Ryan Brown (Chicago) and Donald Verfurth (Seattle) successfully moved for summary judgment on an issue of first impression in Washington. On November 2, 2011, United States District Court Judge Richard A. Jones found that the firm's insurer client, Catlin, Inc., had no duty to defend or indemnify Plaintiffs against claims for breach of contract.
In 2003, the Plaintiff directors each executed a "Commercial Guaranty" in which each guaranteed the insured corporation's liabilities up to a maximum of $258,000. On March 31, 2009, the corporation borrowed $945,000 on a short-term loan. The corporation could not fully repay the loan, and by November 2009, the bank demanded that Plaintiffs pay the outstanding balance in accordance with their guaranties. In December 2009, Plaintiffs, through counsel, tendered the bank's demands against them to Catlin while arguing that 1) Plaintiffs were required by the bank and the corporation to execute the guaranties, 2) Plaintiffs maintained viable defenses to the bank's claims, and 3) the Catlin Directors & Officers Policy lacked an exclusion for breach of contract. Catlin engaged Gordon & Rees to investigate the bank's claims and determine coverage. Thereafter, Catlin, through Gordon & Rees, issued a declination of coverage to Plaintiffs noting that even in the absence of an express exclusion, the claims against the directors alleging breach of contract are not covered under the Policy. (Emphasis added.) A supplemental declination of coverage was issued in March 2010 after the bank filed a lawsuit against the directors alleging breach of the guaranties.
In November 2010, the bank and Plaintiffs negotiated a settlement whereby Plaintiffs agreed to pay the bank $350,000. Thereafter, in December 2010, Plaintiffs filed a lawsuit against Catlin seeking reimbursement of the $350,000 settlement as well as more than $250,000 in defense fees and costs. In addition to seeking a declaratory judgment, Plaintiffs claimed that Catlin breached the Policy by failing to defend and indemnify them against the bank's claims. Plaintiffs also sought treble damages (up to $1.8m) for alleged bad faith and violations of Washington’s Insurance Fair Conduct Act ("IFCA") and Consumer Protection Act ("CPA"). After the exchange of initial FRCP 26(a)(1) disclosures, the parties filed cross motions for summary judgment. On November 2, 2011, Judge Jones issued an 8-page Order granting summary judgment for Catlin. While the Court accepted Plaintiffs’ assertion that the bank required them to sign the guaranties because they were directors, the Court found that the obligations Plaintiffs undertook in the guaranties were personal in nature. In agreeing with Catlin's arguments, the Court found:
"[The bank] did not make a claim against Plaintiffs because of any act they took in their capacity as directors ... or solely because of their status as directors. It sued Plaintiffs because they breached their personal obligations to guaranty [the corporation's] loans...When Plaintiffs breached those obligations, they did so in their personal capacities, not their capacities as ... directors. This conclusion is plain from the language of the guaranties, but it is also plain from the circumstances in which Plaintiffs signed them." The Court then concluded that Catlin had no duty to defend the claims because the bank "did not conceivably allege a breach in Plaintiffs’ capacities as directors.