Johnson v. Ironshore Specialty Insurance Company

Background

Bradley Johnson, the former President and Chief Executive Officer of bankrupt SportCo Holdings, Inc., sought a declaration that four insurance carriers had to defend and indemnify him in two underlying lawsuits. The carriers were Ironshore Specialty Insurance Company, AXIS Insurance Company, Illinois Union Insurance Company, and Westchester Surplus Lines Insurance Company.

Johnson alleged that he had incurred approximately $1 million in defense costs. Ironshore initially acknowledged that Johnson likely qualified as an insured person and agreed to reimburse defense costs, but the parties disputed the reasonableness of his counsel’s fees. Ironshore later denied coverage based on a policy exclusion. Johnson alleged that the excess policies could become responsible after specified underlying coverage limits were exhausted. Westchester’s policy also contained a provision requiring it, under stated conditions, to advance defense costs if the underlying insurers refused to do so and Johnson made a proper request supported by itemized and detailed invoices.

Rulings

The court applied the rules for motions to dismiss. It dismissed Johnson’s promissory-estoppel and unfair-business-practices claims against Ironshore at Johnson’s request, granting Ironshore’s motion to dismiss Counts Six and Seven.

The court dismissed Johnson’s breach-of-contract claim against Westchester because he did not adequately allege that he performed the required conditions under the policy. Specifically, Johnson alleged only generally that he had complied with the policy; he did not allege facts showing that he gave Westchester the required notice accompanied by properly itemized and detailed invoices. The court granted Johnson leave to replead that claim within fourteen days.

The court dismissed Johnson’s declaratory claim seeking advancement of defense costs from AXIS without prejudice. AXIS’s obligation did not begin until the $10 million Ironshore policy was exhausted, and Johnson alleged defense costs of only more than $1 million. The court also found that Johnson had not alleged a practical likelihood that the AXIS policy would be triggered. The court likewise dismissed without prejudice Johnson’s defense-cost declaration claim against Illinois Union because that policy did not attach until $20 million in underlying policy limits had been exhausted, and Johnson had not alleged a practical likelihood of reaching that amount.

The court denied Westchester’s motion to dismiss Johnson’s declaratory claim concerning advancement of defense costs. Although Johnson had not adequately pleaded that Westchester’s policy provision had been breached, he plausibly alleged an actual controversy because Ironshore had refused to advance defense costs and that refusal could trigger Westchester’s obligation under the policy. The court concluded that deciding Westchester’s defense-cost obligation could clarify the parties’ legal positions.

The court dismissed without prejudice Johnson’s declaratory claims seeking indemnification from AXIS, Illinois Union, and Westchester. The court held that those claims were not ripe because liability in the Delaware lawsuit had not yet been determined, and future findings could affect coverage and policy exclusions. The court also stated that Westchester’s provision for advancing defense costs did not make Johnson’s separate indemnification claim ripe.

Effect of the Order

The case could proceed on Johnson’s declaratory claim that Westchester must advance defense costs. Johnson could also file an amended breach-of-contract claim against Westchester. The declaratory claims against the excess insurers were dismissed without prejudice, but the court did not grant leave to amend those claims at that time. The Clerk was directed to remove AXIS and Illinois Union from the case caption and terminate the pending motions. Judge Gregory H. Woods therefore left the Westchester defense-cost declaration claim pending while dismissing the other claims addressed in the order.