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International Game Technology, Inc. v. Federal Insurance Co.

United States District Court, D. Nevada

August 26, 2014

INTERNATIONAL GAME TECHNOLOGY, INC. Plaintiff,
v.
FEDERAL INSURANCE COMPANY, Defendant.

ORDER

ROBERT C. JONES, District Judge.

This breach of contract case arises out of Defendant Federal Insurance Company's alleged failure to defend and indemnify. Defendant now moves for summary judgment, (ECF No. 71). Defendant has also moved to dismiss Plaintiff's fifth cause of action (entitled "Contractual Breach of the Implied Covenant of Good Faith and Fair Dealing"), (ECF No. 83). For the reasons stated herein, the motion for summary judgment is granted in part and denied in part. The parties have now stipulated to dismiss Plaintiff's fifth cause of action, (ECF No. 85), and the pending motion to dismiss it is therefore denied as moot.

I. FACTS AND PROCEDURAL HISTORY

a. The Insurance Policy

Defendant Federal Insurance Company ("Federal" or "Defendant") issued Plaintiff International Game Technology, Inc. ("IGT" or "Plaintiff") an "Executive Protection Portfolio" insurance policy with a policy period from March 31, 2009 to March 31, 2010 (the "Policy"). (First Am. Compl. ("FAC") ¶ 6, May 22, 2013, ECF No. 34). The Policy included, among other provisions, a Fiduciary Liability Coverage Section (the "FLCS"), which obligated Federal to "pay, on behalf of [IGT], Loss on account of any fiduciary claim first made against [IGT] during the Policy Period... for a Wrongful Act committed, attempted or allegedly committed or attempted before or during the policy period by such Insureds, or by any person for whose Wrongful Acts the Insureds are legally responsible...." ( Id. ¶ 13 (quoting Policy, ECF No. 35-1, at 85)). The FLCS provides a liability limit of $10 million, subject to an applicable $50, 000 retention. ( Id. ¶ 8). Unlike the other coverage sections in the Policy, the FLCS expressly imposes a duty to defend: "[Federal] shall have the right and duty to defend any Claim covered by this coverage section, even if any of the allegations in such Claim are groundless, false or fraudulent." ( Id. ¶ 14 (quoting Policy, ECF No. 35-1, at 95)).

However, the FLCS is subject to various limitations and conditions, including a securities exclusion (the "Securities Exclusion" or "Exclusion"), which provides:

In consideration of the premium charged, it is agreed that no coverage will be available under this coverage section for Loss on account of any Claim based upon, arising from, or in consequence of:
(a) Any offering, issuance, distribution, sale or purchase of securities;
(b) Any Organization's past, present, or future financial or operational performance, condition, or prospects; or
(c) Any actual or alleged violation of the Securities Act of 1933, Securities Exchange Act of 1934, Investment Act of 1940, any state "blue sky" securities law, or any other federal, state or local securities law or any amendments thereto or any rules or regulations promulgated thereunder, or any similar provisions of any federal, state, or local statutory law or common law anywhere in the world (including but not limited to any provision of statutory law or common law used to impose liability in connection with the offer to sell or purchase, or the sale or purchase of securities).

(Policy, ECF No. 35-1, at 100).

b. The ERISA Action

IGT provides a retirement plan for its employees (the "Plan") wherein participants make contributions and direct the Plan to purchase investments from IGT's preselected options. (FAC ¶¶ 18-21, ECF No. 34). The IGT stock fund, which invested in IGT stock, was one of the preselected investment options. ( Id. ¶ 20).

On October 2, 2009, Plan participants (the "ERISA Plaintiffs") filed two putative class action lawsuits, asserting ERISA claims against IGT, the IGT Profit Sharing Plan Committee (the "Committee"), the chairman and individual members of the Committee, and IGT's directors. ( Id. ¶¶ 22-23). In February, 2010, the Honorable Edward C. Reed consolidated the two lawsuits into a case captioned Carr v. Int'l Game Tech ., No. 3:09-cv-00584 (D. Nev.) (the "ERISA Action"). ( See Id. ¶¶ 24-25). The ERISA Plaintiffs alleged that the defendants breached their fiduciary duties to the Plan and its participants by, among other things, failing to inform or effectively warn Plan participants of the risks of investing in IGT, failing to correct statements or omissions concerning IGT's financial health, failing to ensure that the available investment options were prudent, failing to diversify the Plan's investments, failing to supervise or review the performance of other fiduciaries of the Plan, and protecting their individual interests at the expense of the Plan and its participants. ( See id. ¶¶ 27-34).[1]

On March 16, 2011, Judge Reed denied the ERISA Plaintiffs' motion for class certification and dismissed several of their claims. See Carr v. Int'l Game Tech., 770 F.Supp.2d 1080, 1101 (D. Nev. 2011). The action was later transferred to this Court, and the parties ultimately reached a settlement wherein IGT agreed to pay compensation in the amount of $500, 000 and up to $25, 000 for administrative costs. ( See ERISA Action, 3:09-cv-00584-RCJ-WGC, ECF No. 178, at 3-7). This Court entered final judgment on June 26, 2013. ( Id. ).

c. The Insurance Claim

Shortly after the ERISA Plaintiffs initiated the ERISA Action, IGT notified Federal and tendered coverage under the FLCS. (FAC ¶ 38, ECF No. 34). Citing the Securities Exclusion, Federal disclaimed coverage in a detailed letter on November 18, 2009. (Prentiss Letter, ECF No. 35-2, at 6). In a letter dated October 23, 2012, IGT updated Federal on the status of the ERISA Action and the prospective settlement, asserted that Federal had breached its duty to defend and was therefore estopped from raising coverage defenses, and demanded that Federal withdraw its denial of coverage, reimburse IGT for its losses, and fund the prospective settlement. (FAC ¶¶ 40-41, ECF No. 34). On November 6, 2012, after Federal failed to respond, IGT sent another letter, advising Federal that it would move forward with its attempt to ...


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