United States District Court, D. Massachusetts
CRAIG JALBERT, in his capacity as Trustee for F2 Liquidating Trust
THE ZURICH SERVICES CORPORATION, et al.
MEMORANDUM OF DECISION
ZOBEL SENIOR UNITED STATES DISTRICT JUDGE
insurance recovery dispute arises from the SEC investigation
and subsequent bankruptcy of F-Squared Investments, an
investment management firm. Plaintiff Craig Jalbert brings
this case in his capacity as trustee of the F2 Liquidating
Trust to recoup from the company's excess insurers
approximately $7.7 million in unreimbursed defense costs
F-Squared incurred during the investigation.
have moved for summary judgment, which motions are allowed.
following facts derive from the parties' Statements of
Undisputed Facts and responses thereto (Docket ## 39, 43, 45)
and all documents filed therewith.
The SEC Investigation
September 23, 2013, the SEC issued an “Order Directing
Private Investigation and Designating Officers to Take
Testimony” in a matter captioned “In the
Matter of F-Squared Investments, Inc.
(B-2855).” See Docket # 42-7. According to
this non-public “Formal Order, ” the SEC had
“information that tend[ed] to show that”
F-Squared had distributed false and misleading advertisements
“in possible violation of” federal securities
laws. Id. at 5. Based on that information, the
Formal Order directed “that a private investigation be
made” and empowered the SEC to issue subpoenas, take
evidence, and otherwise carry out the inquiry. See
id. at 7-8.
October 2, 2013, the SEC's Division of Enforcement
subpoenaed F-Squared in connection with the investigation,
and on October 7 it issued two additional subpoenas to
high-ranking F-Squared officers. After counsel for F-Squared
specifically requested a copy of the Formal Order, the SEC
shared it on October 18, 2013. Over the course of the next
year, F-Squared incurred $17.7 million in defense costs
responding to the investigation.
F-Squared's Insurance Policies
common in the industry, F-Squared maintained several
“Directors & Officers” insurance policies
intended to cover, inter alia, the costs associated
with defending against a formal investigation by the SEC. For
the 2012-2013 time period, it maintained two such policies: a
Columbia Casualty Company (“Columbia”) policy
that provided $5 million in coverage and a
follow-form policy issued by Federal Insurance Company
(“Federal”) for an additional $5 million in
excess coverage. The policies applied “only to any
claim first made against [F-Squared]” between October
3, 2012 and October 3, 2013. Docket # 37-1 at 2.
2013-2014 time period, F-Squared renewed the Columbia and
Federal policies and also purchased additional excess
coverage from defendants Zurich American Insurance Company
(“Zurich”) and XL Specialty Insurance Co.
(“XL”). The Zurich and XL policies follow the
form of the primary Columbia policy, with Zurich providing $5
million in second layer excess coverage (i.e., after
exhaustion of the primary Columbia policy and first layer
excess Federal policy), and XL, an additional $5 million
beyond Zurich. The four 2013-14 policies apply “only to
any claim first made against [F-Squared]” between
October 3, 2013 and October 3, 2014. Docket # 37-3 at
F-Squared's Notices to Insurers Regarding the SEC
emails sent November 7, 2013, F-Squared notified each of its
insurers of the SEC investigation and claimed under each of
the policies. Writing to Columbia, F-Squared requested
coverage under the 2012-13 policy “or its renewal,
which has not yet been received.” Docket # 37-7 at 4.
Columbia eventually paid the full $5, 000, 000 limit of
liability to F-Squared under the 2012-13 policy, and
first-layer excess insurer Federal did likewise. Defendants
Zurich and XL, however, denied coverage under their policies,
giving rise to the instant dispute.
Definition of a Claim; ...