Security National Insurance Company v. H.O.M.E., Inc. et al

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UNITED STATES DISTRICT COURT
DISTRICT OF NORTH DAKOTA
___________________________________
)
SECURITY NATIONAL INSURANCE 	)
COMPANY, 	)
)
Plaintiff, 	)
)
v. 	) 	CIVIL ACTION
) 	NO. 17-00060-WGY
H.O.M.E., INC., and 	)
LAURIS MOLBERT, 	)
)
Defendants. 	)
___________________________________)
YOUNG, D.J.1 	May 18, 2018
MEMORANDUM AND ORDER
I. 	INTRODUCTION
This 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
1 Of the District of Massachusetts, sitting by designation.
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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 policy.
Because 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.
II. 	UNDISPUTED FACTS2
A. 	Allegations in the Underlying Litigation Giving Rise
to the Instant Action.
Ralph 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.’
2 Local Rules for the District of North Dakota permit
parties moving for summary judgment to include statements of
uncontested facts in narrative form within the memorandum
supporting their motion. 	D.N.D. Civ. L.R. 7.1(A)(2).
Accordingly, citations are to both parties’ memoranda on points
that are not contested.
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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.
In 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:
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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.
All the 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
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to his ability to exercise the call option on their shares. 	Id.
at 13–14.
B. 	Undisputed Facts Surrounding Security National’s
Denial of Liability Insurance Coverage.
In his 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
claim3 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
3 All underlined terms have specially defined meanings
within the D&O policy.
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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 10.
In 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.
In a 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
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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 Opp’n 5.
III. ANALYSIS
A. 	Legal Framework
1. 	Standard of Review for Summary Judgment
Summary 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).
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The 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. Summ. J.
H.O.M.E. 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)
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(quoting Border Res., LLC v. Irish Oil & Gas, Inc., 869 N.W.2d
758, 763 (N.D. 2015)).
Because 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.
2. 	General Principles of Insurance Policy
Interpretation in North Dakota
The North Dakota Supreme Court has provided extensive
guidance on how it interprets insurance policies:
Our goal when interpreting insurance policies, as when
construing other contracts, is to give effect to the
mutual intention of the parties as it existed at the
time of contracting. 	We look first to the language of
the insurance contract, and if the policy language is
clear on its face, there is no room for construction.
“If coverage hinges on an undefined term, we apply the
plain, ordinary meaning of the term in interpreting
the contract.” 	While we regard insurance policies as
adhesion contracts and resolve ambiguities in favor of
the insured, we will not rewrite a contract to impose
liability on an insurer if the policy unambiguously
precludes coverage. 	We will not strain the definition
of an undefined term to provide coverage for the
insured. 	We construe insurance contracts as a whole
to give meaning and effect to each clause, if
possible. 	The whole of a contract is to be taken
together to give effect to every part, and each clause
is to help interpret the others.
Exclusions from coverage in an insurance contract
must be clear and explicit and are strictly construed
against the insurer. 	Although [a policy’s
exclusionary clauses are strictly construed, this
Court] will not rewrite a contract to impose liability
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on an insurer if the policy unambiguously precludes
coverage.
State v. North Dakota State Univ., 694 N.W.2d 225, 229 (N.D.
2005) (first paragraph quoting Ziegelmann v. TMG Life Ins. Co.,
607 N.W.2d 898, 900 (N.D. 2000); second paragraph citing
Nationwide Mut. Ins. Cos. v. Lagodinski, 683 N.W.2d 903, 907
(N.D. 2004)). 	Specifically in the context of construing
exceptions to liability insurance policies, it has explained:
[I]n interpreting an insurance policy, we will first
examine the coverages provided by the policy before
examining a policy's exclusions. 	If and only if a
coverage provision applies to the harm at issue will
the court then examine the policy's exclusions and
limitations of coverage. 	An exclusionary provision,
or the absence of one, cannot be read to provide
coverage that does not otherwise exist. 	Likewise,
although an exception to an exclusion from coverage
results in coverage, an exception to an exclusion is
incapable of initially providing coverage; rather, an
exception may become applicable if, and only if, there
is an initial grant of coverage under the policy and
the relevant exclusion containing the exception
operates to preclude coverage.
K & L Homes, Inc. v. Am. Family Mut. Ins. Co., 829 N.W.2d 724,
728 (N.D. 2013) (citations omitted).
This approach counsels against Security National’s
invitation to construe the IvI Exclusion prior to determining
whether the Policy even covers the siblings’ counterclaims.
3. 	North Dakota Law Construing Insurers’ Duty to
Advance Costs
The duty to advance costs in a D&O Policy is treated
virtually the same as the duty to defend, with the exception
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that the insurer is not required to control the litigation.
Liberty Mut. Ins. Co. v. Pella Corp., 650 F.3d 1161, 1170 (8th
Cir. 2011) (interpreting Iowa law but noting “state courts
generally have viewed an insurer’s duty to advance defense costs
as an obligation congruent to the insurer’s duty to defend”
(quoting Federal Ins. Co. v. Sammons Fin. Grp., Inc., 595 F.
Supp. 2d 962, 976 (S.D. Iowa 2009))). 	In Tibert v. Nodak Mut.
Ins. Co., 816 N.W.2d 31 (N.D. 2012), the North Dakota Supreme
Court summarized its holdings construing insurers’ duty to
defend:
An insurer’s duty to defend is broader than the
duty to indemnify, and is generally determined by the
allegations of the injured claimant. 	We have outlined
the parameters of an insurer's duty to defend:
A liability insurer's obligation to defend its
insured is ordinarily measured by the terms of the
insurance policy and the pleading of the claimant who
sues the insured. If the allegations of the claimant's
complaint could support recovery upon a risk covered
under the insurer's policy, a liability insurer has a
duty to defend its insured. We have formulated the
duty to defend to require a liability insurer to
defend an underlying action against its insured if the
allegations in the complaint give rise to potential
liability or a possibility of coverage under the
insurance policy.
When several claims are made against the insured in
the underlying action, the insurer has a duty to
defend the entire lawsuit if there is potential
liability or a possibility of coverage for any one of
the claims.
Any doubt about whether a duty to defend exists
must be resolved in favor of the insured. 	Thus, when
there is doubt whether the injured party's complaint
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states facts sufficient to bring the injury within the
coverage of the insurance policy, and the claim “may
or may not be covered by the policy,” the insurer has
a duty to defend. Only if there is no possibility of
coverage is the insurer relieved of its duty to
defend.
. . .
The duty to indemnify is premised upon the ultimate
resolution of the underlying lawsuit and the actual
basis for any liability of the insured. 	The duty to
defend, however, arises as soon as the insured is
sued, and accordingly is determined on the basis of
the allegations in the injured claimant's complaint.
Because the duty to defend is determined by the
allegations in the complaint examined as of the time
the complaint was served and the defense was tendered
to the insurer, the ultimate result in the case does
not affect the duty to defend.
Id. at 42–44 (citations and quotations omitted) (emphasis
added).
H.O.M.E.’s D&O Policy requires National Security to pay or
reimburse H.O.M.E. on a “current basis,” for any “defense
expenses” or “loss” incurred as a result of a covered “claim.”
D&O Policy 11, 22. 	Thus, per the North Dakota Supreme Court’s
guidance, Security National is liable “if the allegations in the
complaint [of the underlying litigation] give rise to potential
liability or a possibility of coverage” where any doubt is
“resolved in favor of the insured” and Security National escapes
liability only “if there is no possibility of coverage.”
Tibert, 816 N.W.2d at 42–43.
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B. 	Whether the Siblings’ Counterclaims Constitute a
Covered Claim Under the D&O Policy
Beginning 	with 	the 	text 	of 	the 	D&O 	Policy, 	the 	sections
titled 	“Insuring 	Agreements” 	A 	& 	B 	set 	forth 	the 	extent 	of 	the
coverage for insured persons and the company, respectively:
A. The Insurer will pay on behalf of an insured person,
loss that is a result of a claim for a management
practices wrongful act first made during the policy
period or during the Extended Reporting Period, if
exercised, except to the extent that the company has
indemnified the insured person for such loss.
B. The Insurer will pay on behalf of the company, loss
that is the result of a claim for a management
practices wrongful act first made during the policy
period or during the Extended Reported Period, if
exercised, and for which the company has, to the
extent required or permitted by law, indemnified any
insured person.
D&O Policy 11. 	The meanings of the underlined terms, which as
noted above are defined within the Policy, appear to be agreed
upon except for the defined phrase “management practices
wrongful act.” 	In other words, there is no dispute over whether
Lauris is an “insured person” or whether H.O.M.E. is the
“company” referenced in the Insuring Agreements. 	Defs.’ Mem.
11; Pl.’s Mem. 10–11. 	The parties agree that the siblings’
counterclaims satisfy the Policy’s definition of “claim” as used
above. 	Defs.’ Mem. 11; Compl. ¶ 81.
Thus the inquiry into whether H.O.M.E. is covered under the
Policy depends on whether the siblings’ counterclaim qualifies
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as a claim for a “management practices wrongful act,” which the
Policy defines, in relevant part, as:
[A]ny actual or alleged, misstatement, misleading
statement, error or omission, or neglect or breach of
duty by an insured person acting solely in their
capacity as . . . director, officer, trustee, member
of an advisory board or committee, volunteer,
organizer or employee of the company.
D&O Policy 15. 	The siblings’ counterclaims alleging breach of
fiduciary duty and fraud satisfy the first part of “management
wrongful practices act”; it is the meaning of the phrase “acting
solely in their capacity as . . . director or officer” the
parties contest. 	Pl.’s Mem. 15; Defs.’ Mem. 6–8.
As discussed above, the siblings’ nine claims arise from an
event in 1993 in which they allege Lauris fraudulently induced
them into the stock purchase agreement by misrepresenting the
nature of certain provisions. 	Siblings’ Countercl. 15–25. 	The
counterclaims allege Lauris wore many hats, both in the company
and outside of it, that gave rise to fiduciary duties. 	Id.
Consequently, several of the claims are repetitive and assert
the same actions as violating the duties imputed on him by
virtue of his alleged positions. 	Id. 	For example, in Claim II
the siblings allege Lauris breached the fiduciary duties he owed
the three of them by virtue of his role as “a shareholder,
officer, director, and controller of, and as an attorney
representing H.O.M.E.” 	Claims III and V allege the same
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behavior constituted a breach of Lauris’s fiduciary duties as a
trustee of various family trusts. 	Id. at 17–20. 	In Count IV,
the counterclaims allege the same actions violated his duties as
“an attorney providing legal advice” to the three of them. 	Id.
at 19.
H.O.M.E. notes that two of the siblings’ counterclaims (VI
& VII) are based on North Dakota statutes applicable only to
directors and officers and therefore argues the counterclaims
allege misconduct solely in Lauris’s capacity as a director.
Defs.’ Opp’n 6. 	It further argues Security National is putting
“the cart before the horse” by treating the counterclaims as
adjudicated facts. 	That is, just because the siblings have
alleged multiple capacities ought not deprive Lauris of coverage
-- “it is enough that there is a potential coverage for some of
the claims against Lauris.” 	Id. at 7–8, 11. 	Finally, H.O.M.E.
contends that recognizing Security National’s argument would
lead to absurd results; it would preclude coverage “anytime a
claimant pleads alternative claims,” or “mak[es] allegations of
wrongful acts in any [other] capacity.” 	Id. at 8. 	A director’s
coverage, H.O.M.E. posits, ought not hinge on the “panoply of
claims” a plaintiff chooses to make. 	Id.
Security National focuses on the use of the word “solely”
to argue the counterclaims must seek relief for actions taken
“exclusively and only” in a specified capacity in order to
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constitute a claim of a “management practices wrongful act.”
Pl.’s Mem. 15. 	Security National contends, “[t]he word ‘solely’
is not ambiguous or unclear. 	It . . . does not contemplate or
include the idea of concurrent or overlapping capacities.” 	Id.
It also points to the language in the definition which focuses
on the underlying action of the insured person and not on the
theory of liability. 	Pl.’s Opp’n 24. 	In short, because the
siblings’ counterclaims all rely on a “common course of conduct”
without alleging any action that Lauris performed only as a
director or officer of H.O.M.E., Security National argues the
siblings do not claim a “management practices wrongful act” as
defined in the Policy. 	Pl.’s Opp’n 24; Pl.’s Mem. 15.
There is no controlling North Dakota case interpreting a
similar provision. 	In McAninch v. Wintermute, 491 F.3d 759 (8th
Cir. 2007), however, the Eighth Circuit interpreted a similar
provision, which limited liability coverage to losses “by reason
of any Wrongful Act solely in their capacities of Director or
Officer.” 	Id. at 761–63. 	Applying Minnesota law (which does
not appear to be inconsistent with North Dakota law in this
respect), the Eighth Circuit held the insurer was liable because
the underlying “indictment clearly alleges wrongful conduct
against [the defendant] undertaken in her capacity as a
director.” 	Id. at 771. 	The McAninch panel explained its
rationale:
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We conclude that an insurer may not avoid its duty to
indemnify for alleged wrongful conduct merely by
arguing the director was also an owner, shareholder,
etc., without some explanation as to how this dual
capacity relates to or facilitated the wrongful
conduct alleged. To hold otherwise would invite
carriers to deny coverage based on factors unrelated
to the risk underwritten.
Id. at 772. 	Because the insurer in McAninch did not explain how
the director’s “dual capacity” facilitated the alleged
wrongdoing, other cases have seized on this distinction to
distinguish McAninch. 	See, e.g., Carlson v. Twin City Fire Ins.
Co., No. CIV. 09-608, 2009 WL 1793887, at *5 (D. Minn. June 23,
2009) (denying coverage because the director’s wrongdoing was
made possible by utilizing confidential information in a
separate capacity). 	Relatedly, other jurisdictions apply a “but
for” test, essentially looking to whether the covered claim
could stand independently from the alleged conduct performed in
a non-covered capacity. 	Langdale Co. v. National Union Fire
Ins. Co. of Pittsburgh, Penn., 609 F. App’x 578, 588 (11th Cir.
2015) (“Claims arise out of [t]he excluded conduct when ‘but
for’ that conduct, there could be no claim against the insured.”
(quoting Langdale Co. v. National Union Fire Ins. Co. of
Pittsburgh, Penn., 110 F. Supp. 3d 1285, 1307 (N.D. Ga. 2014))).
Finally, some courts have looked to whether the director’s
actions were “inextricably intertwined” with a non-covered
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capacity. 	See, e.g., Yocum v. St. Paul Mercury Ins. Co., No.
5:09-CV-00123, 2010 WL 2179137, at *6 (E.D. Ark. May 27, 2010).
It is irrelevant in what capacity, if any, Lauris is
ultimately found to have breached his fiduciary duties. 	See
Homebank of Ark. v. Kansas Bankers Sur. Co., No. 4:06CV001670,
2008 WL 2704670, at *5 (E.D. Ark. July 7, 2008). 	As noted
above, coverage claims are decided based entirely on the
allegations in the underlying claim. 	Tibert, 816 N.W.2d at 44.
The siblings allege Lauris (a licensed lawyer in North Dakota)
or his law firm prepared the stock purchase agreement and that
Lauris discussed its “legal implications” with them. 	Siblings’
Countercl. ¶¶ 93–94. 	They also allege that they executed the
agreement “[i]n reliance on [Lauris’s] legal advice and
recommendation, and his omissions.” 	Id. at ¶ 96. 	Further,
because of Lauris’s “representations of the legal impact” of the
agreement, the siblings claim they believed they would continue
to have a right of first refusal in case of a buyout. 	Id. at ¶
97.
The facts in this case are more similar to Federal Sav. &
Loan Ins. Corp. v. Mmahat, 97 B.R. 293 (E.D. La. 1988), in which
the district court ruled that “Mmahat’s dishonesty as director
was an integral part of his dishonesty as a lawyer.” 	Id. at
299. 	The Mmahat court ultimately denied coverage based on a
different provision, but it concluded in dicta that “the losses
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[19]
here at issue cannot be said to have arisen solely from Mmahat’s
actions as director.” 	Id.
Applying any number of the tests discussed above, it is
impossible to extrapolate a claim against Lauris in which he
acted “solely” as a director or officer for H.O.M.E. 	Unlike in
McAninch, the siblings allege Lauris’s capacity as a lawyer
directly facilitated the breach of duties that he owed by virtue
of his position as a director or officer. 	The allegations
“inextricably intertwine” his role in providing legal advice
with his role as a director and officer. 	Moreover, “but for”
Lauris’s legal training, his help preparing the agreement, and
the legal advice he provided, it is difficult to understand the
siblings’ claims.
By disregarding the fact that the counterclaims all arise
from the same event, H.O.M.E. conceptually attempts to place
each claim in an individual silo in order to contend that the
conclusion assumes adjudicated facts. 	This argument is
unavailing, however, because even assuming that Lauris were
ultimately found to have breached only his fiduciary duties as a
director or officer, H.O.M.E. would still not have a case for
coverage. 	This is because the underlying complaint not only
alleges he simultaneously acted in noncovered capacities during
all relevant times but also that these capacities aided the
breach of his fiduciary duties as director and officer. 	In
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[20]
short, it is irrelevant whether Lauris breached his lawyerly
fiduciary duties, the inquiry is whether the counterclaims
allege he was acting as a personal lawyer or another capacity
when he breached his duties as director and officer.
Although any ambiguity, “potential liability,” or
“possibility of coverage” is to be construed in favor of the
insured, Tibert, 816 N.W.2d at 42–45, the court “will not
rewrite a contract to impose liability on an insurer if the
policy unambiguously precludes coverage.” 	North Dakota State
Univ., 694 N.W.2d at 229.
C. 	Whether the Siblings’ Counterclaims Are Excluded from
Coverage under the Insured-versus-Insured Exclusion
Even were there some ambiguity with regard to H.O.M.E.’s
coverage of the substance of the siblings’ counterclaims (there
is not) the counterclaims are nevertheless excluded from
coverage under the IvI Exclusion. 	As noted above, it is not
disputed that as a director of the Bank, Kristi Benz was, during
all relevant times, an “insured person” under H.O.M.E.’s D&O
Policy. 	Defs.’ Mem. 12. 	The other two counterclaimants are not
insured persons but the siblings’ counterclaims were, again,
filed jointly and no counterclaim is distinguishable or unique
to any one sibling. 	Siblings’ Countercl. ¶¶ 105–73.
The D&O Policy’s IvI Exclusion reads:
A. 	The insurer shall not be liable to make any
payment for loss in connection with any claim
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[21]
based upon, arising out of, relating to, in
consequence of, or in any involving:
. . .
20. 	any claim by, on behalf of, or at the behest
of the company, any successor or trustee of
the company, affiliate of the company or any
insured person in any capacity, except where
such claim is brought and maintained:
a. 	in the form of a cross-claim or third-
party claim for contribution or indemnity
which is part of and results directly from a
claim which is not otherwise excluded by the
terms of the policy;
b. 	by an insured person solely as a
customer of the company;
c. 	by a security holder of the company as
a derivative action on behalf of the company
or such affiliate;
provided such claim is brought independently
of, and totally without the solicitation,
assistance, participation, or intervention
of any insured or any affiliate of the
company[.]
D&O Policy 17-18 (Section IV.A.20).
H.O.M.E. places great emphasis on the general purpose and
intention of IvI exclusions, which it claims is to prevent
collusive suits, and suggests the IvI Exclusion ought not apply
in this case because there is no hint of collusion in the
underlying litigation. 	Defs.’ Mem. 15. 	Since ambiguity, under
North Dakota law, is construed in favor of coverage, H.O.M.E.
also points to the fact that Security National agreed to advance
over $140,000 in costs as evidence of the IvI Exclusion
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[22]
provision’s ambiguity. 	Id. at 13 n.4. 	H.O.M.E. further posits
that finding no coverage is “illogical and contrary to the
reasonable expectations of an insured director or officer.” 	Id.
at 14. 	Finally, it argues that Security National could have
more clearly written the provision to exclude suits that were
not brought “solely” by insured persons. 	Defs.’ Opp’n 13-14.
Security National in turn relies on the exclusion’s “plain
terms” to show it bars coverage “for all loss ‘in connection
with’ any claim ‘relating to’ or ‘in any way involving’ any
claim by ‘any insured person.’” 	Pl.’s Mem. 10. 	It breaks down
the provision into four requirements that, if met, would exclude
coverage:
(1) a “claim” -- which is met here, otherwise “no
coverage under the policy could be triggered in the
first instance”;
(2) “by, on behalf of, or at the behest of” -– which
is satisfied since “Kristi is named in, and seeks
relief in, all nine counts of the counterclaim against
her brother Lauris”;
(3) “any insured person” -- Kristi undisputedly
qualifies; and
(4) the exceptions don’t apply -- none of the
exceptions to the exclusion are relevant to the
counterclaims nor are they asserted by H.O.M.E.
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[23]
Id. at 11–12. 	Security National rejects H.O.M.E.’s contention
that the provision could be written more clearly, accusing it of
“confus[ing] clarity with exhaustive detail.” 	Pl.’s Opp’n 10.
There appears to be no North Dakota case that has construed
an IvI Exclusion provision, nor do parties cite to any
controlling case law. 	Consequently, the Court is to apply the
legal framework set forth above to interpret the exclusion and
predict how the North Dakota Supreme Court would rule on this
question. 	Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938);
cf. Miller v. Redwood Toxicology Lab., Inc., 688 F.3d 928, 937
(8th Cir. 2012).
In Jerry’s Enterprises, Inc. v. U.S. Specialty Ins. Co.,
845 F.3d 883 (8th Cir. 2017), the Eighth Circuit recently
applied Minnesota law to a similar factual scenario. 	Id. at
887-88. 	H.O.M.E. emphasizes that Jerry’s Enterprises does not
apply North Dakota law but does not point to any differences
between the Minnesota and North Dakota interpretation of
insurance policies. 	Defs.’ Opp’n 18. 	In fact, North Dakota and
Minnesota appear to embrace similar approaches to interpreting
coverage exclusions. 	Compare Midwest Family Mut. Ins. Co. v.
Wolters, 831 N.W.2d 628, 636 (Minn. 2013) (“An insurance policy
must be construed as a whole, and unambiguous language must be
given its plain and ordinary meaning.” (citations omitted)), and
General Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W.2d
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[24]
572, 575 (Minn. 2009) (holding exclusions are “narrowly
considered” and construed in “favor of finding coverage”), with
North Dakota State Univ., 694 N.W.2d at 229 (“We look first to
the language of the insurance contract, and if the policy
language is clear on its face, there is no room for
construction. . . . Exclusions from coverage in an insurance
contract must be clear and explicit and are strictly construed
against the insurer.” (citations omitted)).
In Jerry’s Enterprises, the company’s founder gifted shares
to his three daughters and grandchildren. 	845 F.3d at 885. 	The
founder also specified in his estate plan that upon his death,
his daughters would become directors of the company until their
shares and the shares of his grandchildren were redeemed. 	Id.
After his death, the plan was effectuated and Cheryl Sullivan,
one of the founder’s daughters, became a director. 	Id. 	She and
two of her daughters (who were also gifted shares by their
grandfather) disagreed with how the company was valuing their
shares and brought suit against the company. 	Id. 	The suit was
confidentially settled and then Jerry’s Enterprises sought
coverage for the costs of the settlement from its D&O liability
insurer. 	Id. 	The insurer refused based primarily on the
Policy’s IvI Exclusion, since Sullivan, one of the three
claimants, was an insured person -- a fact that Jerry’s
Enterprises did not contest. 	Id. at 886–88. 	The IvI Exclusion
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[25]
Policy at issue there stated, in relevant part, that it excluded
from coverage any claim:
[B]rought by or on behalf of, or in the name or right
of . . . any Insured Person, unless such Claim is: (1)
brought and maintained independently of, and without
the solicitation, assistance or active participation
of . . . any Insured Person. . . .
Id. at 886. 	The Eighth Circuit held coverage was excluded under
a “seemingly straightforward application of the exclusion
clause.” 	Id. at 888. 	It stated: “Here, the exclusion clause
contains no ambiguity, and we must not read ambiguities into its
language.” 	Id.
H.O.M.E. mistakenly relies on differences between the last
clauses in the exclusion in this case and the one in Jerry’s
Enterprises to argue that Security National could have adopted
similar language to make the exclusion clearer. 	Defs.’ Opp’n
18–19. 	Such reliance is misplaced; although the clauses use
similar language, they serve distinct functions. 	A side-by-side
comparison of the exclusions manifests these fundamental
differences:
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[26]
Jerry’s Enterprises 	H.O.M.E. D&O Policy
“The Insured vs. Insured
exception excludes from
coverage under the Policy
any claims:
[B]rought by or on behalf
of, or in the name or
right of . . . any Insured
Person, unless such Claim
is:
(1) brought and maintained
independently of, and
without the solicitation,
assistance or active
participation of, the
Insured Organization or
any Insured Person”4
The insurer shall not be
liable to make any payment
for loss in connection with
any claim based upon, arising
out of, relating to, in
consequence of, or in any
involving:
20. any claim by, on behalf
of, or at the behest of . . .
any insured person in any
capacity, except where such
claim is brought and
maintained:
[Three exceptions that
don’t apply]
provided such claim is
brought independently of, and
totally without the
solicitation, assistance,
participation, or
intervention of any insured
or any affiliate of the
company;
The language “assistance or active participation” constitutes an
exception to the exclusion clause in Jerry’s Enterprises but is
an additional qualification to the exceptions in H.O.M.E.’s
policy. 	That is, the language following the reference to “such
claim” in H.O.M.E.’s D&O Policy is only invoked in and applies
if the claim were otherwise excepted from the exclusion. 	None
of the exceptions are relevant, nor does H.O.M.E. contend that
4 Jerry’s Enterprises, Inc. v. U.S. Specialty Ins. Co., 132
F. Supp. 3d 1128, 1132 (D. Minn. 2015).
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[27]
they are.5 	Therefore, the only relevant comparison is to the
language the Jerry’s Enterprises court found actually to exclude
coverage. 	H.O.M.E.’s D&O Policy in fact provides a narrower
exclusion than the one quoted in Jerry’s Enterprises -- it
applies not only to the claim itself but also to any “claim
based upon, arising out of, relating to, in consequence of, or
in any way involving” a claim by an insured person. 	D&O Policy
17-18 (Section IV.A.20). 	As both Minnesota and North Dakota
courts recognize an insurance policy’s plain meaning as
controlling, there does not seem to be any daylight in arguing
that the Eighth Circuit is not dispositive here since it
concluded the exclusion in Jerry’s Enterprises was clear on its
face.
H.O.M.E. relies on a host of cases in other circuits that
are distinguishable because they relied on an allocation clause
to allocate the coverage for the loss between covered and
uncovered matters. 	H.O.M.E.’s D&O Policy does not contain an
allocation clause similar to those cited in the other cases.
The only type of allocation the policy contemplates is in the
case that a claim is brought against both an insured
person/entity and an uninsured person/entity, in which case the
5 Here, it is not contested that the three exceptions apply
since Kristi did not bring the counterclaims in a derivative
action or solely as a customer of the company and the
counterclaims do not form part of a cross-claim of an otherwise
excluded claim. 	D&O Policy 17-18 (Section IV.A.20).
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[28]
policy states the Insured and Insurer will agree to “a fair and
proper allocation of all amounts” and sets forth the process by
which the allocation will be determined. 	Nevertheless, H.O.M.E.
asks this Court to analogize to this provision and allocate the
loss of the uncovered matter (Kristi’s claim) from the loss of a
covered matter (Karna and Eric’s claim).
H.O.M.E. invites this Court to apply some concerns raised
by Judge Posner in interpreting an IvI Exclusion in Level 3
Communications, Inc. v. Fed. Ins. Co., 168 F.3d 956, 961 (7th
Cir. 1999). 	As a threshold matter, most of Judge Posner’s
thoughts were dicta since the Seventh Circuit only concluded
that coverage was excluded for the insured director but remanded
to the district court to consider that policy’s allocation
clause, which contemplated allocation between “covered and
uncovered matters.” 	Id. at 960. 	It is also worth noting the
“insured person” in Level 3 was added six months into the
litigation, id. at 957 -- a fact that other jurisdictions have
found distinguishable. 	See, e.g., Sphinx Int’l, Inc. v.
National Union Fire Ins. Co. of Pittsburgh, Pa., 412 F.3d 1224,
1230-31 (11th Cir. 2005) (noting “Level 3 Communications is too
different to be useful” since the insured person was merely a
passive shareholder that joined the suit six months after it was
filed and the language in the policies differ). 	The other cases
to which H.O.M.E. cites all have allocation clauses between
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[29]
covered and uncovered matters or are not relevant for other
reasons. 	See Vita Food Prod., Inc. v. Navigators Ins. Co., No.
16 C 08210, 2017 WL 2404981, at *8 (N.D. Ill. June 2, 2017) (“We
accordingly apply the allocation clause to [Plaintiff]’s claim
for coverage.”); Home Fed. Sav. & Loan Ass’n of Niles v. Federal
Ins. Co., No. 4:06-CV-3053, 2007 WL 2713060, at *4 (N.D. Ohio
Sept. 14, 2007) (agreeing that “allocation provision explains
how the policy will cover lawsuits that include both covered and
uncovered matters”); Bodewes v. Ulico Cas. Co., 336 F. Supp. 2d
263, 273 (W.D.N.Y. 2004) (examining coverage of an ERISA claim
under a Trustee & Fiduciary Liability Policy and referring to
cases involving D&O Policies as “neither entirely accurate nor
entirely helpful”).
H.O.M.E.’s assertion that Security National’s willingness
to provide temporary coverage is evidence of ambiguity is
tantamount to disregarding its explicit reservation of rights.
See Defs.’ Mem. 13 n.4. 	H.O.M.E. states “nothing has changed”
since Security National first decided to provide provisional
coverage, id. at 6 n.2, but this ignores the state of the
information before Security National when it made the
provisional determination. 	Provisional coverage with a
reservation of rights is a fairly common and recognized practice
in North Dakota. 	See, e.g., K & L Homes, Inc., 829 N.W.2d at
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[30]
727; Farmers Union Mut. Ins. Co. v. Decker, 704 N.W.2d 857, 868
(N.D. 2005).
Nor is the Court persuaded by H.O.M.E.’s attempt to invoke
the “reasonable expectations” doctrine. 	The North Dakota
Supreme Court has “expressly declined to adopt the doctrine of
reasonable expectations” in the context of insurance policies.
Huether v. Nodak Mut. Ins. Co., 871 N.W.2d 444, 448 (N.D. 2015)
(quoting Nationwide Mut. Ins. Co. v. Lagodinski, 683 N.W.2d 903,
911–12 (N.D. 2004)). 	Moreover, this doctrine would only apply
if the language in the policy were found to be “sufficiently
ambiguous.” 	Id.
Finally, H.O.M.E.’s arguments that the IvI exclusion ought
not be applied here because the underlying litigation is not
collusive is undermined by other recognized rationales for the
exclusion. 	In Level 3, the case on which H.O.M.E. relies for
its allocation argument, Judge Posner recognized that the IvI
exclusion’s purpose is also to prevent “suits arising out of
those particularly bitter disputes that erupt when members of a
corporate, as of a personal, family have a falling out and fall
to quarreling.” 	168 F.3d at 958. 	As Security National points
out, preventing coverage for family disputes is particularly
appropriate in cases dealing with “closely-held family
businesses.” 	Pls.’ Opp’n 21.
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[31]
IV. 	CONCLUSION
For the foregoing reasons, the Court grants Security
National’s motion for summary judgment and denies H.O.M.E.’s
motion for partial summary judgment. 	Judgment shall enter
declaring that Security National is not obligated to provide
coverage to H.O.M.E.
SO ORDERED.
/s/ William G. Young
WILLIAM G. YOUNG
DISTRICT JUDGE
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