Seabury FXOne LLC v. U.S Specialty Insurance Co.

Background

Seabury sought reimbursement from U.S. Specialty for attorneys’ fees and other defense expenses incurred in responding to allegations by Rosario Ingargiola, the former chief executive officer of Seabury FXOne LLC. Ingargiola and FXOne LLC later pursued arbitration claims involving alleged breaches of operating and employment agreements, fiduciary-duty claims, shareholder oppression, and constructive termination. The arbitration tribunal found that Ingargiola had been constructively terminated without cause and ordered Seabury FXOne LLC to recognize his option to retain an implied equity interest.

U.S. Specialty issued a claims-made policy covering Seabury from October 23, 2014, through October 23, 2015. The policy’s Insured v. Insured exclusion generally barred coverage for claims brought by an insured person or entity, but it contained an exception for claims involving an actual or alleged Employment Practices Wrongful Act. The policy defined those acts to include wrongful termination, retaliation, workplace torts, and other specified employment-related misconduct. The parties agreed that the 2015 mediation demand and the later arbitration were treated as one claim first made during the policy period.

Parties’ Arguments

Seabury argued that the claim included the mediation demand, arbitration demand, and related demands, all of which alleged that Seabury had stripped Ingargiola of his authority as CEO, constructively terminated him, and retaliated against him. Seabury contended that these allegations brought the claim within the employment-related exception to the Insured v. Insured exclusion.

U.S. Specialty argued that the operative claim was the arbitration proceeding as a whole and that the dispute principally concerned ownership and control of a joint venture, shareholder issues, and alleged business misconduct. It maintained that the claim was not for an Employment Practices Wrongful Act and that the exclusion barred coverage.

Court’s Analysis

The court applied New York law. It explained that an insurer relying on an exclusion must show that the claim falls clearly and entirely within the exclusion and cannot reasonably be interpreted otherwise. Exclusions are construed narrowly, with ambiguity resolved against the insurer.

The court first held that the mediation demand and arbitration proceeding could not be separated for coverage purposes. The policy treated claims arising from the same facts or circumstances as a single claim, and the court found that both proceedings arose from the same alleged misconduct and alleged improper termination. The arbitration demand did not replace or eliminate the earlier allegations.

The court then concluded that the claim was for alleged employment-related wrongful acts. The underlying materials alleged that Seabury interfered with Ingargiola’s ability to perform as CEO, rendered him powerless in that role, retaliated against him, and created working conditions that compelled him to resign. The arbitration tribunal also specifically found that Ingargiola had been constructively terminated because his executive authority had been undermined.

Although the underlying dispute also included shareholder oppression and other business allegations, the court held that those additional allegations did not prevent the claim from falling within the Employment Practices Wrongful Act exception. The court rejected U.S. Specialty’s reliance on cases involving different policy language or claims that merely might have supported employment-related theories. Here, the employment-related allegations were part of the actual underlying claim.

Ruling and Disposition

The court granted Seabury’s cross-motion for summary judgment and denied U.S. Specialty’s motion for summary judgment on the remaining breach-of-contract claim. The ruling determined that the Insured v. Insured exclusion did not bar coverage for the claim.

The court did not grant summary judgment to Seabury on allocation of defense costs. The policy required the parties to use their best efforts to allocate costs between covered and uncovered matters, and the record did not show that they had made that effort. The court therefore left defense-cost allocation unresolved and directed the parties to appear for a telephonic status conference. The claims and counterclaims involving RSUI Indemnity Co. had previously been voluntarily dismissed with prejudice and without costs or disbursements.