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Crowley Maritime Corp. v. National Union Fire Insurance Co. of Pittsburgh, PA

United States Court of Appeals, Eleventh Circuit

July 23, 2019


          Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 3:16-cv-01011-TJC-JBT

          Before ED CARNES, Chief Judge, MARTIN and ANDERSON, Circuit Judges.


         This case involves an unusual and factually complex insurance coverage dispute between two sophisticated parties. It requires us to consider the coverage and reporting requirements in a claims-made executive and organization liability insurance policy that provides, inter alia, defense costs coverage for certain directors, officers, and employees of the insured. After obtaining an unfavorable result in an arbitration proceeding, Plaintiff-Appellant Crowley Maritime Corporation ("Crowley Maritime") sued its insurer Defendant-Appellee National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") in federal court seeking reimbursement of over $2.5 million in legal defense fees paid on behalf of Thomas Farmer ("Farmer"), an employee of Crowley Liner Services, Inc. ("Crowley Liner" and, together with Crowley Maritime, "Crowley"). Jurisdiction is based on diversity.

         Relying in part on the res judicata effect of the arbitration proceeding, the district court granted National Union's converted motion for summary judgment on grounds that Crowley failed to timely report the Claim[1] at issue in this appeal to National Union as required by the relevant insurance policy. Crowley insists it timely reported the Claim even though an affidavit evidencing the Claim was under seal until after the relevant Claim reporting periods expired. Although our reasoning differs somewhat from the reasoning adopted by the district court, we affirm the district court's grant of National Union's converted motion for summary judgment.

         I. BACKGROUND

         A. Factual Background.

         1. Crowley purchases executive and organization liability insurance policy from National Union.

         Crowley Liner is a Jacksonville-based water freight carrier that carries freight between the United States and Puerto Rico. It is a wholly owned subsidiary of Crowley Maritime. National Union is among the largest providers of directors and officers insurance policies. As it relates to this case, Crowley Maritime purchased liability insurance from National Union pursuant to Executive and Organization Liability Insurance Policy No. 061-36-48 (the "Policy"), which provided coverage for an initial Policy Period running from November 1, 2007 through November 1, 2008 and an extended Discovery Period running through November 1, 2013. The Policy provided coverage on a "claims made" basis, meaning that National Union insured Crowley "solely with respect to Claims[2] first made against an Insured during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of [the P]olicy." As relevant to the issues in this case, the Policy covered Defense Costs resulting from the investigation, adjustment, and defense of a Claim against an Insured (Farmer in this case).

         2. Sealed search warrant Affidavit leads to execution of search warrant at Crowley Liner headquarters.

         During the initial Policy Period, Crowley Liner and Farmer, Crowley Liner's then-Vice President of Price and Yield Management, attracted the attention of federal law enforcement officers. On April 17, 2008, a search warrant was executed at Crowley Liner's Jacksonville headquarters. The search warrant ordered that certain property be seized from Crowley Liner management, pricing, or sales personnel-including Farmer and three other individuals specifically named in the search warrant-in connection with a joint investigation by the Federal Bureau of Investigation ("FBI") and the Department of Justice ("DOJ") of an alleged price-fixing conspiracy in the Puerto Rican trade lane.

         On April 16, 2008, the day before federal law enforcement officers executed the search warrant, an FBI special agent signed and delivered an affidavit supporting the search warrant (the "Affidavit") to a federal magistrate judge in the Middle District of Florida. The Affidavit-which spans forty-eight pages and describes in great detail an ongoing FBI/DOJ antitrust investigation involving several water freight carriers-asserted that Farmer and others had been involved in communications and agreements to allocate customers and coordinate pricing in violation of the Sherman Act.[3] To protect the ongoing FBI/DOJ investigation, the Affidavit was sealed by court order the day it was presented to the magistrate judge. The search warrant itself noted generally the existence of an affidavit supporting probable cause, but it did not specifically identify the Affidavit, reveal its content, or note that it had been placed under seal. The detailed descriptions of Farmer's alleged conduct in the sealed Affidavit were not apparent from the face of the search warrant itself. Crowley and Farmer also received subpoenas to appear before a grand jury, but Farmer never testified.

         3. National Union accepts Crowley's notice of Claim as a notice of circumstances under section 7(c) of the Policy.

         A little over a week later, in a letter dated April 25, 2008 (the "April 2008 Notice"), Crowley's insurance broker sent National Union a notice it characterized as a notice of a Claim. An email attached to the April 2008 Notice provided the initial "details of a DOJ/FBI investigation," including a statement that "[t]he charges that may have [led] to the subpoena and search warrant are sealed at this point in time and no indictments have been filed." Crowley also asked National Union to consent to the retention of defense counsel and the expenditure of Defense Costs by Crowley and Farmer.

         National Union responded to the April 2008 Notice in a letter dated May 27, 2008. Although it acknowledged that Crowley had submitted the April 2008 Notice and other related information "as Claims under the Policy," National Union concluded that the Policy did not provide coverage because, in part, no one had been identified in writing as a target of the investigation as required by the Policy. National Union noted that its determination was "preliminary, as it [was] based solely upon the documentation currently available." National Union did, however, accept the April 2008 Notice "as a notice of circumstances that may give rise to a Claim being made against an Insured, pursuant to Clause 7(c) of the Policy." It then invited Crowley to submit additional information in the future that might be relevant to a coverage determination.

         Crowley and National Union continued to correspond over roughly the next four years. For its part, Crowley asserted that a Claim existed and had been reported to National Union in April 2008. It also informed National Union of Farmer's mounting legal expenses. National Union acknowledged the existence of circumstances that might eventually result in a Claim against an Insured Person, but it persisted in its denial of coverage. Subject to customary reservation of rights language, National Union also encouraged Crowley to send additional information that might be relevant to its coverage determination.

         4. Arbitration panel enters decision favoring National Union's position.

         Crowley eventually initiated arbitration, and the arbitrators held a hearing in December 2012. The proceeding addressed whether, based on the information provided to National Union at the time of the arbitration hearing, the FBI/DOJ investigation constituted a Claim under the Policy. The arbitration order noted that the evidence of a Claim presented to National Union at that time included only: the search warrant, the Farmer and Crowley subpoenas, several documents relating to a plea agreement entered into by Crowley, and the investigation relating to those documents. National Union encouraged the arbitrators to ignore the Affidavit, [4]and the arbitration order observed that "[t]he [A]ffidavit has remained sealed; therefore, its specific allegations have never been made known to Crowley or its employees." The Affidavit does not appear in the list of documents considered by the arbitrators as evidence of the FBI/DOJ investigation.

         A majority of the arbitration panel entered a decision in favor of National Union on January 29, 2013. The arbitration order observed that "the triggering event for a Claim . . . is when the DOJ identifies in writing an Insured Person as one against whom a criminal proceeding may be commenced." It continued, ultimately concluding that "[t]he materials Crowley submitted to National Union did not constitute a Claim for Insured Persons as the term 'Claim' is defined in the Policy. The triggering event specified in the Policy has not yet been presented to National Union."

         5. Farmer receives and rejects Plea Offer, is acquitted at trial.

         In a letter dated February 11, 2013, the government offered to enter into a plea agreement with Farmer on certain terms and conditions, including acceptance of a recommended sentence (the "Plea Offer"). Crowley notified National Union of the Plea Offer in a letter dated February 15, 2013 (the "February 2013 Notice"). In response to the February 2013 Notice, National Union agreed to treat the FBI/DOJ investigation as a Claim under the Policy as of February 18, 2013 (the date it received the February 2013 Notice). In making this new coverage determination, National Union acknowledged that Crowley submitted the February 2013 Notice within the six-year Discovery Period and that it also "appear[ed] to be related to prior correspondence [i.e., the April 2008 Notice] which was acknowledged by [National Union] as a notice of circumstances under Section 7(c) of the Policy." National Union agreed to provide coverage for future Defense Costs relating to the investigation (i.e., those incurred on or after February 18, 2013), but took the position that Crowley was not entitled to reimbursement of its earlier Defense Costs (i.e., those incurred between April 25, 2008 and February 18, 2013 before National Union received notice of Farmer's Plea Offer).

         Farmer rejected the Plea Offer and went to trial. Shortly before the end of his trial, on April 24, 2015, the Affidavit was unsealed. A federal jury in Puerto Rico found Farmer not guilty and the United States District Court for the District of Puerto Rico entered a judgment of acquittal on May 8, 2015.[5] In a letter dated July 22, 2015 (the "July 2015 Notice"), Crowley notified National Union that Farmer had been acquitted and that it had received and reviewed a copy of the unsealed Affidavit, which Crowley said made "clear" that a Claim had been "asserted with respect to Mr. Farmer as of the date of filing of the search warrant affidavit in April 2008." It demanded reimbursement of $2, 541, 346.34 in legal fees Crowley paid on Farmer's behalf (net of the Policy deductible) between the date of the April 2008 Notice and the date of the February 2013 Notice. National Union refused, insisting it was not "obligated under the terms of the Policy to reimburse Crowley for the fees." We note that National Union did cover almost $3 million in Defense Costs incurred in connection with Farmer's defense after it received Crowley's February 2013 Notice. These post-Plea Offer Defense Costs are not at issue in this appeal. Rather, the issue in this case involves Farmer's Defense Costs from April 2008 to February 2013.

         B. Procedural Background.

         Crowley brought a diversity action for breach of contract against National Union in the United States District Court for the Middle District of Florida, claiming it was entitled to be reimbursed for its payment of Farmer's pre-February 2013 (pre-Plea Offer) Defense Costs. Crowley argued that the Claim based on the previously sealed Affidavit (hereafter referred to as the "Claim based on the Affidavit") not only existed all along but also was reported to National Union pursuant to the terms of the Policy. National Union moved to dismiss the complaint on grounds that the prior arbitration was res judicata to Crowley's breach of contract action and that it was also barred by the applicable statute of limitations. The district court converted National Union's motion to dismiss to a motion for summary judgment. The parties conducted discovery, filed supplemental briefing, and participated in a motion hearing before the district court.

          In supplemental briefing, National Union repeated its res judicata and statute of limitations arguments, but it also raised a third argument: that Crowley's claim for coverage based on the Affidavit was untimely under the Policy because it was not reported to National Union until July 22, 2015, well after the extended six-year Discovery Period expired on November 1, 2013. In response, Crowley argued that the arbitration was not res judicata to its claim for coverage based on the Affidavit because the arbitration was limited in scope and did not consider the unsealed Affidavit, and that the application of res judicata principles would be inequitable in any event. It also argued that the statute of limitations did not accrue until 2015 when National Union denied coverage after receiving the unsealed Affidavit. Finally, Crowley also argued that it had timely reported the Claim in its April 2008 Notice, and in the alternative, that its July 2015 Notice was timely because it should relate back to the April 2008 Notice under section 7(c) of the Policy.

         The district court granted National Union's converted motion for summary judgment and ordered that judgment be entered in favor of National Union. Crowley Mar. Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 307 F.Supp.3d 1286, 1297 (M.D. Fla. 2018). It found that Crowley did not notify National Union of the existence of the unsealed Affidavit until 2015. Id. at 1291. As a result, the district court concluded that the December 2012 arbitration proceeding was not res judicata to Crowley's claim for coverage based on the Affidavit because the unsealed Affidavit was "like newly discovered evidence." Id. at 1291-95 (citation omitted). Framing the issues as a "catch-22 for Crowley," the district court went on to conclude that, even though the limited-scope arbitration did not preclude consideration of the unsealed Affidavit in Crowley's federal lawsuit, Crowley's reporting of the Claim based on the Affidavit in 2015 was still untimely under the Policy because the Discovery Period ended on November 1, 2013. Id. at 1291, 1295-97. In the alternative, the district court concluded that if a Claim based on the Affidavit was deemed reported in 2008 (as a result of the relation back provisions in section 7(c) of the Policy or otherwise), then the 2012 arbitration would preclude Crowley from bringing its federal lawsuit on res judicata grounds. Id. at 1296-97. In other words, Crowley lost either way. Id. The district court expressly declined to address National Union's statute of limitations arguments. Id. at 1295.

         Crowley appealed to this Court, and we now consider whether the district court erred when it granted National Union's converted motion for summary judgment. Following a close review of the parties' briefs, the Policy, other relevant parts of the record, and applicable law-and with the benefit of oral argument-we affirm the judgment of the district court, albeit on somewhat different grounds.

         II. ISSUE

         As noted above, the issue in this case involves only whether Crowley is entitled to coverage, and thus reimbursement from National Union, of its pre-February 2013 (pre-Plea Offer) Defense Costs, on behalf of the Insured, Farmer. The only relevant new facts revealed after the arbitration are the government's February 2013 Plea Offer and the 2015 unsealing of the Affidavit. On appeal, Crowley relies solely upon the Affidavit. Crowley's challenge to the judgment of the district court relies solely upon the Claim based on the Affidavit. Thus, the issue is: Does Crowley establish that the Claim based on the Affidavit not only existed as of its April 2008 Notice to National Union, but also was reported to National Union as required by the terms of the Policy so as to provide the coverage sought by Crowley?[6]


         This Court reviews de novo a district court's grant of summary judgment. Sierra Club, Inc. v. Leavitt, 488 F.3d 904, 911 (11th Cir. 2007). We also review de novo decisions applying res judicata rules, Lobo v. Celebrity Cruises, Inc., 704 F.3d 882, 892 (11th Cir. 2013), and decisions interpreting insurance contracts, Tech. Coating Applicators, Inc. v. U.S. Fid. and Guar. Co., 157 F.3d 843, 844 (11th Cir. 1998). Summary judgment is appropriate when, viewing the record in the light most favorable to the non-moving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Leavitt, 488 F.3d at 911; see also Fed.R.Civ.P. 56(a).

         "[I]n a diversity case, a federal court applies the substantive law of the forum state, unless federal constitutional or statutory law is contrary." HR Acquisition I Corp. v. Twin City Fire Ins. Co., 547 F.3d 1309, 1314 (11th Cir. 2008) (citation omitted). In this case, the forum state is Florida. The parties' arguments below, [7] the district court's order, and the parties' arguments before this Court focus exclusively on the application of Florida law to the substantive contract interpretation and res judicata issues raised by Crowley's federal lawsuit. We agree and also apply Florida law.

         IV. ANALYSIS

         Our analysis proceeds in two main parts. First, we briefly consider the essence of a claims-made insurance policy. Second, we consider whether the Policy provisions limiting coverage to Claims that are "first made against an Insured" during the Policy Period or the Discovery Period[8] and that also are "reported to the Insurer" pursuant to the terms of the Policy[9] were satisfied in this case. We do not adopt the "catch-22" analysis set forth by the district court. However, for the reasons explained in some detail below, we ultimately affirm the district court's order granting National Union's converted motion for summary judgment because the record supports the conclusion that Crowley failed to timely report the Claim based on the Affidavit as required by the Policy. See Aaron Private Clinic Mgmt. LLC v. Berry, 912 F.3d 1330, 1335 (11th Cir. 2019) (noting that "[w]e may affirm on any ground supported by the record, regardless of whether that ground was relied upon or even considered below" (alteration in original) (citation omitted)). With respect to the reporting period between April 16, 2008 and December 31, 2012, Crowley is bound by the arbitration panel's finding that Crowley had not reported a Claim to National Union as required by the Policy at that time.[10] With respect to the reporting period beginning immediately after December 31, 2012 and running through the end of the Discovery Period on November 1, 2013, Crowley failed to report the Claim based on the Affidavit as required by section 7(a) of the Policy because it did not report any new information about the Claim based on the Affidavit until after both the Policy Period and the Discovery Period had expired.[11] Also, as discussed in greater detail below, Crowley has waived any arguments that either its February 2013 Notice or its July 2015 Notice should relate back to the April 2008 Notice under section 7 of the Policy.[12]

         A. The Essence of a Claims-Made Policy.

         Claims-made policies are common in the professional liability insurance market. See Eric M. Holmes, Appleman on Insurance Law & Practice Archive § 146.4, LEXIS (database updated 2011). They "differ from traditional 'occurrence'-based policies primarily based upon the scope of the risk against which they insure." Steven Plitt et al., 1 Couch on Insurance § 1:5, Westlaw (database updated December 2018). With claims-made policies, coverage is provided only where the act giving rise to coverage "is discovered and brought to the attention of the insurance company during the period of the policy." Id. In contrast, coverage is provided under an occurrence-based policy if the act giving rise to coverage "occurred during the period of the policy, regardless of the date a claim is actually made against the insured." Id. "The essence, then, of a claims-made policy is notice to the carrier within the policy period." Gulf Ins. Co. v. Dolan, Fertig & Curtis, 433 So.2d 512, 514 (Fla. 1983). See also Holmes, supra, § 130.3 ("Claims-made or discovery policies are essentially reporting policies. If the claim is reported to the insurer during the policy period, then the carrier is legally obligated to pay; if the claim is not reported during the policy period, no liability attaches.").

         Insurance companies favor claims-made policies because they allow for a more precise calculation of risks and premiums. Id. "This theoretically results in lower premiums for an insured since there is no open-ended 'tail' after the expiration date of the policy." Gulf Ins. Co., 433 So.2d at 516. With these general principles in mind, we turn our ...

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