United States District Court, D. Massachusetts
For Biochemics, Inc., John Masiz, Plaintiffs: Steven L. Schreckinger, LEAD ATTORNEY, Anne Robbins, Jane M. Guevremont, Anderson & Kreiger, LLP, Cambridge, MA.
For Axis Reinsurance Company, Defendant: Joan M. Gilbride, LEAD ATTORNEY, PRO HAC VICE, Kaufman Borgeest & Ryan LLP, New York, NY; William A. Schneider, LEAD ATTORNEY, Morrison Mahoney LLP, Boston, MA; Melinda B. Margolies, Kaufman Borgeest & Ryan LLP, Valhalla, NY.
For Brown & Brown of New York, Inc., John P. Raucci, Defendants: Michael R. Perry, LEAD ATTORNEY, Murphy & King, PC, Boston, MA.
MEMORANDUM OF DECISION
RYA W. ZOBEL, UNITED STATES DISTRICT JUDGE.
Plaintiffs BioChemics, Inc., and John Masiz sued defendant Axis Reinsurance Company (" AXIS" ) for defense costs arising out of a Securities and Exchange Commission (" SEC" ) investigation and enforcement action under their directors and officers (" D& O" ) liability insurance policy. Plaintiffs moved for partial summary judgment, and defendants have cross-moved for summary judgment.
BioChemics is a specialty pharmaceutical company focused on transdermal drug delivery systems including medicated lotions. Masiz is BioChemics's president and chief executive officer.
The SEC commenced a Non-Public Formal Investigation targeting BioChemics and its officers by Formal Order on May 5, 2011, styled " In the Matter of BioChemics, Inc. (B-02641)" (the " SEC Investigation" ). The SEC served a series of document subpoenas on BioChemics pursuant to the investigative order, including on May 9 and September 12, 2011, requesting a broad range of documents regarding the company's operations starting in 2007. Those subpoenas indicated the existence of the Formal Order and were captioned " In the Matter of BioChemics, Inc. (B-02641)." In December 2012 the SEC filed an enforcement action against plaintiffs and two promoters retained by BioChemics.
Plaintiffs had D& O coverage from Greenwich Insurance Company during 2011 until that policy expired in November, at which point plaintiffs changed carriers and purchased a new policy from defendant. Both policies were issued on a claims made basis which, under the AXIS policy, covered claims first made between November 13, 2011, and November 13, 2012. Section V.A of the policy, titled " Limits of Liability," contains the following language:
All Claims, including all D& O Claims . . . arising from the same Wrongful Act . . . and all Interrelated Wrongful Acts shall be deemed one Claim and such Claim shall be deemed to be first made on the earlier date that: (1) any of the Claims is first made against an Insured under this Policy or any prior policy . . . .
Docket # 30, Ex. A (Policy), § V.A. The same section also states the basic principle of a claims made policy: " Coverage under this Policy shall apply only with respect to Claims deemed to have been first made during the Policy Period and reported in writing to the Insurer in accordance with the terms herein." Id. The policy defines a " Claim" broadly to include, inter alia, any " written demand against any Insured for monetary or nonmonetary relief," or any " civil, arbitration, administrative or regulatory proceeding against any Insured commenced by . . . the filing of a notice of charge, investigative order, or like document." Id. § III.B.2(a), (b)(ii).
In January 2012, two months after the AXIS policy came into effect, the SEC served deposition subpoenas on Masiz and two other individuals. In March 2012, it followed with document subpoenas on BioChemics and Masiz. All subpoenas issued under the same SEC matter identification and number--In the Matter of BioChemics, Inc. (B-02641)--as the 2011 subpoenas. The March document subpoena to Masiz also emphasized that Masiz was not required to produce any documents that had already been provided in response to the 2011 subpoenas to BioChemics. See Docket # 30, Ex. G, Subpoena Attachment at 3-4.
BioChemics notified AXIS of the January and March 2012 subpoenas. However, AXIS denied coverage. It took the position that the entire SEC investigation was a single " claim" that was first made in May 2011, when the SEC issued its first document subpoena to BioChemics--before the AXIS policy took effect.
The enforcement action filed in December 2012 alleges that from 2009 until mid-2012 BioChemics and Masiz had engaged in a fraudulent scheme to sell BioChemics securities by misleading investors about the company's value. Some of the misrepresentations alleged in the enforcement complaint took place before the SEC issued its first document subpoena in May 2011. Others, including alleged misrepresentations about a clinical ...