FCE Benefit Administrators, Inc. v. Indian Harbor Insurance Company

Background

FCE Benefit Administrators, Inc. provides third-party administrator services for employee benefit plans under the Employee Retirement Income Security Act. Indian Harbor issued FCE an errors-and-omissions policy covering damages and defense expenses arising from FCE’s professional services.

The policy set a $3 million limit for a claim based on acts or omissions committed before June 6, 2017, and a $5 million limit for a claim based exclusively on acts or omissions committed on or after that date. It also stated that two or more claims arising from related facts or events would be treated as a single claim, and that defense expenses and damages would reduce and potentially exhaust the liability limit.

Standard Security Life Insurance Company of New York and Madison National Life Insurance Company, Inc. had previously brought an arbitration claim against FCE concerning FCE’s services under an administrative-services agreement. The arbitration resulted in an award of $5,348,352.81 against FCE. FCE timely submitted the arbitration claim to Indian Harbor. Indian Harbor paid $2,348,596.30 to FCE and later paid $1,049,175.65 as indemnity for the judgment. The opinion states that these payments totaled $397,771.96 more than the $3 million Indian Harbor believed it owed.

FCE then sued Indian Harbor for breach of contract and breach of the implied covenant of good faith and fair dealing. FCE sought, among other relief, additional indemnity under the policy, attorneys’ fees and costs, punitive damages, and prejudgment interest. Indian Harbor moved for summary judgment and for leave to amend its answer and add counterclaims. FCE opposed those motions and later moved for partial summary judgment.

Summary-judgment ruling

The court held that the policy’s clear language limited Indian Harbor’s liability to $3 million for the claim. The court rejected FCE’s argument that defense costs incurred under Indian Harbor’s duty to defend were outside the policy limits. The policy expressly stated that defense expenses reduced and could exhaust the liability limits, and that Indian Harbor’s duty to defend and pay damages or defense expenses ended when the limit was exhausted.

The court also rejected FCE’s arguments about the timing and number of claims. The court concluded that the arbitration claim was based at least in part on acts or omissions before June 6, 2017, so the $3 million limit applied. Even if there were later claims based exclusively on post-June 6, 2017 conduct, the court held that those claims arose from related facts and therefore were treated as part of a single claim under the policy.

The court further rejected FCE’s argument that the possibility of coverage required Indian Harbor to provide coverage beyond $3 million. Because the policy was unambiguous, the court found no potential for coverage above that amount.

Amended answer and counterclaims

Indian Harbor sought leave under Federal Rule of Civil Procedure 15(a) to amend its answer and add counterclaims for reimbursement under the policy and unjust enrichment. FCE argued that the proposed reimbursement claim might be legally insufficient, but it did not argue that the unjust-enrichment claim was insufficient or that the amendment would prejudice it.

The court held that FCE had not shown that the proposed amendment would be futile. It therefore granted Indian Harbor leave to file its amended answer and counterclaims. The order directed filing within 21 days, but a footnote stated that Indian Harbor had already filed the amended pleading and did not need to file it again.

Disposition

The court GRANTED summary judgment to Indian Harbor, DENIED partial summary judgment to FCE, and GRANTED Indian Harbor leave to file its amended answer and counterclaims.