ECB USA, Inc. v. Chubb Insurance Company of New Jersey

United States District Court

for the

Southern District of Florida

ECB USA, Inc. and others, )

Plaintiffs, )

)

v. )

Civil Action No. 20-20569-Civ-Scola

)

Chubb Insurance Company of New )

Jersey and Executive Risk )

Indemnity, Inc., Defendants. )

Omnibus Order

The Defendants—insurance providers—move for summary judgment on

all claims asserted by the Plaintiffs—assignees of certain insurance-related

claims. (ECF No. 161.) The Plaintiffs also move for partial summary judgment

on two specified issues. (ECF No. 154.) The parties filed oppositions in

response to each motion (ECF Nos. 186, 187), and each filed a reply in support

of their respective motions (ECF Nos. 193, 195). Resolution of these cross

motions for summary judgment also entails review and consideration of the

Defendants’ motion to dismiss Count One (ECF No. 143) and the Plaintiffs’

motion to substitute (ECF No. 215), both of which were fully briefed. After

careful consideration of the briefing, the record, and the relevant legal

authorities, the Court grants in part and denies in part the Defendants’

motion for summary judgment (ECF No. 161) and grants in part and denies

in part the Plaintiffs’ motion for partial summary judgment (ECF No. 154).

Moreover, the Court denies the Defendants’ motion to dismiss (ECF No. 143)

and grants the Plaintiffs’ motion to substitute (ECF No. 215).

1. Background

As a general matter, insurance policies and insurance salesmen have

long been the butt of jokes. The former are not known for beautiful prose nor

the latter for exciting conversation. But insurance contracts can provide fodder

for scores of attorneys, grammarians, and logophiles, where, as here, the

meaning of one phrase and the placement (or omission) of one comma can

make the difference between coverage and nothing.

On December 17, 2019, ECB USA, Inc, Atlantic Ventures Corp., and

G.I.E. C2B (the “Plaintiffs”) sued Chubb Insurance Company of New Jersey

(“Chubb”) in the Circuit Court of the Eleventh Judicial Circuit for various relief

associated with Chubb’s denial of insurance coverage in an earlier litigation.

(ECF No. 1.) On February 7, 2020, Chubb removed the case to federal court on

the basis of diversity jurisdiction. (Id.) On February 26, 2021, the Plaintiffs and

Constantin Associates, LLP (“Constantin”) filed the operative pleading, the

Fourth Amended Complaint, which brings seven claims against Chubb and

Executive Risk Indemnity, Inc. (“ERI”). (ECF No. 79.)

Before addressing the merits of each claim, the Court will briefly provide

the relevant factual background. In an insurance dispute such as this, the

Court will focus this discussion on: (1) the relevant actors, (2) the terms and

negotiations of the relevant insurance policies, (3) the entities that are provided

coverage under the relevant insurance policies, (4) the extent of coverage

provided under the policies, and (5) the underlying lawsuit that is the subject

of the alleged failure to defend and indemnify.

A. The Actors

Control Associates/Constantin Group L.P. (“Control Group”) is a limited

partnership registered in Delaware that provides professional and consulting

services. (ECF No. 156 at ¶ 5; ECF No. 184 at ¶ 5; ECF No. 155-51.)

Constantin, a New York limited liability partnership, provides accounting and

auditing services. (ECF No. 155 at ¶ 106; ECF No. 156 at ¶ 6; ECF No. 184 at

¶ 6.)

ERI, a Delaware-based corporation, issues professional liability

insurance policies in New Jersey. (ECF No. 156 at ¶ 1; ECF No. 184 at ¶ 1.)

Chubb is a New Jersey-based entity that also provides professional liability

insurance policies in New Jersey. (ECF No. 156 at ¶ 2; ECF No. 184 at ¶ 2.)

Both Chubb and ERI are subsidiaries of Chubb Limited. (ECF No. 156 at ¶ 3;

ECF No. 184 at ¶ 3.) Sometimes, Chubb and ERI share underwriters, claims

staff, and policies and procedures for underwriting and claims processing.

(ECF No. 156 at ¶ 4; ECF No. 184 at ¶ 4.) From 2002 to 2019, either Chubb or

ERI issued professional liability insurance policies to Control Group. (ECF

No. 156 at ¶ 7; ECF No. 184 at ¶ 7.)

B. The Policies

This dispute primarily centers around the terms and negotiations of one

policy—the 2017-18 Policy. In 2017, Control Group obtained this professional

liability insurance policy, number 8168-4190, from Chubb. (ECF No. 156 at

¶ 9; ECF No. 184 at ¶ 9; ECF No. 156-7.) The policy covered the period from

December 12, 2017 to December 12, 2018. (ECF No. 156-7 at 5.)

The parties dispute whether the 2017-18 Policy was a renewal of the

prior policy. Control Group had filed previous renewal applications, and the

parties agree that the 2016-17 Policy was a renewal of the 2015-16 Policy.

(ECF No. 156 at ¶¶ 23–24, 26; ECF No. 184 at ¶¶ 23–24, 26.) The 2017-18

Policy process began around September 2017 when Chubb sent Control Group,

through a third party, a “non-renewal letter,” indicating that Chubb did not yet

have adequate information to underwrite Control Group’s “upcoming renewal.”

(ECF No. 155-40; ECF No. 185 at ¶¶ 166–167; ECF No. 196 at ¶¶ 166–167.) In

October 2017, Control Group, through a third party, requested a renewal

application. (ECF No. 156-24; ECF No. 185 at ¶ 157; ECF No. 196 at ¶ 157.)

One month later, Sean Murray, an underwriter for the Defendants, sent “the

renewal app.” (ECF No. 185 at ¶ 158; ECF No. 196 at ¶ 158; ECF No. 185-21.)

And on December 6, 2017, Control Group submitted a “Professional Error and

Omission Insurance Renewal Application.” (ECF No. 196 at ¶ 159; ECF

No. 196-5.) Indeed, the application form was labeled “Chubb Pro E&O Renewal

Application,” and, above the signature line, the application is referred to as the

“Renewal Application.” (ECF No. 196-5.) A week later, Chubb sent a binder

letter for the 2017-18 Policy, stating “thank you again for the renewal business

for [Control Group].” (ECF No. 185-24.)

C. The Insureds

Control Group’s policies from 2003 to 2017 were all under the applicant

name “[Control Group] and Subsidiaries.” (ECF No. 155 at ¶ 76; ECF No. 185

at ¶ 76.) But the entities provided coverage under the policies (the Insureds)

were not necessarily limited to Control Group’s subsidiaries. For example, the

2016-17 Policy covered any Insured, which was defined, in relevant part, as

“the person or entity stated in Item 1 of the Declarations.” (ECF No. 155-16 at

9.) Item 1 of the Declarations was amended by an endorsement—Endorsement

No. 5—within the 2016-17 Policy, which provided a list of additional “Named

Insured[s],” including Constantin. (ECF No. 93-3; ECF No. 155 at ¶ 79; ECF

No. 155-16 at 6, 22; ECF No. 185 at ¶ 79.) Control Group first added

Constantin to the “Named Insured list” in the 2015-16 Policy. (ECF No. 155 at

¶ 78; ECF No. 155-15 at 6; ECF No. 155-39; ECF No. 185 at ¶ 78.)

The 2017-18 Policy did not include Endorsement No. 5. (ECF No. 155 at

¶¶ 92, 94; ECF No. 185 at ¶¶ 92, 94.) Nevertheless, Control Group states that

it intended that Constantin remain an Insured. (ECF No. 156 at ¶ 35.) Indeed,

on December 12, 2017, before the completed binder letter was sent, Control

Group was asked to confirm the “list of named insured” for the 2017-18

Policy—the list as proposed included Constantin. (ECF No. 155-43; ECF

No. 156-31.)

But the definition of an “Insured” was different in the 2017-18 Policy. To

determine who was an Insured, one must wade through multiple definitions:

• “Insured” was defined as “any Organization and any Insured

Person.”1 (ECF No. 156-7 at 8; ECF No. 155-43 at 22.)

• “Organization” was defined as the “Parent Organization and any

Subsidiary.” (ECF No. 155-43 at 13.)

• The Parent Organization was defined as Control Group. (ECF

No. 185-1.)

• Subsidiary was defined, in relevant part, as an entity for which

Control Group, directly or indirectly, owns or controls the majority

of the “outstanding securities representing the present right to vote

for election of or to appoint” management. (Id.)

While the definition of Insured changed from the 2016-17 Policy to the

2017-18 Policy, the parties dispute whether Control Group received adequate

notice of this change. (ECF No. 156 at ¶ 36; ECF No. 184 at ¶ 36.) The

Defendants did not explicitly communicate to Control Group that there was a

different definition of Insured and Subsidiary. The Defendants point to an e-

mail dated December 4, 2017, in which Mr. Murray explained that the parties

could “either keep [the 2017-18 Policy] on the current form or move it to the

new form.” (ECF No. 155-42.) Mr. Murray then explained that the “new form”

had “a lot of enhancements to it”; Mr. Murray did not identify a change in the

list of Insureds or a change in the definition of Insured. (Id.; ECF No. 185 at

¶ 85.) On January 9, 2018, Control Group was asked to review the 2017-18

Policy, and the Policy was on the “new form” that Mr. Murray had addressed

earlier. (ECF No. 155-46.)

D. The Coverage

In relevant part, the 2017-18 Policy provided coverage for claims related

to “Management consulting services,” which are defined as “services directed

toward expertise in banking finance, accounting, risk and systems analysis,

design and implementation, asset recovery and strategy planning for financial

institutions.” (ECF No. 155-37 at 23; ECF No. 185 at ¶ 1.) That definition

remained the same from 2002 to 2017. (ECF No. 155 at ¶ 15; ECF No. 185 at

¶ 15.)

Beginning in 2001, when applying for coverage, Control Group identified

that all of its revenues were derived from either “management consulting” or

“consulting.” (ECF No. 155 at ¶¶ 16–20; ECF No. 185 at ¶¶ 16–20.) It was not

until 2016 and 2017 that Control Group also identified “accounting” as

included in its services. (ECF No. 155 at ¶¶ 22–23; ECF No. 185 at ¶¶ 22–23.)

1 “Insured Person,” the definition of which is not relevant here, was defined as “any Executive

or Employee of an Organization acting in his or her capacity as such.” (ECF No. 155-43 at 22.)

E. The Litigation

In 2018, the Plaintiffs sued Constantin in the Eleventh Judicial Circuit in

Miami-Dade County for its alleged wrongdoing in connection with the provision

of a professional audit (the “Underlying Litigation”). (ECF No. 156 at ¶ 40; ECF

No. 184 at ¶ 40.) Constantin gave notice of the lawsuit to Chubb. (ECF No. 156

at ¶¶ 41–42; ECF No. 184 at ¶¶ 41–42.) But Chubb later issued two claim

denial letters, denying coverage to Constantin for the sole reason that auditing

services were not covered under the 2017-18 Policy. (ECF No. 156 at ¶¶ 43, 46;

ECF No. 184 at ¶¶ 43, 46.) Chubb did not indicate in the claim denial letters

that Constantin was not an Insured. (ECF No. 156 at ¶ 47; ECF No. 184 at

¶ 47.)

In November 2019, Constantin settled with the Plaintiffs, agreeing to

judgment in favor of the Plaintiffs for $4,850,000 and agreeing to assign all

rights against Chubb and ERI to the Plaintiffs. (ECF No. 156 at ¶ 48; ECF

No. 184 at ¶ 48; ECF No. 156-38.) This current action was initiated

approximately one month later. (ECF No. 1.)

2. Legal Standard

Summary judgment is proper if, following discovery, the pleadings,

depositions, answers to interrogatories, affidavits, and admissions on file show

that there is no genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S.

317, 322 (1986); Fed. R. Civ. P. 56. “An issue of fact is ‘material’ if, under the

applicable substantive law, it might affect the outcome of the case.” Hickson

Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259–60 (11th Cir. 2004). “An issue

of fact is ‘genuine’ if the record taken as a whole could lead a rational trier of

fact to find for the nonmoving party.” Id. at 1260. All the evidence and factual

inferences reasonably drawn from the evidence must be viewed in the light

most favorable to the nonmoving party. See Adickes v. S.H. Kress & Co., 398

U.S. 144, 157 (1970); Jackson v. BellSouth Telecomms., 372 F.3d 1250, 1280

(11th Cir. 2004).

Once a party properly makes a summary judgment motion by

demonstrating the absence of a genuine issue of material fact, the nonmoving

party must go beyond the pleadings through the use of affidavits, depositions,

answers to interrogatories, and admissions on file and designate specific facts

showing that there is a genuine issue for trial. See Celotex, 477 U.S. at 323–24.

The nonmovant’s evidence must be significantly probative to support the

claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The

Court will not weigh the evidence or make findings of fact. See Anderson, 477

U.S. at 249; Morrison v. Amway Corp., 323 F.3d 920, 924 (11th Cir. 2003).

Rather, the Court’s role is limited to deciding whether there is sufficient

evidence upon which a reasonable juror could find for the nonmoving party.

See id.

3. Analysis

The Defendants move for summary judgment on all counts (ECF

No. 161), while the Plaintiffs only seek summary judgment on two issues,

namely, that auditing services are covered under the 2017-18 Policy and that

Constantin is an Insured under the 2017-18 Policy (ECF No. 154). The Court

will address each.

As a preliminary matter, the Plaintiffs argue that New Jersey law applies

to all claims. (ECF No. 154 at 3.) The Defendants did not contest this, but

rather argue that there is a “false conflict” between New Jersey law and Florida

law and that the laws of those states are, in relevant part, the same. (ECF

No. 161 at 6 n.3.)

As the parties largely do not dispute the applicable law, the Court will

apply New Jersey law. As to the contractual claims, Florida applies the doctrine

of lex loci contractus, which holds that the law of the jurisdiction where the

contract was executed governs. See State Farm Mut. Auto. Ins. Co. v. Roach, 945

So.2d 1160, 1163 (Fla. 2006). This occurred in New Jersey, so New Jersey law

applies. (ECF No. 156 at ¶¶ 2, 51; ECF No. 184 at ¶¶ 2, 51.) As to the tort

claims, Florida applies the “most significant relationship” test. See Trumpet

Vine Invs., N.V. v. Union Cap. Partners I, Inc., 92 F.3d 1110, 1115 (11th Cir.

1996). For the reasons laid out by the Plaintiffs, the Court finds that New

Jersey has the most significant relationship to the facts of this case. (ECF

No. 154 at 3.)

A. Count 1: Breach of Contract

The Plaintiffs allege that Chubb breached the 2017-18 Policy by failing to

defend and indemnify Constantin in the Underlying Litigation. An insurer has a

duty to defend where a plaintiff “alleges facts that fairly and potentially bring

the suit within policy coverage.” Rosario v. Haywood v. Haywood, 799 A.2d 32,

40 (N.J. App. Div. 2002); Evanston Ins. Co. v. Heeder, 490 F. App’x 215, 216

(11th Cir. 2012) (citing Jones v. Fla. Ins. Guar. Ass’n, 908 So.2d 435, 442–43

(Fla. 2005)). Moreover, an insurer has a duty to indemnify where the party

seeking indemnification is actually covered under the policy. See Hartford

Accident & Indem. Co. v. Aetna Life & Cas. Ins. Co., 483 A.2d 402, 405 (N.J.

1984); Regions Bank v. Commonwealth Land Title Ins. Co., 977 F. Supp. 2d

1237, 1261–62 (S.D. Fla. 2013) (Scola, J.). It is the insured’s burden to

establish the duty to defend and the duty to indemnify. See State Nat. Ins. Co.

v. Cnty. of Camden, No. 08-5128(NLH)(AMD), 2012 WL 6652819, at *2 (D.N.J.

Dec. 19, 2012). Insurance contracts must be interpreted liberally in favor of

coverage “to the full extent that any fair interpretation will allow.” State Nat.

Ins. Co., 2012 WL 6652819, at *2; see also Colony Ins. Co. v. Ramon, No. 08-

21812-CIV, 2009 WL 10699122, at *3 (S.D. Fla. July 30, 2009) (Seitz, J.).

The 2017-18 Policy provided coverage for claims related to “Management

consulting services,” which are defined as “[1] services directed toward

expertise [2] in banking finance, accounting, risk and systems analysis, design

and implementation, asset recovery and strategy planning [3] for financial

institutions.” (ECF No. 155-37 at 23; ECF No. 185 at ¶ 1.)

First, the parties argue whether the auditing of financial statements (the

provision of which was the basis for the Underlying Lawsuit) constitutes

“services directed toward expertise in . . . accounting[.]” The interpretation of

an insurance contract is a question of law, and the Court must give the

contract its plain and ordinary meaning. See Princeton Inv. Partners, Ltd. v. RLI

Ins. Co., CV171120KMMAH, 2018 WL 846917, at *5 (D.N.J. Feb. 9, 2018); CPS

MedManagement LLC v. Bergen Reg’l Med. Ctr., L.P., 940 F. Supp. 2d 141, 154

(D.N.J. 2013). An insurance contract is ambiguous if “the phrasing of the

policy is so confusing that the average policyholder cannot make out the

boundaries of coverage,” and courts may look to extrinsic evidence to

determine whether an ambiguity exists and to resolve the ambiguity. See

Princeton Inv. Partners, 2018 WL 846917, at *5 (quoting State Nat. Ins., 10 F.

Supp. 3d at 574–75); CPS MedManagement, 940 F. Supp. 3d at 154. However,

courts must resolve any ambiguity in favor of coverage if a fair reading permits.

See Princeton Inv. Partners, 2018 WL 846917, at *5 (“[I]f the controlling

language of the policy will support two meanings, one favorable to the insurer

and one favorable to the insured, the interpretation supporting coverage will be

applied.”).

The parties have spilt much ink on the proper interpretation of the

clause “services directed toward expertise in . . . accounting,” filing multiple

motions for judicial notice and devoting much of their respective briefs to these

arguments. Notwithstanding these other sources, the Court will start with the

definition provided in the Policy.

Doing so, the Court finds that the auditing of financial statements falls

within the contractual term “services directed toward expertise in . . .

accounting.” This provision is hardly ambiguous—auditing of financial

statements is a widely recognized accounting service. See N.J.S.A 2A:53A-25

(“‘Professional accounting services’ includes, but is not limited to, the . . . audit

of . . . a financial statement[.]”); Fla. Stat. § 473.302(8)(a) (defining services that

fall within “public accounting”). And conducting an audit requires expertise, as

the materials to which the Defendants point explain. (See ECF No. 175 at 6

(“[F]orensic accounting services . . . involve the application of . . . special skills

in accounting, auditing, finance, quantitative methods . . . and research[.]”)

(quoting Code of Professional Conduct, 1.295.140, Forensic Accounting).)

The Defendants disagree, arguing that the term “services directed toward

expertise in . . . accounting” must be interpreted in light of the usage of the

term that it is defining—“management consulting services.” (ECF No. 161 at 5–

6.) The Defendants point to, among other things, various business dictionaries,

certain standards promulgated by the American Institute of Certified Public

Accountants, professional standards for public accountants, SEC guidance, as

well as writings by the late Justice Scalia. (Id. at 6; ECF No. 195 at 4.) The

Defendants argue that these extrinsic sources establish that “management

consulting” does not include auditing, as consulting generally involves the

analysis of management problems and the provision of recommendations, while

auditing generally involves the attestation to financial statements. (ECF

No. 161 at 6–8.)

However, the principles to which the Defendants point only apply where

the contract is ambiguous. See A. Scalia & B. Garner, Reading Law: The

Interpretation of Legal Texts, at 228 (2012) (noting that the principle that a

definition is interpreted in light of the definiendum’s context applies only where

“a definition itself contains a term that is not clear”); see also Stenberg v.

Carhart, 530 U.S. 914, 942 (2000) (“When a [text] includes an explicit

definition, [a court] must follow that definition, even if it varies from that term’s

ordinary meaning.”). As held above, the definition of “management consulting

services” is not “so confusing[ly]” ambiguous to warrant extensive resort to

extrinsic evidence. See Princeton Inv. Partners, 2018 WL 846917, at *5. If the

parties wished to limit coverage to “consulting” services in a way that

comported with certain trade usage, the parties could have done so. But the

parties contracted to an expansive definition of “management consulting

services,” which must be interpreted in favor of coverage if a fair reading

permits. See State Nat. Ins. Co., 2012 WL 6652819, at *2. The Court must

apply this plain meaning.2

Second, however, the Underlying Lawsuit did not concern the provision

of accounting services to a “financial institution.” This is undisputed. (ECF

No. 155 at ¶ 72; ECF No. 185 at ¶ 72.) The Plaintiffs’ only argument in

2 As the Court holds that auditing is a covered service under the 2017-18 Policy, the Court

need not address the Plaintiffs’ contention that the Defendants were estopped from arguing

that auditing was not a covered service. (ECF No. 154 at 10.)

opposition comes down to a comma. (ECF No. 186 at 6.) Recall the clause at

issue: “[1] services directed toward expertise [2] in banking finance, accounting,

risk and systems analysis, design and implementation, asset recovery and

strategy planning [3] for financial institutions.” (ECF No. 155-37 at 23; ECF

No. 185 at ¶ 1.) The Defendants argue that covered accounting services must

be provided to a financial institution, pointing to the series-qualifier canon,

which holds that a modifier (here, “for financial institutions”) at the end of a

series of nouns or verbs “normally applies to the entire series.” (ECF No. 161

at 13); see Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1169 (2021). The

Plaintiffs argue that the series-qualifier canon only applies where there is a

comma before the modifier—therefore, as there is no comma before “for

financial institutions,” the Plaintiffs argue that clause only qualifies the phrase

immediately preceding it (namely, “asset recovery and strategy planning”). (ECF

No. 186 at 6); see Facebook, 141 S. Ct. at 1170.

The Court finds that the phrase “for financial institutions” modifies the

entire series, meaning that “management consulting services” is defined as the

provision of “services directed towards expertise in . . . accounting . . . for

financial institutions.” See United States v. Bass, 404 U.S. 336, 340 n.6 (1971)

(noting that while “commas at the end of series can avoid ambiguity,” the “use

of such commas is discretionary”).

In total, a plain reading of the 2017-18 Policy establishes that Chubb

had no duty to defend or duty to indemnify in connection with the Underlying

Litigation, as the services at issue in the Underlying Litigation were not

provided to a financial institution, as required for coverage. Therefore, the

Court grants summary judgment in favor of Chubb on Count One.3

B. Count 2: Breach of Contract

Count Two states a breach of contract for Chubb’s alleged failure to

defend and indemnify Constantin, on the theory that the 2017-18 Policy was a

renewal of the 2016-17 Policy. However, the definition of “management

consulting services” was the same in the 2016-17 Policy as it was in the 2017-

18 Policy. (See ECF No. 155 at ¶ 15; ECF No. 185 at ¶ 15.) Therefore, the Court

grants summary judgment on Count Two in favor of Chubb for the same

reasons laid out above.

3 The Defendants represented that resolution of Count One in their favor would render their

Counterclaim (ECF No. 93) moot. (See ECF No. 210 at 2 n.2.) Therefore, the Court dismisses

the Defendants’ Counterclaim as moot. The Defendants also argue that resolution of Count

One in their favor would moot the remainder of the Plaintiffs’ claims. (Id.) While the Plaintiffs

do not appear to specifically address this contention, the Court will continue to address all of

the Plaintiffs’ claims.

C. Count 3: Reformation of Contract

The Plaintiffs seek to reform the 2017-18 Policy, arguing that the

Defendants failed to apprise Control Group of any change in terms of the

renewal policy—namely, the removal of Constantin as an Insured.

The Defendants move for summary judgment on this claim primarily

under two theories: (1) the 2017-18 Policy was not a renewal policy subject to

the strict requirements for notice of changes in terms and (2) in any event, the

Defendants gave adequate notice of a change in terms. (ECF No. 161 at 18–20.)

First, the Court holds that the 2017-18 Policy was a renewal policy.

From 2011 to 2017, the Defendants sent a “notice of non-renewal” to Control

Group, which gave Control Group notice that action was needed to renew its

policy. (ECF No. 184 at ¶ 55; ECF No. 192 at ¶ 55.) This notice does not, as the

Defendants appear to argue, definitively resolve the issue of whether the 2017-

18 Policy was a renewal. Rather, after the notice was sent in September 2017,

Control Group, through a third party, requested a “renewal application” from

Chubb. (ECF No. 156 at ¶ 28; ECF No. 184 at ¶ 28; ECF No. 156-24.) From

that point, the parties consistently referred to the Policy as a renewal. In

November 2017, Chubb forwarded “the renewal app.” (ECF No. 156 at ¶ 29;

ECF No. 184 at ¶ 29.) In early December 2017, Control Group sent a signed

“Renewal Application,” which had a heading that read “Chubb Pro E&O

Renewal Application.” (ECF No. 196-5; ECF No. 185 at ¶ 159; ECF No. 196 at

¶ 159.) After the 2017-18 Policy was bound, the Defendant’s underwriter

thanked Control Group for “the renewal business.” (ECF No. 185 at ¶ 161; ECF

No. 196 at ¶ 161.)

To argue that the 2017-18 Policy was not a renewal, the Defendants

maintain that the 2017-18 Policy was on a different form than the previous

policy, and therefore it could not have been a simple renewal. (ECF No. 187

at 18.) Moreover, the Defendants explain that the term “renewal” was only used

at the time of drafting in order to “accurately record progress [internally]

toward underwriting goals.” (Id.) But the Defendants do not argue that Control

Group was aware of these internal underwriting goals or that Control Group

was privy to the Defendants’ internal understanding of the term “renewal.”

The Defendants plainly referred to the 2017-18 Policy as a renewal at the

time of drafting and binding. An undisclosed internal definition that departed

from the common meaning of “renewal” has no bearing on whether the 2017-

18 Policy was a renewal. And while the final 2017-18 Policy was on a different

form than the previous policy, the parties still referred to it as a renewal. The

mere presence of different terms or a different form alone does not change a

renewal into something else. See Am. Cas. Co. of Reading, Pa. v. Continisio, 819

F. Supp. 385, 400 (D.N.J. 1993) (rejecting the proposition that a renewal policy

cannot have a substantial change in terms).

Second, the Court holds that the Defendants did not give adequate

notice of any change in the renewed Policy’s definition of Insured. Under New

Jersey law, “[a]bsent notification that there have been changes in the

restrictions, conditions or limitations of [a renewed insurance] policy, the

insured is justly entitled to assume that they remain the same.” Bauman v.

Royal Indem. Co., 174 A.2d 585, 592 (N.J. 1961). If the insured is not

“specifically and clearly informed of [a] change, the renewal will be ineffective.”

See McClellan v. Feit, 870 A.2d 644, 649 (N.J. App. Div. 2005) (emphasis

added).

The Defendants never gave Control Group clear and specific notice of a

change in the definition of Insured or of any change in what entities were

provided coverage under the Policy. (ECF No. 156 at ¶¶ 37–39; ECF No. 184 at

¶¶ 36–39.) The Defendants primarily argue that adequate notice was given

(1) when Mr. Murray listed some of the “enhancements” of the “new form” and

(2) when the Defendants delivered the bound policy and asked Control Group

to review it. (ECF No. 161 at 19.) Any suggestion that Control Group need only

have read the 2017-18 Policy to learn of changes flies in the face of Bauman,

which explicitly puts the burden on the insurer to give clear and specific notice

of a change. See Bauman, 174 A.2d at 592. Moreover, while Mr. Murray noted

some “enhancements” in the new form, he did not notify Control Group of any

change in the definition of Insured or a change in the determination of what

entities were covered. (ECF No. 155-42; ECF No. 185 at ¶ 85.)

As the 2017-18 Policy was a renewal and as the Defendants did not give

Control Group adequate notice of a change in the definition of Insured or what

entities were covered under the Policy,4 the Court denies the Defendants’

4 The Defendants also argue that Count Three, as well as Counts Two through Seven, cannot

be sustained under the theories of in pari delicto and unclean hands. (ECF No. 161 at 25.) The

Defendants reason that Control Group falsely represented that Constantin was its subsidiary,

thereby wrongfully obtaining coverage for Constantin prior to 2017. (Id.) The only example that

the Defendants provide of Control Group representing that Constantin was its subsidiary was

that the applicant on the 2016-17 Policy was named as “[Control Group] and Subsidiaries.”

(Id.) However, it is unclear whether this statement refers to Constantin at all. And it is

undisputed that Constantin was insured under the 2016-17 Policy, not because it was a

subsidiary but because it was listed by endorsement. (ECF No. 156 at ¶ 27; ECF No. 184 at

¶ 27.) While the Defendants refer to this as a “subsidiary list,” there is no indication in the

record that the entities covered by endorsement in the 2016-17 Policy had to be Control

Group’s subsidiaries. Rather, the 2016-17 Policy defined Insured as “the person or entity

stated in Item 1 of the Declarations,” and the endorsement amended Item 1 of the Declaration

to add additional Insureds. (ECF No. 155-16.) Therefore, there is no undisputed record

evidence permitting the Court to conclude that Control Group wrongfully represented that

Constantin was its subsidiary in order to obtain coverage for Constantin.

motion for summary judgment on Count Three and grants the Plaintiffs’

motion.5

D. Count 4: Breach of Contract

In Count Four, the Plaintiffs allege that ERI breached the 2017-18 Policy

by failing to defend and indemnify Constantin in the Underlying Litigation. As

the Court holds that there was no duty to defend or indemnify in connection

with the Underlying Litigation, the Court grants summary judgment in ERI’s

favor on Count Four.

E. Counts 5–7

Before reaching the merits of Counts Five through Seven, the Court must

determine what entity has brought these claims. Constantin previously pled

these claims, although the Court later held that Constantin had no standing to

do so. (ECF No. 212.) The Plaintiffs subsequently brought a motion to

substitute, seeking to substitute the Plaintiffs for Constantin as to Counts Five

through Seven. (ECF No. 215.) Courts will generally permit substitution under

Rule 17(a)(3) where (1) there was an honest or understandable mistake in

determining the proper party to bring suit and (2) the substitution “will not

alter the substance of the action.” Cifuentes v. Regions Bank, No.11-23455-CIV,

2012 WL 2339317, at *7 (S.D. Fla. June 19, 2012) (Moreno, J.) (quoting Park B.

Smith v. CHF Indus., Inc., 811 F. Supp. 2d 766, 773–74 (S.D.N.Y. 2011)).

Here, the decision for Constantin to bring Counts Five through Seven

was an honest and understandable mistake, and substitution will not alter this

case. By their own admission, the Defendants undertook months of discovery

to determine who could bring these claims (ECF No. 219 at 13), and the parties

resorted to motions practice to determine whether Constantin had standing to

bring these claims. Moreover, the relief sought will not change the nature of the

claims—only the party bringing the claims. Therefore, substitution will not

alter this action or cause prejudice to the Defendants. In all, the Court grants

the Plaintiffs’ motion to substitute (ECF No. 215) and finds that (1) there was

an honest and understandable mistake in determining the appropriate party to

bring Counts Five through Seven, (2) the substitution will not alter the

5 As the Court holds that Control Group was not adequately notified of a change in terms

concerning the Insureds in the 2017-18 Policy, the Court need not address the Plaintiffs’

argument that the Defendants are estopped from arguing that Constantin was not an Insured.

(ECF No. 186 at 20–21.) Moreover, as the Court holds that the Defendants did not satisfy the

notice requirements set out in Bauman, the Court need not address whether the Defendants

satisfied or were subject to the notice requirements set out in N.J.A.C. § 11:1-20.2.

substance of this action, (3) the motion to substitute was brought in a

reasonable time after the Court issued its order on the Defendants’ motion to

dismiss, and (4) there is no prejudice to the Defendants, as they have been

aware of these claims for months and had ample opportunity to develop their

legal strategy.

Nonetheless, Counts Five through Seven fail. In these Counts, the

Plaintiffs allege that the Defendants made false representations concerning

whether the 2017-18 Policy was a renewal. In particular, Count Five alleges

fraud,6 Count Six negligent misrepresentation, and Count Seven violation of

the New Jersey Consumer Fraud Act. As the Plaintiffs explained, these theories

are brought in the alternative—either the 2017-18 Policy truly is a renewal or

the Defendants fraudulently misrepresented that it was a renewal. (ECF

No. 154 at 6.) As the Court held that the 2017-18 Policy is a renewal and

reformed it, the Court finds that Counts Five through Seven fail. Therefore, the

Court will grant summary judgment in the Defendants’ favor as to Counts Five

through Seven.

4. Conclusion

In total, the Court grants in part and denies in part the Defendants’

motion for summary judgment (ECF No. 161) and grants in part and denies

in part the Plaintiffs’ partial motion for summary judgment (ECF No. 154). In

particular, the Court grants summary judgment in the Defendants’ favor as to

Counts 1, 2, 4, 5, 6, and 7, while granting summary judgment in the Plaintiffs’

favor as to Count 3. As the Court reformed the 2017-18 Policy and found that

Constantin is an Insured, the Court denies the Defendants’ motion to dismiss

Count 1.7 (ECF No. 143.) Moreover, the Court grants the Plaintiffs’ motion to

substitute (ECF No. 215) for the reasons set out above. Last, the Court denies

the parties’ requests for oral argument.

As set out above, all claims and counterclaims have been adjudicated.

The Court enters judgment as follows. Judgment is entered in favor of the

Plaintiffs and against the Defendants on Count 3. Judgment is entered in favor

of the Defendants on all other claims. The Court directs the Clerk to close this

case. All remaining pending motions are denied as moot.

6 In Count Five, the Plaintiffs also sought punitive damages, which the Defendants argued

could not be obtained. As the Court grants summary judgment and dismisses Counts Five

through Seven, the Court also dismisses the Plaintiffs’ request for punitive damages.

7 On November 15, 2021, the Court construed the Defendants’ motion to dismiss Count 1 as

part of the Defendants’ motion for summary judgment. (ECF No. 209.)

Done and ordered, in Miami, Florida, on December 17, 2021.

Rotlert N. Scola, Jr.

United States District Judge