United States District Court, D. North Dakota
MEMORANDUM AND ORDER
WILLIAM G. YOUNG, JUDGE.
diversity suit asks this Court to construe two provisions of
a Directors & Officers liability insurance policy (the
“D&O Policy”) between Security National
Insurance Company (“Security National”) and
H.O.M.E., Inc. (“H.O.M.E.”), a closely-held
company incorporated under the laws of North Dakota. Security
National seeks declaratory relief stating it has no
obligation to pay for any costs or losses resulting from the
legal defense of H.O.M.E.'s President, Lauris Molbert, in
an unrelated suit brought against him by his three siblings.
Because the siblings allege their brother acted
simultaneously in covered and noncovered capacities, the
Court must determine as a threshold matter whether the
siblings' suit is covered under the policy, which limits
coverage to “insured persons acting solely in their
capacity as director [or] officer.” If the Court finds
coverage it must then decide whether the insurance company is
nevertheless exempted from coverage under the policy's
exception for suits brought by “any insured person in
any capacity.” Specifically, the Court must decide
whether the siblings' joint claims are excepted given
that one of the siblings is also an insured person under the
the language of the insurance policy is clear on its face,
Security National is entitled to judgment as matter of law.
For the reasons stated herein, the Court grants Security
National's motion for summary judgment and denies
H.O.M.E.'s motion for partial summary judgment.
Allegations in the Underlying Litigation Giving Rise to the
Molbert co-founded H.O.M.E., the parent corporation of
Northland Financial (the “Bank”) and Northland
Insurance Company. Mem. Defs.' Supp. Mot. Partial Summ.
J. (“Defs.' Mem.”) 2, ECF No. 20; Mem. Supp.
Pl.'s Mot. Summ. J. (“Pl.'s Mem.”) 3, ECF
No. 25. During the 1990s, he began to transfer some of his
shares in H.O.M.E., via a stock purchase agreement, to his
four children: Lauris Molbert (“Lauris”), Kristi
Benz (“Kristi”), Karna Kornkven
(“Karna”), and Eric Molbert (“Eric”).
Pl.'s Mem. 3; Defs.' Mem. 4. For the past twenty
years, Lauris has served as President and a director of
H.O.M.E. Pl.'s Mem. 2; Defs.' Mem. 2. Lauris is a
licensed attorney in North Dakota and has provided legal
advice to the Bank as an independent contractor. Pl.'s
Mem. 3; H.O.M.E. Answer & Countercl. (“H.O.M.E.
Answer”) ¶ 16, ECF No. 6; Compl. ¶ 3; Lauris
Molbert Answer & Countercl. (“Molbert
Answer”) ¶ 16, ECF No. 8. In 2005, Kristi began
serving as a director at the Bank. Pl.'s Mem. 3; H.O.M.E.
Answer ¶ 4; Molbert Answer ¶ 4.
2015, Lauris sued Kristi, Karna, and Eric to enforce a
provision in the stock purchase agreement that would allow
him to exercise a call option and buy his siblings'
shares. Compl. Ex. A., ECF No. 1-1; Defs.' Mem. 4.
Kristi, Karna, and Eric jointly filed an answer in which they
alleged nine counterclaims against Lauris. Compl. Ex. B,
Answer & Countercl. (“Siblings'
Countercl.”) ECF No. 1-2; Defs.' Mem. 4. The
counterclaims form a single docket entry and make no
distinction between the counter-claimants. Siblings'
Countercl. 15-25; Pl.'s Mem. 5; Defs.' Mem. 4-5.
Specifically, the siblings alleged:
1. Fraud related to the stock purchase agreement.
Siblings' Countercl. 15.
2. Breach of fiduciary duty as a “shareholder, officer,
director, and controller of, and as an attorney representing
H.O.M.E.” Id. at 16.
3. Breach of fiduciary duty as a Trustee of the Molbert Farms
Limited Partnership. Id. at 17.
4. Breach of fiduciary duty as “an attorney providing
legal advice” to the siblings. Id. at 19.
5. Breach of fiduciary duty as a Trustee of the Ralph N.
Molbert's Family Trust and two marital trusts.
Id. at 20.
6. Violation of N.D.C.C. § 10-19.1-115, which prohibits
directors from acting “in an unfairly prejudicial
manner” toward shareholders. Id. at 21.
7. Violation of N.D.C.C. § 10-19.1-50 by failing to
discharge his duties as a director in good faith and in the
best interest of the corporation. Id. at 22.
8. Declaratory judgment stating that the Stock Purchase
Agreement is not enforceable. Id. at 23.
9. Unjust enrichment for tortious and inequitable conduct.
Id. at 24.
above claims arise from an event in 1993, in which the
siblings allege Lauris presented the stock purchase agreement
for them to sign and misrepresented various provisions
relating to his ability to exercise the call option on their
shares. Id. at 13-14.
Undisputed Facts Surrounding Security National's Denial
of Liability Insurance Coverage.
capacity as President and a director of H.O.M.E., Lauris
emailed Security National, H.O.M.E.'s D&O liability
insurance provider, to request coverage for the costs of
defending him against the siblings' counterclaims. Aff.
Counsel Supp. of Security National's Mot. Summ. J.
(“Pl.'s Aff.”), Ex. 8, ECF No. 26-8;
Pl.'s Mem. 6; Defs.' Mem. 5. Security National
responded with a letter denying coverage based on the D&O
Policy's Insured vs. Insured Exclusion while also
reserving the right to deny coverage based on other
provisions. Compl., Ex. D, Aug. 10, 2015 Letter from Security
National to H.O.M.E. (“Rejection Letter”) 10-11,
ECF No. 1-4; Pl.'s Mem. 6; Defs.' Mem. 5. The Insured
v. Insured Exclusion (“IvI Exclusion”)
provides that Security National will not be liable to cover
“any claim by, on behalf of, or at the behest of .
. . any insured person in any
capacity.” Compl., Ex. C, Directors and Officers
Liability Insurance Policy (“D&O Policy”)
17-18 (Section IV.A.20), ECF No. 1-3. Because directors and
officers of H.O.M.E.'s subsidiaries are insured under the
Policy, and Kristi was a director at the Bank, Kristi was an
insured person under the D&O Policy -- a fact that is not
contested. Pl.'s Mem. 11; Defs.' Mem. 12. The initial
letter denying coverage stated that as an insured person,
Kristi's counterclaims against Lauris, who was also an
insured person, brought “her claim within the scope of
the insured-versus-insured exclusion.” Rejection Letter
correspondences between the parties at the end of 2015,
Security National reaffirmed its denial of coverage several
times and reserved all rights and defenses with regard to
coverage. Pl.'s Aff., Ex. 9, ECF 26-9; Pl.'s Aff.,
Ex. 10, ECF 26-10; Defs.' Mem. 5. Security National
nevertheless agreed to cover some defense costs under an
arrangement, the terms of which are currently disputed by the
parties. Defs.' Mem. 5; Defs.' Mem. Opp'n
Pl.'s Mot. Summ. J. (“Defs.' Opp'n”)
3-4, ECF No. 32; Pl.'s Mem. Opp'n Defs.' Partial
Mot. Summ. J. (“Pl.'s Opp'n”) 3-5, ECF
No. 30. Under this contested arrangement, Security National
paid, over the course of the following year, around $142, 000
in defense costs. Defs.' Mem. 6; Compl. 10.
subsequent letter to H.O.M.E., Security National described
the coverage arrangement as a “provisional offer to
reimburse . . . defense costs for the Lawsuit . . . as an
accommodation to the insureds, and in order to potentially
avoid the expense of a declaratory judgment action.”
Pl.'s Aff., Ex. 11, at 2, ECF 26-11; Pl.'s Mem. 6;
Defs.' Mem. 5. Lauris and H.O.M.E. dispute this
characterization and argue the arrangement was made pursuant
to Security National's obligation under Section VIII.B of
the D&O Policy to “pay defense expenses,
determined by the Insurer to be part of a covered
loss, on a current basis.” Defs.'
Opp'n 3-4, 24-25. In addition to contesting the extent
and nature of this arrangement, the parties dispute whether
H.O.M.E. exceeded the agreed upon coverage by hiring a
different lawyer and whether Security National withdrew
coverage prior to the trial in the underlying litigation.
Defs.' Opp'n 3-4; Defs.' Mem. 5 n.1; Pl.'s
Standard of Review for Summary Judgment
judgment is appropriate when “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed.R.Civ.P. 56(a). A
material fact is genuine “if the evidence is such that
a reasonable jury could return a verdict for the nonmoving
party.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). The “interpretation and
construction of insurance policies is a matter of law, and
therefore, issues involving the duty to defend are
particularly amenable to summary judgment.” First
S. Ins. Co. v. Jim Lynch Enters., Inc., 932 F.2d 717,
719 (8th Cir. 1991); John Deere Ins. Co. v. Shamrock
Indus., Inc., 929 F.2d 413, 417 (8th Cir. 1991).
Court is not asked to determine the nature of the temporary
coverage arrangement or whether either party breached its
obligations under it. Pl.'s Mot. Summ. J., ECF No. 24;
Defs.' Partial Mot. Summ. J., ECF No. 19. The Court is
tasked only with resolving whether the counterclaims in the
underlying litigation give rise to a legal obligation to
cover any costs or losses associated with Lauris's legal
defense. Pl.'s Mot. Summ. J.; Defs.' Partial Mot.
argues “[a]t a minimum, Security National's motion
for summary judgment should be denied” to permit
discovery “into Security National's drafting
intent, internal claims handling manuals and guidelines, and
claims-handling intentions in paying over $140, 000 in
defense costs.” Defs.' Opp'n 24. Yet this
argument assumes the parties' intent cannot by determined
by the “four corners” of the D&O Policy. In
North Dakota, “intention of the parties is to be
ascertained from the writing alone if possible.” N.D.
Cent. Code § 9-07-04 (2017). Indeed, “extrinsic
evidence is not admissible to alter, vary, explain, or change
the contract” if “the parties' intentions can
be ascertained from the writing alone.” Hallin v.
Inland Oil & Gas Corp., 903 N.W.2d 61, 64 (N.D.
2017). “When the parties' intent can be determined
from the contract language alone, interpretation of a
contract presents a question of law.” THR Minerals,
LLC v. Robinson, 892 N.W.2d 193, 197 (N.D. 2017)
(quoting Border Res., LLC v. Irish Oil & Gas,
Inc., 869 N.W.2d 758, 763 (N.D. 2015)).
Security National posits its obligation to defend can be
determined based on the unambiguous terms of the D&O
Policy, it is entitled to summary judgment if the court can
effectuate the parties' intent based on the Policy's
language. See Hallin, 903 N.W.2d at 64.
General Principles of Insurance Policy ...