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Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003

United States District Court, D. Kansas

September 30, 2014



JULIE A. ROBINSON, District Judge.

Plaintiff Brecek & Young Advisors, Inc. ("BYA") filed its Complaint for Declaratory Relief and Damages seeking a judicial declaration concerning Defendant Lloyds of London Syndicate 2003's ("Lloyds") contractual obligations under a policy of insurance issued by Lloyds to BYA and seeking damages for alleged breaches of that insurance contract by Lloyds. The parties filed cross-motions for summary judgment; the Court granted BYA's motion and denied Lloyds' motion. On August 9, 2013, the Tenth Circuit issued its mandate reversing the Court's entry of summary judgment in favor of BYA, and remanded for further proceedings.[1] After limited discovery, this matter is now before the Court on BYA's Motion for Summary Judgment (Doc. 135) and Lloyds' Motion for Leave to File a Third-Party Complaint against Fireman's Fund (Doc. 132). The parties have also filed Motions for Leave to file surreplies to both motions, respectively (Docs. 147, 149). The Court heard oral argument on May 28, 2014. After considering the arguments and statements of counsel as well as the written submissions, the Court denies both the motion for summary judgment and for leave to file third-party complaint.

I. Summary Judgment Standard

Summary judgment is appropriate if the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[2] A fact is only material under this standard if a dispute over it would affect the outcome of the suit.[3] An issue is only genuine if it "is such that a reasonable jury could return a verdict for the nonmoving party."[4] The inquiry essentially determines if there is a need for trial, or whether the evidence "is so one-sided that one party must prevail as a matter of law."[5]

The moving party bears the initial burden of providing the court with the basis for the motion and identifying those portions of the record that show the absence of a genuine issue of material fact.[6] Where, as here, the movant bears the burden of proof on a claim or defense, it must show that the undisputed facts establish every element of the claim entitling it to judgment as a matter of law.[7] If the moving party properly supports its motion, the burden shifts to the non-moving party, "who may not rest upon the mere allegation or denials of his pleadings, but must set forth specific facts showing that there is a genuine issue for trial."[8] In setting forward these specific facts, the nonmovant must identify the facts "by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein."[9] If the evidence offered in opposition to summary judgment is merely colorable or is not significantly probative, summary judgment may be granted.[10] A party opposing summary judgment "cannot rely on ignorance of the facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial."[11] Put simply, the nonmoving party must "do more than simply show there is some metaphysical doubt as to the material facts."[12]

Finally, summary judgment is not a "disfavored procedural shortcut"; on the contrary, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."[13]

II. Procedural and Factual History

The facts and procedural history of this case are undisputed and the Court assumes the reader is familiar with the Tenth Circuit opinion that precipitates the matters before the Court, Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003. [14] The Court will not restate the underlying facts in detail, but will provide excerpts from the opinion as needed to frame its discussion on remand.

Underlying Proceedings

On October 5, 2009, BYA filed this declaratory judgment action against Lloyds, seeking resolution of the number of $50, 000 "Each Claim" retentions applicable to the underlying Wahl Arbitration under the Lloyds' claims-made insurance policy effective December 1, 2006 to December 1, 2007 (the "Lloyds Policy"). Approximately two years before, in August 2007, Lloyds agreed to defend BYA in the Wahl Arbitration and appointed defense counsel. Lloyds asserted that the Wahl Arbitration consisted of twenty-six separate claims, subject to twenty-six $50, 000 "Each Claim" retention. In October 2008, BYA objected to this assertion, claiming that the Wahl Arbitration constituted a single claim under the Lloyds Policy's "Interrelated Wrongful Acts" provision, such that only one retention applied. Lloyds ultimately paid approximately $385, 000 in defense and indemnification to resolve the Wahl Arbitration.

In December 2010, Lloyds asserted a new defense in the Pretrial Order: "Even if the [Wahl] claims could be considered interrelated, which is specifically denied by Lloyds, those claims relate back to a point in time prior to the commencement of the Policy period, and therefore, no coverage would apply." Those claims are known as the Knotts Claim and the Colaner claim.

The parties filed cross-motions for summary judgment and this Court entered its initial Order in favor of BYA, concluding that the claims in the Wahl Arbitration did arise out of "Interrelated Wrongful Acts" and therefore, only one $50, 000 retention applied.[15] The Court permitted Lloyds to file a supplemental motion for summary judgment on the basis of its relation-back theory.

In response to Lloyds' Supplemental Motion for Summary Judgment, BYA asserted that the Wahl Arbitration claims were not sufficiently related to the earlier Colaner and Knotts Claims, or alternatively, that Lloyds had waived or should be estopped from asserting its new relation-back defense. The Court denied Lloyds' motion, finding that the Wahl claims did not share a "sufficient factual nexus" with the Colaner and Knotts Claims, and rejected BYA's waiver and estoppel arguments. Based upon its determination that one $50, 000 "Each Claim" retention applied, the Court entered judgment against Lloyds in the amount of $1, 155, 541.73.

Tenth Circuit Decision

On appeal, Lloyds did not advance its argument in the first summary judgment motion that the twenty-six Wahl claims were not interrelated and therefore were subject to separate $50, 000 retentions. Instead, Lloyds limited its argument to the position it took in its second motion for summary judgment-that because the claims in Wahl Arbitration relate back to the Knotts and Colaner claims, they are wholly outside the Policy coverage. BYA did not cross-appeal on the waiver and estoppel issue.

The Tenth Circuit held that under the plain language of the Policy, the Wahl, Knotts, and Colaner Arbitrations were connected by common facts, circumstances, decisions, and policies, and thus this Court erred in concluding that the claims asserted in the Wahl Arbitration did not arise from wrongful acts interrelated to the wrongful acts committed outside the Lloyds policy period.[16]

Despite the fact that BYA did not take a cross-appeal, the Circuit went on to address its waiver and estoppel arguments.[17] The court rejected BYA's waiver argument, holding that because the underlying dispute concerns whether the Policy provides coverage, it is a coverage defense that cannot be waived.[18] With respect to the estoppel defense, the court held that it was not inapplicable because coverage is at issue, ultimately concluding that the Court's finding that BYA failed to establish prejudice was an abuse of discretion.[19] The Circuit noted that this Court characterized BYA's estoppel argument as limited to the argument that Lloyds waited too long to assert its relation-back defense to coverage, and that BYA failed to demonstrate sufficient prejudice, in the form of detrimental reliance, to invoke the defense.[20] The Circuit held that BYA has identified facts in the record that Lloyds controlled the defense of the Wahl Arbitration throughout its entirety to its termination and contributed to its settlement, and consistently acted as though the Wahl claims were covered under the Policy, subject only to a dispute as to the amount of applicable retentions.[21] Lloyds then reversed its position and attempted to disclaim coverage altogether eighteen months after paying the Wahl Arbitration settlement, relying on facts and claims it had known about since 2007, which the court found is "more than adequate to establish prejudice under New York law, " which holds that where an insurer defends an action on behalf of an insured, with knowledge of a defense to the coverage of the policy, it is thereafter estopped from asserting that the policy does not cover the claim.[22] The court specifically held that under New York law, "[p]rejudice is established only where the insurer's control of the defense is such that the character and strategy of the lawsuit can no longer be altered."[23] It went on to hold that, "[h]ere, it is axiomatic that the character and strategy of the Wahl Arbitration can no longer be altered because it was settled. Courts have found prejudice for purposes of estoppel in circumstances in which the insurer's control of the insured's defense has been significantly less extensive."[24]

Although the Circuit held that this Court erred in concluding the defense of equitable estoppel was unavailable to BYA, it further found that "it does not necessarily follow that BYA is entitled to recover the same damages awarded on summary judgment, on the (erroneous) basis that the Wahl claims did not relate back to the other claims outside the policy period."[25] The Circuit noted that "[c]ertainly, BYA has established prejudice as to Lloyd's attempt to recoup the approximately $385, 000 it already paid-at the time BYA settled the Wahl Arbitration Lloyds had expressly promised to provide coverage up to that amount."[26] The court stated that "[i]n determining whether BYA is entitled to any additional recovery, however, the district court must consider the extent to which BYA detrimentally relied on Lloyd's representations, if at all. Thus, the court must consider whether Lloyd's erroneous representation that the twenty-six Wahl claims were not interrelated with the Policy negates any additional claim of detrimental reliance on the part of BYA."[27]


This Court held a status conference on September 4, 2013, and granted the parties' request for additional discovery and briefing.[28] After a sixty-day discovery period, BYA was to file its summary judgment first, setting out its position on remand; Lloyds was to respond with its position and, if appropriate, file a cross-motion for summary judgment, with the option to request more discovery, if needed. Shortly before BYA timely moved for summary judgment, Lloyds moved for leave to file a third-party complaint against Fireman's Fund Insurance ...

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