Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_10-cv-01720/USCOURTS-casd-3_10-cv-01720-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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 The Notice of Removal states that, in July 2005, Gulf merged into Travelers, and Gulf

ceased to exist. ECF No. 1 ¶ 3. Gateway does not dispute this assertion. Accordingly, the

Court collectively refers to Travelers and Gulf as “Travelers.”

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

GATEWAY, INC., formerly known as

GATEWAY 2000, INC., a corporation,

Plaintiff,

CASE NO. 10cv1720-WQH-JMA

ORDER

vs.

GULF INSURANCE COMPANY, a

corporation; TRAVELERS INDEMNITY

COMPANY, a corporation; and DOES 1

through 100, inclusive,

Defendants.

HAYES, Judge:

The matters before the Court are the Motion for Summary Judgment filed by Defendant

Travelers Indemnity Company (“Travelers”), ECF No. 23, and the Motion for Summary

Judgment filed by Plaintiff Gateway Inc. (“Gateway”), ECF No. 24.

I. Background

On July 7, 2010, Gateway initiated this action by filing a Complaint against Defendants

Travelers and Gulf Insurance Company (“Gulf”) in San Diego County Superior Court. ECF

No. 1, Ex. 1. The Complaint alleges a single claim for breach of an insurance contract.

On August 17, 2010, Travelers removed the action to this Court, alleging diversity

jurisdiction.1

 ECF No. 1.

On April 13, 2011, the parties filed a Joint Statement of Stipulated Facts, accompanied

by Exhibits. ECF No. 18.

On May 2, 2011, the parties filed their respective motions for summary judgment. ECF

Nos. 23, 24-25. On June 10, 2011, each party filed an opposition to the opposing party’s

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 Unless otherwise defined herein, capitalized terms have the meanings ascribed to

them in the Primary, First Excess, or Travelers Second Excess Policy.

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motion for summary judgment. ECF Nos. 29, 30. On June 24, 2011, each party filed a reply

brief. ECF Nos. 31, 32.

On August 12, 2011, the Court conducted oral argument on the motions for summary

judgment. ECF No. 34.

II. Facts

A. Facts

Gateway is a publicly traded company which manufactures and sells computer hardware

to consumers. Stip. Facts ¶ 1, ECF No. 18.

Lloyd’s of London issued Directors, Officers and Company Liability Policy No.

509/QB335898 (the “Primary Policy”) effective for the period October 1, 1998 to October 1,

2001 (the “Policy Period”). Id. ¶ 2. Subject to its terms, conditions, and limitations, the

Primary Policy provided up to $10 million in coverage. Id.

Effective for the Policy Period, Zurich-American Insurance Company (“Zurich”) issued

Directors and Officers Liability and Reimbursement Excess Policy No. DOC 8388226 04 (the

“First Excess Policy”). Id. ¶ 4. Subject to its terms, conditions, and limitations, the First

Excess Policy provided up to $10 million in coverage excess of the Primary Policy’s $10

million in underlying insurance. Id.

Effective for the Policy Period, Travelers issued Excess Directors and Officers Liability

and Company Indemnification Insurance Following Form Policy No. GB5840592 (the

“Travelers Second Excess Policy” and, together with the Primary Policy and First Excess

Policy, the “Policies”). Id. ¶ 6. Subject to its terms, conditions, and limitations, the Travelers

Second Excess Policy provides up to $15 million of coverage excess of the Primary and First

Excess Policies’ combined $20 million limit of liability in underlying insurance. Id.

The respective Limits of Liability of the Primary Policy and the First Excess Policy

have been exhausted through payment of covered Loss.2

 Id. ¶ 8.

Following issuance of the Policies, certain Claims were brought against Insureds that

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implicated the Policies including, but not limited to, SEC v. Todd, No. 3:03-cv-02230 (S.D.

Cal., filed Nov. 13, 2003) (the “SEC Lawsuit”). Id. ¶ 9. The SEC Lawsuit was filed against

John J. Todd, Robert D. Manza, and Jeffrey Weitzen (the “Individual Insureds”), who

constitute “Directors and Officers” under the Travelers Second Excess Policy. Id. ¶ 10.

Gateway was not named as a defendant in the SEC Lawsuit. Id.

As of February 21, 2011, Travelers has advanced $12,174,235.80 to or on behalf of

Gateway and/or the Individual Insureds pursuant to Insuring Clause B of the Primary Policy

for certain Loss—specifically, certain Costs, Charges and Expenses incurred by or on behalf

of the Individual Insureds. Id. ¶ 11. As of February 21, 2011, the Travelers Second Excess

Policy’s remaining Limit of Liability was $2,825,764.20. Id. ¶ 12.

Between 2004 and 2007, Gateway retained the law firm of Morrison & Foerster LLP

(“Morrison & Foerster”) in connection with the SEC Lawsuit and other matters. Id. ¶ 13.

Gateway also retained Morrison & Foerster to represent certain of Gateway’s current and

former employees who were not parties to the SEC Lawsuit and against whom no Claim was

made. Id. ¶ 14. The current and former employees were compelled by subpoena to give

deposition testimony in the SEC Lawsuit as fact witnesses. Id. 

Morrison & Foerster had represented Gateway in 2001 in connection with an SEC

investigation of Gateway, which culminated in Gateway reaching a settlement with the SEC

and the SEC instituting the SEC Lawsuit against the Individual Defendants. Call Decl. ¶¶ 4-5,

ECF No. 24-3. Gateway chose to engage Morrison & Foerster in 2004 because “the Morrison

& Foerster team had had extensive knowledge of the issues and facts that carried over into the

SEC’s claims against the Individual Defendants in the SEC Lawsuit,” and “the parties and their

counsel could leverage the prior work done by Morrison & Foerster.” Id. ¶ 6. Prior to

engaging Morrison & Foerster in 2004, Gateway engaged in discussions with Zurich, and

“Zurich consented to coverage [pursuant to the Primary Policy and the First Excess Policy] of

Morrison & Foerster’s fees for these services.” Id. ¶ 7. “A key in those discussions was the

fact that Morrison & Foerster’s involvement would likely serve to reduce the overall costs of

defense asserted by the Individual Defendants under the Policies because counsel for the

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Individual Defendants could make quick and efficient use of Morrison & Foerster’s extensive

knowledge, rather than having to invest similar, redundant effort to gain that knowledge.” Id.

In representing certain of Gateway’s current and former employees who were not

parties to the SEC Lawsuit, as described above, Morrison & Foerster generated certain

invoices (the “Morrison Invoices”), which Morrison & Foerster sent to Gateway and requested

payment therefor. Stip. Facts ¶ 15, ECF No. 18. The total amount of the Morrison Invoices

was $553,875.40 (the “Amount at Issue”). Id. ¶ 16.

Gateway forwarded the Morrison Invoices to Travelers and has requested that Travelers

pay the Amount at Issue under the Travelers Second Excess Policy. Id. ¶ 19. Travelers denied

coverage for the Morrison Invoices and the Amount at Issue. Id. ¶ 20. By this Lawsuit,

Gateway seeks to recover the Amount at Issue from Travelers. Id. ¶ 21.

B. Policies

The Travelers Second Excess Policy incorporates the terms of the Primary Policy,

including its Insuring Clauses. See Jt. Ex. 3 at J045, ECF No. 18-2.

The Insuring Clause of the Primary Policy provides coverage as follows:

A. Underwriters shall pay on behalf of the Directors and Officers Loss

resulting from any Claim first made against the Directors and Officers

during the Policy Period for an Individual Act.

B. Underwriters shall pay on behalf of the Company Loss which the

Company is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any Claim first made against the Directors and Officers during the Policy Period for an Individual Act.

C. Underwriters shall pay on behalf of the Company Loss resulting from

any Claim first made against the Company during the Policy Period for

a Corporate Act.

Jt. Ex. 1 at J006, ECF No. 18-1 (emphasis in original).

The Definitions section of the Primary Policy defines certain relevant terms as follows:

B. “Assureds” means the Company and the Directors and Officers.

C. “Claim” means:

1. any written or oral demand for damages or other relief against any

of the Assureds; or

2. any civil, criminal, administrative or regulatory proceeding

initiated against any of the Assureds, including:...

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(c) any formal investigatory proceeding before the Securities

and Exchange Commission or any similar federal, state or

local governmental body with jurisdiction over any

Securities Law Violation....

G. “Costs, Charges and Expenses” means any reasonable and necessary

legal fees and expenses incurred by the Assureds in defense of any Claim and cost of attachment or similar bonds....

H. “Directors and Officers” means:

1. all persons who were, now are, or shall be directors or officers of

the Company and all persons serving in a functionally equivalent

role for the Parent Company or any Subsidiary operating or

incorporated outside the United States;

2. to the extent any Claim is for ... a Securities Law Violation, all

persons who were, now are, or shall be employees of the

Company; and

3. the lawful spouse of any of the persons set forth in the above

provisions of this definition....

L. “Loss” means damages, judgments, settlements and Costs, Charges and

Expenses incurred by any of the Assureds....

Id. at J006-07, J009 (emphasis in original).

The definition of “Directors and Officers” was amended by Endorsement Number 7,

which states:

In consideration of the premium charged for the Policy, it is hereby understood

and agreed that Clause II. DEFINITIONS H., is amended by the addition of the

following:

4. Managers of Limited Liability Companies,

5. employees of the Company. However, coverage for employees who are

not directors or officers shall only apply when an employee is named as

a co-defendant with a director or officer of the Company,

6. statutory auditor(s) in Japan.

Id. at J024 (emphasis in original).

III. Standard of Review

“A party may move for summary judgment, identifying each claim or defense–or the

part of each claim or defense–on which summary judgment is sought. The court shall grant

summary judgment if the movant shows that 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

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fact is one that is relevant to an element of a claim or defense and whose existence might affect

the outcome of the suit. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 586 (1986). The materiality of a fact is determined by the substantive law governing the

claim or defense. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). Disputes over irrelevant or unnecessary facts will

not preclude a grant of summary judgment. See T.W. Elec. Serv., Inc. v. Pacific Elec.

Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Anderson, 477 U.S. at 248).

The moving party has the initial burden of demonstrating that summary judgment is

proper. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 152 (1970). The burden then shifts

to the opposing party to provide admissible evidence beyond the pleadings to show that

summary judgment is not appropriate. See Celotex, 477 U.S. at 322, 324. The opposing

party’s evidence is to be believed, and all justifiable inferences are to be drawn in her favor.

See Anderson, 477 U.S. at 256. To avoid summary judgment, the opposing party cannot rest

solely on conclusory allegations of fact or law. See Berg v. Kincheloe, 794 F.2d 457, 459 (9th

Cir. 1986). Instead, the nonmovant must designate which specific facts show that there is a

genuine issue for trial. See Anderson, 477 U.S. at 256. “[T]he mere fact that the parties make

cross-motions for summary judgment does not necessarily mean that there are no disputed

issues of material fact and does not necessarily permit the judge to render judgment in favor

of one side or the other.” Starsky v. Williams, 512 F.2d 109, 112 (9th Cir. 1975); see also

Chevron USA, Inc. v. Cayetano, 224 F.3d 1030, 1038 n.6 (9th Cir. 2000) (same). 

IV. Contentions of the Parties

A. Gateway’s Contentions

Gateway contends:

Because the SEC Investigation was a ‘Claim’ for a ‘Securities Law

Violation,’ the Employees [represented by Morrison & Foerster] qualify as

‘Directors and Officers’ for purposes of Insuring Clause B because they ‘were,

now are, or shall be employees of the Company.’ [Jt. Ex. 1] at J007, II.H.2.

Thus, when Gateway paid Morrison & Foerster to represent the Employees in

connection with the SEC Lawsuit, it was incurring ‘Loss’ by indemnifying ‘any

of the Directors and Officers [the Employees] resulting from any Claim [the

SEC Investigation] first made against the Directors and Officers [Todd, Manza,

and Weitzen] during the Policy Period for an Individual Act,’ as provided in

Insuring Clause B....

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Thus, Insuring Clause B provides for reimbursement of Gateway’s

payment of legal expenses on behalf of the Employees in their capacity of

‘Directors and Officers,’ as that term is defined by the Primary Policy itself.

Travelers breached this clause by refusing to reimburse these expenses....

Endorsement 7 to the Primary Policy adds to the definition of ‘Directors

and Officers’ in paragraph H as follows: ‘5. employees of the Company.

However, coverage for employees who are not directors or officers shall only

apply when an employee is named as a co-defendant with a director or officer

ofthe Company... .’ Jt. Ex. 1, J024.

Travelers never referenced sub-paragraph H.5 in declining reimbursement

of the Morrison & Foerster invoices. Moreover, sub-paragraph H.2 is more

specific than sub-paragraph H.5 in that H.2 provides that employees are

considered ‘Directors and Officers’ specifically for purposes of securities law

violation claims. Id. at J007. The more specific sub-paragraph H.2 controls

here because in interpreting insurance contracts, specific provisions control over

more general provisions, ‘even though the latter, standing alone, would be broad

enough to include the subject to which the more specific provision relates.’

Kavruck v. Blue Cross of Cal., 108 Cal. App. 4th 773, 781 (2003) [quotation

omitted]. In sum, Travelers is refusing reimbursement based upon a coverage

limitation which simply does not apply here.

Additionally, ‘[w]hereas coverage clauses are interpreted broadly so as

to afford the greatest possible protection to the insured, exclusionary clauses are

interpreted narrowly against the insurer.’ Gen. Ins. Co. Of Am. v. City of

Belvedere, 582 F. Supp. 88, 89 (N.D. Cal. 1984) (emphasis added) (citing

Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800 (1982)). Thus, Insuring Clause B

and the definition of ‘Directors and Officers’ in subparagraph H.2 should be

interpreted broadly to include coverage for reimbursement of the legal expenses

incurred in representing the Employees under the circumstances of this case. On

the other hand, the exclusionary provision contained in subparagraph H.5’s

definition of ‘Directors and Officers’ should be construed narrowly against

Travelers and does not apply in this case....

Gateway Mem. Supp. Mot. Summ. J. at 15-16, ECF No. 24-1 at 20-21. 

Gateway contends that, “[a]lternatively, Morrison & Foerster’s representation of the

employees was reasonably related to the defense of the Individual Defendants, such that these

legal expenses should be reimbursed.” Id. at 17. Gateway contends:

Travelers’ decision to reimburse these legal expenses Gateway incurred

in indemnifying Todd, Manza and Weitzen in the SEC lawsuit, but not the

Morrison & Foerster invoices, was an inappropriate form of ‘allocation’ of

Gateway’s defense costs between the directors and officers on the one hand, and

the Employees on the other. Allocation of defenses costs among the claims and

parties involved may be appropriate where claims covered under a D & O policy

are joined in litigation with other, uncovered claims. However, Morrison &

Foerster’s services were reasonably related to the defense of the Individual

Defendants, such that Morrison & Foerster’s fees were covered under the

Policies....

Morrison & Foerster’s representation of the Employees was reasonably

related to the defense of the Individual Defendants because of Gateway’s

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obligations to cooperate with the SEC in the SEC Lawsuit. When the SEC

indicated that it intended to interview Gateway’s current and former employees

in connection with its claims against the Individual Defendants, Gateway

cooperated by providing those individuals with legal representation in order to

prepare them for and represent them in those encounters. The Morrison &

Foerster team had already worked with many of these individuals during the

SEC Investigation, such that it was reasonable and financially prudent for

Morrison & Foerster to remain involved in that capacity.

Id. at 17, 19 (citations omitted).

Gateway contends that Gateway “reasonably expected” that the Morrison & Foerster

fees would be covered:

[T]he general rule is that courts should protect the reasonable expectations of an

insured under the policy. Gateway reasonably expected that the Morrison &

Foerster fees would be covered given the discussions Gateway had with Zurich

[the issuer of the First Excess Policy] prior to engaging Morrison & Foerster in

connection with the SEC Lawsuit. Gateway and Morrison & Foerster

specifically discussed with Zurich the benefits of Morrison & Foerster’s

continued involvement, pointing out that Morrison & Foerster’s involvement

would likely serve to reduce the overall costs of defending the Individual

Defendants because their attorneys could leverage Morrison & Foerster’s

extensive knowledge of the underlying issues and claims, rather than having to

invest redundant effort to gain that knowledge on their own. Zurich then

consented to Morrison & Foerster’s continued involvement, such that Gateway

reasonably expected that Morrison & Foerster’s invoices would be reimbursed

in full under the Policies.

Id. at 20 (citations omitted).

B. Travelers’ Contentions

Travelers contends:

[T]he clear and unambiguous language of Insuring Clause B states that coverage

is only available for Loss that Gateway is required or permitted to pay as

indemnification to any Directors or Officers resulting from any Claim made

against these Directors or Officers. Gateway has failed to establish ... that a

Claim was ever asserted against the Employees. Absent a Claim against the

Employees, the fundamental threshold for coverage under the Policy simply

does not exist.

Travelers’ Resp. Pl.’s Mot. Summ. J. at 2, ECF No. 29 at 2 (emphasis in original). Travelers

contends:

Furthermore, despite Gateway’s contentions otherwise, Insuring Clause B

cannot provide coverage for the Morrison & Foerster Invoices because the

Employees do not constitute ‘Directors and Officers’ within the meaning of the

Policy. While the term ‘Directors and Officers’ is defined in the Primary Policy

to include employees to the extent that any Claim is for a Securities Law

Violation (J.S. at Ex. 1, J007), Endorsement Number 7 to the Primary Policy

expressly modifies that definition to state: ‘However, coverage for employees

who are not directors or officers shall only apply when an employee is named

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3

 The parties agree that California substantive law governs this diversity action.

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as a co-defendant with a director or officer of the Company....’ (J.S. at Ex. 1,

J024) (emphasis added). Here, none of the Employees who testified pursuant

to the Subpoenas were named as co-defendants with any of the Directors and

Officers who were named as defendants in the Lawsuit. As such, the Employees

are not considered ‘Directors and Officers’ within the meaning of the Policy and

Insuring Clause B is inapplicable to the Morrison & Foerster Invoices.

Id. at 5.

Travelers contends:

[T]he ‘reasonably related’ test and the only case law relied upon by Gateway

simply have no application to the issue in this case. The test only applies when

insureds and non-insureds and/or covered and non-covered causes of action exist

in a Claim. In these circumstances, and as in the only cases relied upon by

Gateway, courts reason that an insurer may have to pay defense costs that will

benefit, for example, uninsured defendants if the defense costs are reasonably

related to the defense costs the insurer is already obligated to pay. There is no

precedent that applies the ‘reasonably related’ test to the defense of third-party

witnesses against whom there is no Claim.

Id. at 2.

Travelers contends: 

[I]n a final attempt to manufacture coverage where none exists, Gateway urges

the Court to find that the Morrison & Foerster Invoices are covered under the

Policy because Gateway ‘reasonably expected’ that they would be covered

based upon conversations Gateway had with an entirely different insurance

company. However, in California, a Court may only consider an insured’s

expectations of coverage when policy language is determined to be ambiguous.

That is not the case here....

Id. at 3.

V. Discussion

“Under statutory rules of contract interpretation, the mutual intention of the parties at

the time the contract is formed governs interpretation.” AIU Ins. Co. v. Superior Court, 51 Cal.

3d 807, 821 (1990) (citing Cal. Civ. Code § 1636).3

 “Such intent is to be inferred, if possible,

solely from the written provisions of the contract.” Id. at 822 (citing Cal. Civ. Code § 1639).

“‘[I]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted

in the sense in which the promisor believed, at the time of making it, that the promisee

understood it.’ This rule, as applied to a promise of coverage in an insurance policy, protects

not the subjective beliefs of the insurer but, rather, the objectively reasonable expectations of

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 It is undisputed that the SEC Lawsuit constitutes a “Claim for ... a Securities Law

Violation.” Jt. Ex. 1 at J007, ECF No. 18-1 (emphasis omitted).

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the insured.” Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1264-65 (1992) (quoting

Cal. Civ. Code § 1649). “[I]f this rule does not resolve the ambiguity, ... then [courts] resolve

it against the insurer.” Id. at 1265 (citing AIU Ins. Co., 51 Cal. 3d at 822); see also AIU Ins.

Co., 51 Cal. 3d at 822 (“In the insurance context, we generally resolve ambiguities in favor of

coverage. Similarly, we generally interpret the coverage clauses of insurance policies broadly,

protecting the objectively reasonable expectations of the insured.”).

A. Definition of “Officers and Directors”

It is undisputed that each of the three Individual Insureds (John J. Todd, Gateway’s

former Chief Financial Officer; Robert D. Manza, Gateway’s former Chief Financial Officer

and Controller; and Jeffrey Weitzen, Gateway’s former Chief Operating Officer and Chief

Executive Officer) constitute “Directors and Officers” under the Primary Policy. 

The parties dispute whether the Gateway employees represented by Morrison &

Foerster, who were not parties to the SEC Lawsuit and who were compelled by subpoena to

give deposition testimony as fact witnesses, constitute “Directors and Officers” under the

Primary Policy. In relevant part, the term “Directors and Officers” is defined in the Primary

Policy as: “2. to the extent any Claim is for ... a Securities Law Violation, all persons who

were, now are, or shall be employees of the Company....” Jt. Ex. 1 at J007, ECF No. 18-1

(sub-paragraph II.H.2.) (emphasis omitted).4

 This definition was “amended by the addition of

the following” sub-paragraph: “5. employees of the Company. However, coverage for

employees who are not directors or officers shall only apply when an employee is named as

a co-defendant with a director or officer of the Company....” Id. at J024 (sub-paragraph

II.H.5.) (emphasis omitted).

Gateway contends that sub-paragraphs II.H.2 and II.H.5 are independent provisions, and

the sentence beginning with “However ...” in sub-paragraph II.H.5. limits the preceding phrase,

“employees of the Company.” Travelers contends that the sentence beginning with “However

...” in sub-paragraph II.H.5. operates to limit the definition set forth in sub-paragraph II.H.2.

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The Court finds that the clear and explicit reading of the Primary Policy, as applied to

the facts of this case, is that sub-paragraphs II.H.2 and II.H.5 are independent provisions, and

the Gateway employees represented by Morrison & Foerster constitute “Directors and

Officers” pursuant to sub-paragraph II.H.2. Alternatively, the Court finds the parties’

competing interpretations of the “Directors and Officers” definition to highlight an ambiguity

in the Primary Policy. The Court reads this ambiguity in favor of Gateway in order to protect

“the objectively reasonable expectations of the insured.” Bank of the West, 2 Cal. 4th at 1265

(quotation omitted).

B. Insuring Clause B

Of the three Insuring Clauses in the Primary Policy, Gateway relies primarily upon

Insuring Clause B as the basis for coverage of the Morrison Invoices. Insuring Clause B states:

“Underwriters shall pay on behalf of the Company Loss which the Company is required or

permitted to pay as indemnification to any of the Directors and Officers resulting from any

Claim first made against the Directors and Officers during the Policy Period for an Individual

Act.” Jt. Ex. 1 at J006, ECF No. 18-1 (emphasis omitted).

Gateway contends that the Morrison Invoices are covered based upon the following

reading of Insuring Clause B: “[W]hen Gateway paid Morrison & Foerster to represent the

Employees in connection with the SEC Lawsuit, it was incurring ‘Loss’ by indemnifying ‘any

of the Directors and Officers [the Employees] resulting from any Claim [the SEC

Investigation] first made against the Directors and Officers [Todd, Manza, and Weitzen] during

the Policy Period for an Individual Act....’” Gateway Mem. Supp. Mot. Summ. J. at 15, ECF

No. 24-1 at 20. Alternatively, Gateway contends that the SEC subpoenas to the Gateway

employees constitute “Claim[s] first made against the Directors and Officers [i.e., the Gateway

employees].” Jt. Ex. 1 at J006, ECF No. 18-1; see Gateway Reply Mem. Supp. Mot. Summ.

J. at 3, ECF No. 32 at 4 (“[T]he subpoenas to the Employees constitute ‘claims’ both under the

express terms of the Primary Policy, and under case law.”) (citing, inter alia, Jt. Ex. 1 at J006,

ECF No. 18-1 (definition of “Claim”); Polychron v. Crum & Forster Ins. Cos., 916 F.2d 461,

463 (8th Cir. 1990) (“The function of a subpoena is to command a party to produce certain

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 The Court does not reach Gateway’s alternative contentions that Insuring Clause C

provides for coverage of the Morrison Invoices, and, even if the Primary Policy does not

provide for coverage of the Morrison Invoices, “Morrison & Foerster’s representation of the

employees was reasonably related to the defense of the Individual Defendants, such that these

legal expenses should be reimbursed.” Gateway Mem. Supp. Mot. Summ. J. at 17, ECF No.

24-1 at 22.

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documents and therefore constitutes a ‘claim’ against a party.”)).

Travelers contends that “the clear and unambiguous language of Insuring Clause B

states that coverage is only available for Loss that Gateway is required or permitted to pay as

indemnification to any Directors or Officers resulting from any Claim made against these

Directors or Officers. Gateway has failed to establish ... that a Claim was ever asserted against

the Employees.” Travelers’ Resp. Pl.’s Mot. Summ. J. at 2, ECF No. 29 at 2 (emphasis in

original).

The Court finds that Gateway and Travelers have each advanced a reasonable

interpretation of the application of Insuring Clause B to the facts of this case, and the Primary

Policy is ambiguous on this issue. The Court reads this ambiguity in favor of Gateway in order

to protect “the objectively reasonable expectations of the insured.” Bank of the West, 2 Cal.

4th at 1265 (quotation omitted). 

Accordingly, Gateway’s Motion for Summary Judgment is granted, and Travelers’

Motion for Summary Judgment is denied.5

VI. Conclusion

IT IS HEREBY ORDERED that Gateway’s Motion for Summary Judgment is

GRANTED, ECF No. 24, and Travelers’ Motion for Summary Judgment is DENIED, ECF No.

23. No later than ten (10) days from the date of this Order, Gateway shall file a proposed

judgment, and e-mail a copy of the proposed judgment in WordPerfect or Word format to

efile_hayes@casd.uscourts.gov. No later than seven (7) days after the proposed judgment is

filed, Travelers may file a response to the proposed judgment.

DATED: August 15, 2011

WILLIAM Q. HAYES

United States District Judge

Case 3:10-cv-01720-WQH-JMA Document 35 Filed 08/15/11 Page 12 of 12