P&S LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No. 14-cv-00735-LTB-CBS (D. Colo. July 29, 2015).

District of Colorado grants summary judgment for insurer on bad faith claim where insurer established that an Executive & Organization Liability Insurance Policy’s Specific Entity Exclusion barred coverage for losses in connection with claims against an entity excluded from coverage.

               P&S LLC entered into a membership agreement with Private Escapes Platinum LLC for membership in its luxury destination travel club.  Thereafter, Private Escapes merged with another company, Ultimate Resorts LLC, to create a new entity called Ultimate Escapes Holdings, LLC.  P&S asserted that Mr. Richard Keith, the CEO of Private Escapes, who later became co-CEO of Ultimate Escapes, induced P&S to enter into the membership agreement by representing that P&S’s benefits under the membership agreement would be protected or grandfathered after the merger.  The terms of the membership agreement were not honored after the merger.  After an earlier dispute with Private Escapes and Ultimate Escapes, which was administratively closed after Ultimate Escapes’ filing for Chapter 11 bankruptcy protection, P&S filed suit against Private Escapes and Mr. Keith. 

Mr. Keith sought defense coverage from National Union Fire Insurance Company of Pittsburgh, PA under the Executive & Organization Liability Insurance Policy issued to Ultimate Escapes.  National Union declined to provide Mr. Keith with a defense and denied coverage based on the Policy’s Specific Entity Exclusion, which provided that National Union “shall not be liable for any Loss in connection with any Claim made against … [Private Escapes] … and/or any Executive or Employee thereof…”  P&S settled the lawsuit with Private Escapes and Mr. Keith.  As part of the settlement, Mr. Keith assigned to P&S his rights against National Union under the Policy.  P&S, as Mr. Keith’s assignee, then filed suit against National Union for denying coverage to Mr. Keith and asserted claims against National Union for breach of contract, bad faith, and other related claims.  National Union sought summary judgment in its favor on all of P&S’s claims against it.

The case was decided under Colorado’s general standards of insurance contract interpretation.  The court explained that “[t]he insured has the burden to show that a claim is covered by the policy.  Once met, the burden shifts to the insurer to show that a covered claim falls solely and entirely within a policy exclusion” (citation omitted).  “[T]o benefit from an exclusionary provision in a particular contract of insurance the insurer must establish that the exemption claimed applies in the particular case, and that the exclusions are not subject to any other reasonable interpretation” (citations and quotations omitted). 

The Specific Entity Exclusion in the Policy indicated that National Union is not “liable for any Loss in connection with any Claim made against … [Private Escapes] … and/or any Executive or Employee thereof” (emphasis in Opinion).  The exclusion required only that “a loss is made ‘in connection’ with a claim against Private Escapes for it to be excluded from coverage.”  The underlying lawsuit was brought against Private Escapes and Mr. Keith in his capacity as an executive of Private Escapes.  The court explained that “[t]o the extent that the factual assertions within the complaint include an allegation that Mr. Keith wrongfully acted in the underlying situation as an Ultimate Escapes’ executive, it does not change the fact that the loss alleged was in connection with a claim against Private Escapes.  As such, it is unambiguously applicable to bar coverage for the loss claimed here.”

Turning to the bad faith claims asserted against National Union, the court ruled that because it had “ruled that the plain language of the Specific Entity Exclusion bars coverage for Mr. Keith in the underlying lawsuit, I likewise conclude that P&S’s claims seeking relief under common law and statutory bad faith are likewise foreclosed as a matter of law.”  The court granted National Union’s motion for summary judgment, entered judgment in National Union’s favor, and dismissed the case.