holding
counterclaim allegations in underlying action clearly show capacity exclusion
applies to bar coverage as conduct arose out of plaintiff's dual capacities);
Niagara Fire Ins. Co. v. Pepicelli, 821 F.2d 216, 220-21 (3d Cir. 1987)
(applying Pennsylvania law, "outside business exclusion," with language
analogous to capacity exclusion, barred coverage where a lawsuit arose from
an attorney acting simultaneously as both an attorney and officer or director of
an uninsured business, but concluded that the exclusion did not apply to the
malpractice claim against the attorney as that claim did not result from the
attorney's outside business interests).
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arose from and could not have occurred but for Krivulka's conduct in his
capacity as a director of Akrimax.
The "but for" analysis we adopt here does not require us to unpack the
percentage of Krivulka's conduct attributable to his role as a director/officer at
Akrimax and compare it to the percentage of Krivulka's conduct attributable to
his role as a director/officer at Mist. The clear language in the policy and the
jurisprudence we apply to it foster a simpler approach. It follows that
Krivulka's actions constituted a sufficient basis to trigger the capacity
exclusion, and thus there is no coverage under the Berkley policy. It follows
that Berkley's refusal to consent to a settlement by Mist was not unreasonable.
We need not reach the Threlkeld affidavit issue.
We comment briefly on Berkely's duty to defend in relation to the trial
court's order awarding counsel fees to Mist. Our jurisprudence concerning an
insurer's duty to defend is well-settled. See Norman Int'l, 251 N.J. at 549–50.
The record shows there were disputed issues of material fact concerning
whether the capacity exclusion applied to bar coverage under the policy when
Mist moved for partial summary judgment on Berkley's duty to defend. The
thrust of Berkley's argument on the duty to defend motion was that the claim
arose prior to the policy period.
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In its December 5, 2018 order, granting Mist's motion, the court found,
"Mist did not receive a policy-defined '[c]laim' until the Delaware Action was
filed, that Mist timely complied with the notice provision of the Berkley
insurance policy at issue[,] and that Berkley ha[d] a duty to defend Mist in the
[underlying a]ction." However, the court limited its ruling, and noted that its
duty to defend conclusion expressly rested on the continuation of coverage.
We discern no reason to disturb the December 5 order as the record shows
Berkley did not raise the capacity exclusion argument until the exchange of
pleadings and argument leading to the trial court's July 7, 2021 order, after
addition discovery had taken place.
Consequently, we reverse the trial court's July 7 order denying Berkley
summary judgment, its October 12, 2022 order granting partial summary
judgment for Mist, and its November 18, 2022 order entering judgment against
Berkley for the remaining policy limit, pre-judgment interest, and counsel fees.
In turn, we dismiss Mist's declaratory judgment complaint, and remand for the
trial court to enter judgment in favor of Berkley and determine counsel fees
due and owing to Mist based on Berkley's duty to defend up to July 7, 2021.
Reversed and remanded. We do not retain jurisdiction.
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