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IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF INDIANA 

SOUTH BEND DIVISION 

COLUMBUS LIFE INSURANCE 

COMPANY, 

 Plaintiff, 

 vs. 

ARCH INSURANCE COMPANY, 

 Defendant. 

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NO. 3:14–CV-01659 

OPINION AND ORDER

 This matter is before the Court on the Motion for Partial 

Summary Judgment filed by Plaintiff Columbus Life Insurance 

Company (“Columbus”), on May 15, 2015 (DE #29), the Motion for 

Summary Judgment filed by Defendant Arch Insurance Company 

(“Arch”) on June 8, 2015 (DE #34), and the Request for Hearing on 

Defendant’s Motion for Summary Judgment filed by Arch on June 8, 

2015 (DE #37). For the reasons set forth below, Columbus’s Motion 

for Partial Summary Judgment (DE #29) is GRANTED IN PART AND DENIED 

IN PART. Arch’s Motion for Summary Judgment (DE #34) is DENIED, 

and its Request for Hearing on its Motion for Summary Judgment (DE 

#37) is DENIED. Arch’s Counterclaim (DE #27) is DISMISSED. 

Further proceedings will involve the following remaining issues: 

(1) the reasonableness of the settlement in the Jesta Action; (2) 

issues of fact regarding Columbus’s claim for attorneys’ fees in 
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litigating the instant action; (3) Columbus’s claim of bad faith; 

and (4) the amount of Columbus’s damages. 

FACTS 

For the purposes of these motions for summary judgment, the 

facts below are undisputed: 

On March 1, 2008, Columbus entered into a contract for errors 

and omissions insurance coverage with Arch (“Policy”) for the 

period of March 1, 2008, to March 1, 2009. Thereafter, the Policy 

was renewed annually through the policy period of March 1, 2012, 

to March 1, 2013. The Policy was a claims made and reported 

policy. Under the terms of the Policy, Columbus was a “Sponsoring 

Company” and a “First Named Insured,” and as such, was entitled to 

coverage for vicarious liability claims arising out of the acts or 

omissions of its agents. (DE #31-1 at 2.) 

The Villagra Action 

 On October 24, 2011, Victor and Eugenia Villagra 

(“Villagras”), filed a lawsuit against Angelo M. Papalia 

(“Papalia”) and others in Connecticut state court entitled, 

Villagra v. DiClemente (“Villagra Action”). The complaint in the 

Villagra Action (“Villagra complaint”) alleged that Papalia was 

the Villagras’ trusted financial and tax advisor. Papalia 

allegedly recommended that the Villagras establish a “Section 419 

Plan” under the Internal Revenue Code (“IRC”). Papalia allegedly 
‐3‐ 

represented that under a Section 419 Plan, (1) a life insurance 

policy would be created for the Villagras’ benefit, (2) 

contributions to the plan would be tax deductible, and (3) the 

Villagras would be permitted to withdraw money from the plan on a 

tax-free basis. (DE #31-4 at 6.) Following Papalia’s 

recommendation, the Villagras allegedly established a Section 419 

Plan, and subsequently contributed funds to it. The Villagra 

complaint alleges that Papalia knew that the Internal Revenue 

Service (“IRS”) considered a Section 419 Plan to be an abusive tax 

shelter and a “listed transaction” for which contributions were 

not permissible deductions, and that Papalia intentionally 

withheld this information from the Villagras. (Id. at 8-9.) 

Papalia later advised the Villagras to “roll over” the Section 419 

Plan to a new “Section 79 Plan,” asserting that it had similar tax 

advantages as the Section 419 Plan. (Id. at 10.) The Villagras 

allegedly did so, and contributed funds to the Section 79 Plan 

thereafter. The IRS allegedly concluded that the Section 79 Plan 

was substantially similar to the Section 419 Plan, and thus was 

also considered a listed transaction. The Villagras were allegedly 

audited by the IRS, and anticipated the assessment of taxes, 

interest and penalties. The Villagra complaint also alleged 

damages in the form of early termination fees and surrender charges 

associated with terminating the insurance policies used to fund 

the plans. 
‐4‐ 

The Section 419 and 79 Plans at issue in the Villagra Action 

were funded by two Columbus insurance policies. (DE #35-4 at 4.) 

At the time the Villagra complaint was filed, Papalia was 

contracted as an agent of Columbus, and was an Insured under the 

Policy. Papalia’s counsel informed Arch of the Villagra Action in 

a letter dated October 31, 2011. (Id. at 2.) Arch found Papalia 

to be an Insured under the Policy in the 2011-12 policy period, 

and agreed to defend Papalia in the Villagra Action, subject to a 

reservation of rights under the terms and provisions of the Policy. 

(DE #31-5.) 

The Notice Letter 

On February 28, 2013, Papalia’s counsel notified Arch that 

Papalia had established 419 Plans for other clients, which could 

give rise to additional claims similar to those made by the 

Villagras (“Notice Letter”). (DE #31-6 at 2.) The letter provided 

a list of 18 clients for whom Papalia had set up similar plans, 

including the “Jesta Rx Group.” (Id. at 3.) 

On May 22, 2013, Arch responded that the Notice Letter did 

not qualify as valid notice of a potential claim under the Policy. 

Arch requested a description of the circumstances in which Papalia 

first became aware of a potential wrongful act involving each of 

the 18 clients’ Section 419 Plans, as well as other information. 

On July 9, 2013, Papalia’s counsel notified Arch that Papalia had 

become aware of the potential claims after receiving the summons 
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and complaint in the Villagra Action “[o]n approximately October 

24, 2011,” when Papalia reviewed “prior actions performed to 

identify any other clients who may have or had similar plans.” 

(DE #35-9 at 2 (“July 2013 Letter”).) 

On August 15, 2013, Arch responded to the July 2013 Letter, 

noting that Papalia had provided no circumstances detailing how 

Papalia had become aware of a wrongful act, or details regarding 

the wrongful act, involving each of his 18 clients. Arch also 

indicated that no claims had been made by any of these clients, 

and that it was without information to assess whether or not any 

such claim would qualify as “Related Claims” under the Policy. 

(DE #31-7 at 4.) 

The Jesta Action 

 In August 2013, the Jesta Rx Group and its owners (together, 

the “Jesta Rx Group”) made a monetary demand on Papalia, asserting 

that Papalia had misrepresented the tax treatment of the Jesta Rx 

Group’s Section 419 Plan, causing them to incur damages. Papalia 

submitted this claim to Arch for coverage under the Policy. Arch 

denied the claim in October 2013, maintaining that it had no duty 

to defend or indemnify Papalia because he did not qualify as an 

agent or insured under the Policy. (DE #31-9 at 6.) 

On November 26, 2013, the Jesta Rx Group and others filed a 

Texas state court action entitled, Smeeding v. Papalia, in which 

Columbus, Papalia, and several other insurers and individuals were 
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named as defendants (“Jesta Action”). (DE #31-8.) The petition 

in the Jesta Action (“Jesta petition”) alleged that the defendants 

made misrepresentations to induce the plaintiffs into 

participating in 419 Plans, and later Section 79/Section 83 Plans 

(the “Plans”). The Plans, which were funded by the purchase of 

insurance contracts, were allegedly “just a clever way to sell 

millions of dollars[’] worth of life insurance and generate 

significant commissions for the salesman and related profits for 

the insurance companies.” (Id. at 4-5.) The insurer defendants 

allegedly provided their agents with training and marketing 

materials that “essentially provided a scripted presentation 

regarding the investment, the purported tax benefits of setting up 

[the Plans], and the funding such plans with life insurance 

policies specifically designed by the insurance companies for such 

purpose.” (Id. at 20.) Each defendant was alleged to be a coconspirator and “a cog in the machine” that induced the plaintiffs 

to participate in the Plans, and each defendant allegedly 

“knowingly aided and abetted” the other defendants. (Id. at 19.) 

The Jesta petition also alleged that Papalia was “acting as the 

agent of various insurance companies, including Columbus,” and 

“was acting with either express, implied, apparent and/or 

ostensible authority and Columbus . . . subsequently ratified and 

benefitted financially from [Papalia’s] acts, failures to act, 

representations, statements or conduct.” (Id. at 18.) 
‐7‐ 

The Jesta petition alleged that Papalia, as the Jesta Rx 

Group’s trusted financial advisor, represented that the Section 

419 Plan complied with the IRC and IRS, that contributions to the 

plan were tax deductible, and that the Jesta Rx Group could take 

out their money tax free after a number of years. (Id. at 28-29.) 

The Jesta Rx Group allegedly invested in the Section 419 Plan as 

a result of Papalia’s representations. (Id. at 29.) After the 

IRS issued notices which made the Section 419 Plan a “listed 

transaction,” Papalia allegedly transferred the Jesta Rx Group’s 

Section 419 Plan to a Section 79/Section 83 Plan, without their 

informed consent. (Id. at 29-30.) Papalia allegedly continued to 

represent, among other things, that the contributions to these 

plans were tax-deductible. (Id. at 30.) According to the Jesta 

petition, the IRS informed the Jesta Rx Group that their plans 

were non-compliant, and assessed back taxes, penalties and 

interest. (Id. at 30-31.) 

The Jesta petition asserts claims of fraud, negligent 

misrepresentation, negligence, unjust enrichment, “money had and 

received,” and violations of the Texas Insurance Code against all 

defendants, including Columbus and Papalia. The fraud claim 

alleges that the “[d]efendants, individually and/or through their 

agents, knowingly made . . . false representations . . . .” (Id. 

at 60.) The negligent misrepresentation claim alleges that the 

“[d]efendants, individually and through their agents, and in 
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conspiracy with one another, and in aiding and abetting one 

another, negligently made false representations to Plaintiffs . . 

. .” (Id. at 63.) The Jesta petition incorporates these 

allegations into the other claims against all defendants. (Id. at 

63, 67, 68.) It seeks damages in the form of back taxes, penalties, 

interest owed to the IRS, loss of investment, contribution to the 

plans, and several other types of damages. 

Arch’s Denial of Coverage 

On April 1, 2014, Columbus submitted to Arch a claim for 

vicarious liability coverage under the Policy for the Jesta Action. 

On May 2, 2014, Arch denied the claim, and suggested that Columbus 

advise Arch if it disagreed with Arch’s position. Columbus did 

not respond to Arch. Columbus settled the Jesta Action on April 

2, 2015. Columbus subsequently filed the instant action against 

Arch. 

 Columbus now moves for partial summary judgment in its favor 

on Count I of its Amended Complaint (breach of contract), and on 

Arch’s counterclaim for declaratory judgment. Columbus does not 

seek a determination of its bad faith claim, or the amount of its 

damages. Arch moves for summary judgment on all counts in 

Columbus’s Amended Complaint, and on its Counterclaim for 

declaratory judgment. 
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SUMMARY JUDGMENT STANDARD 

 Summary judgment must be granted 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 genuine 

issue of material fact exists when “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, 106 S. Ct. 

2505, 91 L. Ed. 2d 202 (1986). Not every dispute between the 

parties makes summary judgment inappropriate; “[o]nly disputes 

over facts that might affect the outcome of the suit under the 

governing law will properly preclude the entry of summary 

judgment.” Id. To determine whether a genuine dispute of material 

fact exists, the Court must construe all facts in the light most 

favorable to the non-moving party and draw all reasonable 

inferences in that party’s favor. See Ogden v. Atterholt, 606 

F.3d 355, 358 (7th Cir. 2010). A party opposing a properly 

supported summary judgment motion may not rely on allegations in 

its own pleading, but rather must “marshal and present the court 

with the evidence [it] contends will prove [its] case.” Goodman 

v. Nat'l Sec. Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010). 

“[I]nferences relying on mere speculation or conjecture will not 

suffice.” Stephens v. Erickson, 569 F.3d 779, 786 (7th Cir. 2009) 

(citation omitted). The party with the burden of proof on an issue 

can obtain a summary judgment “only where the evidence is so one-
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sided that it points inescapably” in the movant’s favor, and “every 

reasonable jury” would decide that the movant has met its burden 

of proof. Thorne v. Member Select Ins. Co., 899 F. Supp. 2d 820, 

824 (N.D. Ind. 2012) (citations omitted). If the non-moving party 

fails to establish the existence of an essential element on which 

he bears the burden of proof at trial, summary judgment is proper. 

Massey v. Johnson, 457 F.3d 711, 716 (7th Cir. 2006). Where the 

parties file cross-motions for summary judgment, the Court must 

consider each motion, but despite the parties’ agreement that no 

genuine issue of material fact exists, the Court can deny all 

motions if the parties do not establish their rights to judgment 

as a matter of law. Grabach v. Evans, 196 F. Supp. 2d 746, 747 

(N.D. Ind. 2002). 

DISCUSSION 

Request for Hearing 

At the outset, the Court will address Arch’s Request for 

Hearing on its Motion for Summary Judgment. Pursuant to Local 

Rule 7-5, the Court may “grant or deny a request for oral argument 

or an evidentiary hearing in its discretion.” N.D. Ind. L.R. 7-

5(c)(1). Here, the parties’ memoranda have sufficiently apprised 

the Court of the issues at hand, and the Court does not believe 

that a hearing is necessary. Therefore, the Court denies Arch’s 
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Request for Hearing (DE #37), and turns to the merits of the 

parties’ motions for summary judgment. 

Choice of Law 

In Indiana, “[a]n insurance policy is governed by the law of 

the principal location of the insured risk during the term of the 

policy.” Dunn v. Meridian Mut. Ins. Co., 836 N.E.2d 249, 251 (Ind. 

2005) (citations omitted).1 Because Columbus is an insurance 

company organized under the laws of Ohio with its principle place 

of business in Ohio, Columbus maintains that Ohio law applies to 

the Policy. While Arch asserts that it is possible that the law 

of other states apply to this matter, Arch does not identify any 

of those states. Rather, Arch acknowledges that Ohio law “does 

not conflict on the main issues raised by this action.” (DE #44 

at 3.) Courts “forego choice of law analysis when the parties 

agree on the law that governs a dispute and there is a reasonable 

relation between the dispute and the forum whose law has been 

selected.” Home Valu, Inc. v. Pep Boys, 213 F.3d 960, 963 (7th 

Cir. 2000) (citation omitted). Because Arch does not contest the 

application of Ohio law, the Court will not undertake an 

independent choice of law analysis, and will apply Ohio law. 

                                                            

1 A federal court sitting in diversity must apply the choice of law 

provisions of the forum state. Storie v. Randy's Auto Sales, LLC,

589 F.3d 873, 879 (7th Cir. 2009).
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Arch maintains that the laws of other states should be 

considered regarding issues that have not been addressed by Ohio 

courts, or for which their precedent may conflict. Where the 

Supreme Court of Ohio has not addressed an issue of state contract 

law, a federal court attempts to ascertain how it would rule if it 

were faced with the issue. “The Court may use the decisional law 

of the state’s lower courts, other federal courts construing state 

law, restatements of law, law review commentaries, and other 

jurisdictions on the ‘majority’ rule in making this 

determination.” Westport Ins. Corp. v. Coffman, No. C2–05–1152, 

2009 WL 243096, at *4 (S.D. Ohio Jan. 29, 2009) (citation omitted). 

Analysis of Policy Language 

In Ohio, “the construction of an insurance contract is a 

matter of law” to be determined by the court. Chicago Title Ins. 

Co. v. Huntington Nat'l Bank, 719 N.E.2d 955, 959 (Ohio 1999). 

When interpreting a contract, the court is “to give effect to the 

intent of the parties to the agreement.” Westfield Ins. Co. v. 

Galatis, 797 N.E.2d 1256, 1261 (Ohio 2003). The court is to 

examine an insurance policy as a whole and presume that the 

parties’ intent is reflected in the language used in the policy. 

Id. The court looks to “the plain and ordinary meaning of language 

used in the policy unless another meaning is clearly apparent from 

the contents of the policy. When the language of a written 

contract is clear, a court may look no further than the writing 
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itself to find the intent of the parties.” Id. (citations 

omitted). Where a contract is ambiguous, the court may consider 

extrinsic evidence to ascertain the parties’ intent, but may not 

alter a lawful contract by imputing an intent contrary to that 

expressed by the parties. Id. at 1261-62 (citations omitted). 

“[A]n ambiguity in an insurance contract is ordinarily interpreted 

against the insurer and in favor of the insured.” Id. at 1262 

(citation omitted). 

Notice under the Policy 

Under Ohio law, an insured “generally has the burden of 

proving a loss and demonstrating coverage under the policy.” 

Sharonville v. Am. Employers Ins. Co., 846 N.E.2d 833, 838 (Ohio 

2006). Here, the Policy is a “claims made and reported” policy, 

which requires that a claim be made and reported to the insurer 

within the policy period. Unlike occurrence policies, which 

provide coverage for acts done during the policy period (regardless 

of when the claim is made), claims made policies “are designed to 

limit liability to a fixed period of time.” United States v. 

Strip, 868 F.2d 181, 187 (6th Cir. 1989) (Ohio law). Here, the 

Jesta Action commenced in November 2013, and Columbus reported a 

claim for coverage of the Jesta Action to Arch on April 1, 2014. 

Thus, Columbus’s claim was made and reported after the policy 

period expired on March 1, 2013. 
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Columbus argues that its claim is nevertheless covered by the 

Policy because Arch received sufficient notice of the 

circumstances that resulted in the Jesta Action during the policy 

period. Condition VII.B of the Policy states: 

If during the Policy Period, an Insured becomes aware of 

a Wrongful Act . . . that could give rise to a Claim 

against an Insured and gives written notice to the 

Insurer prior to the end of the Policy Period of the 

following: 

1. the names of all potential claimants; 

2. the names of each Insured that committed the 

Wrongful Act . . . 

3. a detailed description of the Wrongful Act . 

. . 

4. the damage which has or may result from the 

Wrongful Act . . . and 

5. the circumstances by which the Insured first 

became aware of such Wrongful Act . . . 

then any Claim which subsequently arises out of such 

Wrongful Act . . . shall be treated as a Claim first 

made during the Policy Period. 

(DE #31-1 at 18.) According to Columbus, the Notice Letter sent 

by Papalia’s counsel on or about February 28, 2013, provided 

sufficient notice to Arch because it stated that Papalia had 

established other Section 419 Plans similar to the one at issue in 

the Villagra Action, and identified 18 other clients who would 

have claims similar to those asserted in the Villagra Action, 

including the Jesta Rx Group. 

Arch argues that the Notice Letter failed to provide proper 

notice of the circumstances that resulted in the Jesta Action. 

Ohio courts have not addressed notice of circumstance provisions 

like Condition VII.B in claims made and reported policies. 
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However, Arch maintains that Ohio courts have found a “strict 

reporting requirement” for notice of actual claims made under such 

policies. Wendy’s Int’l, Inc. v. Illinois Union Ins. Co., No. 

2:05–cv–803, 2007 WL 710242, at *9 (S.D. Ohio Mar. 6, 2007) 

(finding “that Plaintiffs were required to strictly comply with 

the notice provision” of the claims made and reported policy); 

Certain Underwriters at Lloyds of London v. Jeff Wyler Dealer 

Group, Inc., No. C-1-05-572, 2007 WL 1989836, at *6-*7 (S.D. Ohio 

July 9, 2007) (citing Wendy’s with approval). Arch cites other 

jurisdictions that have held that “[t]he proper focus of the 

district court’s inquiry is whether the insured has objectively

complied with such a notice provision.” LaForge v. Am. Cas. Co. 

of Reading, Pa., 37 F.3d 580, 584 (10th Cir. 1994) (finding 

information contained in the insured’s renewal application was 

insufficient to constitute notice under the policy) (emphasis in 

original; citation omitted). 

Arch asserts that the Notice Letter did not objectively comply 

with Condition VII.B by providing adequate and specific 

information regarding acts that may result in a claim. It 

maintains that the Notice Letter was vague because it did not 

explain why Papalia’s 18 clients might pursue claims against him, 

or that these clients had purchased Columbus policies. Moreover, 

nothing in the Notice Letter or the subsequent correspondence from 

Papalia’s counsel indicates that claims might be made against 
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Columbus. According to Arch, the lack of reference to Columbus in 

the Notice Letter establishes that it was not valid notice; if 

Columbus was an insured involved in the allegedly tortious acts 

resulting in the Jesta Action, Arch should have been notified. 

Columbus insists that Ohio does not require objective 

compliance with notice provisions. Even if it does, Columbus 

maintains that it objectively complied with Condition VII.B 

because the Notice Letter identified the potential claimants, 

including the Jesta Rx Group, and explained that (1) Papalia was 

Columbus’s agent, (2) the alleged wrongful acts stemmed from the 

creation of Section 419 Plans, similar to the Villagra Action, and 

(3) Papalia became aware of the potential claims while reviewing 

information to identify other clients who had plans similar to the 

Section 419 Plan at issue in the Villagra Action. While the Notice 

Letter stated that the amount of damages could not be ascertained 

at that time, Columbus asserts that the similarity of the potential 

claims to the Villagras’ claim implicates damages similar to the 

damages asserted in the Villagra Action. Regarding the Notice 

Letter’s lack of reference to Columbus, Columbus argues that 

Condition VII.B only requires the identification of “each Insured 

who committed the Wrongful Act,” rather than all potential 

defendants. (DE #31-1 at 18.) According to Columbus, the notice 

provision did not require the identification of Columbus because 

it did not commit any wrongful act. 
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Even if the Notice Letter contained all of the information 

required by Condition VII.B, it does not satisfy Condition VII.B 

because Arch did not receive the Notice Letter within the 

appropriate policy period. Condition VII.B clearly and 

unambiguously requires that “[i]f during the Policy Period, an 

Insured becomes aware of a Wrongful Act,” the insured must notify 

Arch of the wrongful act “prior to the end of the Policy Period” 

in order for a subsequent claim arising out of the wrongful act to 

be treated as a claim first made during the policy period. (Id. 

(emphasis added).) In the July 2013 Letter, Papalia admitted to 

learning of his other clients’ potential claims after receiving 

the summons and complaint in the Villagra Action in October 2011. 

However, Arch was not notified of these potential claims until 

February 2013, when Papalia’s counsel sent the Notice Letter. 

Columbus asserts that Papalia’s delay in reporting the 

potential claims is allowed by Condition VII.A of the Policy, which 

provides an extended reporting period where there is consecutive 

coverage. Condition VII.A states in relevant part, 

if continuous coverage is in effect pursuant to 

consecutive policies issued by the Insurer, a Claim may 

be reported to the Insurer in writing, as soon as 

practicable, during the policy period consecutive to and 

immediately following this Policy Period. . . . In such 

condition, the Claim will be deemed reported on the last 

day of the Policy Period. 

(Id. at 17.) The plain language of Condition VII.A relates to the 

reporting of “Claim.” “Claim” is defined in the Policy as “a 
‐18‐ 

written demand for monetary damages received by an Insured or the 

Sponsoring Company.” (Id. at 6.) The claim against Columbus did 

not arise until the Jesta Action was filed in November 2013, after 

the 2012-13 policy period expired. The Notice Letter did not 

notify Arch of any “Claim,” as that term is defined by the Policy. 

Rather, it attempted to notify Arch of the potential claims of 

Jesta Rx Group and other Papalia clients. Because Condition VII.A 

does not address potential claims, it does not apply here. 

Despite discovering the potential claims of Jesta Rx Group 

and other clients in 2011, Papalia did not notify Arch of them 

before the end of the 2011-12 policy period, as required by 

Condition VII.B. Rather, Papalia’s counsel sent the Notice Letter 

to Arch in 2013. The Court therefore finds that the Notice Letter 

does not satisfy Condition VII.B.2

                                                            

2 Columbus also argues that Arch was not prejudiced by any purported 

defects in Papalia’s notice, and therefore is not relieved of its 

obligation to provide coverage under the Policy. Indiana 

Lumbermens Mut. Ins. Co. v. Conner Indus., Inc., No. CA2005-02-

023, 2005 WL 3031742, at *4 (Ohio Ct. App. Nov. 14, 2005) 

(affirming finding that defendant failed to rebut the presumption 

of prejudice to the insurer as a result of its unreasonable delay 

in providing notice under an occurrence-based policy). Arch 

maintains that the issue of prejudice does not apply here because 

the Policy is a “claims made and reported” policy. The Court 

agrees. Ohio courts have held that the notice-prejudice rule does 

not apply where plaintiffs were required to strictly comply with 

the notice provision of a claims made and reported contract. 

Wendy's, 2007 WL 710242, at *9. 
‐19‐ 

Related Claims Provision 

Columbus argues that even if the Notice Letter was deficient, 

it is nevertheless entitled to coverage because the Jesta Action 

and the Villagra Action are “Related Claims” under the Policy. 

Arch maintains that the two actions are not Related Claims. The 

Policy provides that 

[a]ll Related Claims shall be deemed a single Claim, 

subject to a single Each Claim Limit of Liability, if 

covered, and such Claim shall be considered first made 

on the date the earliest such Related Claim is first 

made against an Insured, regardless of whether such date 

is before or during the Policy Period. 

(Id. at 14.) The Policy defines “Related Claims” as: 

all Claims, whether made against more than one Insured 

or by more than one claimant, arising out of a single 

Wrongful Act . . . or a series of Wrongful Acts . . . 

that have as a common nexus any fact, circumstance, 

situation, event, transaction, cause or series of 

causally connected facts, circumstances, situations, 

events, transactions or causes. 

(Id. at 9.) While the Policy does not define “nexus,” Ohio courts 

have relied on dictionaries to determine the definition of a word 

in a contract. Westport, 2009 WL 243096, at *7 (citation omitted). 

The Merriam-Webster on-line dictionary defines “nexus” as “a 

relationship or connection between people or things,” and a 

“connection, link; also: a causal link; a connected group or 

series; center, focus.” http://www.merriamwebster.com/dictionary/nexus (last visited May 4, 2016). Black’s 
‐20‐ 

Law Dictionary defines “nexus” as “a connection or link, often a 

causal one.” Black’s Law Dictionary (10th ed. 2014). 

Columbus asserts that the Jesta Action and the Villagra Action 

are Related Claims because they share a common theme. In support, 

Columbus cites LaValley v. Virginia Surety Company, Inc., 85 F. 

Supp. 2d 740 (N.D. Ohio 2000), which addressed a prior notice 

exclusion that applied to “any claim arising from any circumstance 

of which notice has been given under any policy in effect prior to 

or at the inception of the policy period.” Id. at 743. The court 

found that insurance claims may arise from “the same general 

circumstances” where they share a “common theme,” despite the fact 

that different parties had filed separate complaints seeking 

different relief. Id. at 747. It noted that the insured’s “effort 

to point out facts that somewhat or partially distinguish” the 

claims was a “fruitless exercise” because the exclusion did not 

require that the claims be identical. Id. Arch argues that 

Columbus’s reliance on LaValley is misplaced because it addressed 

a prior notice exclusion, rather than a related claim provision, 

which allows for the aggregation of claims. Columbus insists that 

prior notice exclusion in LaValley is sufficiently similar to the 

Related Claims provision at issue here because neither required a 

subsequent claim be identical to a prior claim. 

Columbus cites other Ohio case law to support its position 

that the Villagra Action and Jesta Action are Related Claims. See 
‐21‐ 

Westport, 2009 WL 243096 at *8-*9 (finding two separate legal 

actions were “logically connected” because they were based on the 

same event of the insured’s legal malpractice of failing to 

register a business); Schwartz Manes Ruby and Slovin, L.P.A. v. 

Monitor Liab. Managers, LLC, 483 F. App’x 241, 246 (6th Cir. 2012) 

(finding that different acts of legal malpractice were “related 

wrongful acts” because the insured’s alleged failure to litigate 

the former client’s lawsuit was “certainly logically connected” to 

its failure to attend her trial); Strip, 868 F.2d at 189 (finding 

that claims against two different insureds were related because 

they were based on “the same events and occurrences”). Arch points 

out that the cases relied on by Columbus address claims based on 

the same services rendered by an insured to the same client, or 

claims that arose from the exact same event. However, the courts 

in these cases do not limit related claims to those by the same 

client or based on the same services or event. Even if they did, 

the definition of Related Claims at issue here explicitly includes 

claims made “by more than one claimant,” and claims that have as 

a common nexus any “series of causally connected . . . events.” 

(DE #31-1 at 9.) Thus, “Related Claims” explicitly includes claims 

involving more than one claimant and more than one event. 

In arguing that the Jesta Action and the Villagra Action are 

not Related Claims, Arch focuses on case law interpreting the term 
‐22‐ 

“related.”3 Arch acknowledges that claims can be related if they 

arise from a nexus of logically or casually related facts. 

However, the connections between the claims must not be “so 

attenuated or unusual so as to make it objectively unreasonable to 

treat those claims as related.” Westport, 2009 WL 243096, at *8 

(relying on the commonly understood meaning of “related” because 

the term was not defined in the policy). 

Arch relies on case law from other jurisdictions to assert 

that the Villagra Action and the Jesta Action are not Related 

Claims. In Financial Management Advisors, LLC v. American 

International Specialty Lines Insurance Company, 506 F.3d 922 (9th 

Cir. 2007), the Ninth Circuit held that it did “not believe the 

term ‘related’ was intended to bar recovery whenever two parties 

are advised to invest in the same fund. Nor are the [two] Claims 

logically related simply because both claimants blamed the same 

                                                            

3 Columbus asserts that Arch’s current position regarding the term 

“Related Claims” conflicts with its prior position in Lafayette 

Life Ins. Co. v. Arch Ins. Co., No. 4:10-CV-26 RM (N.D. Ind.), an 

action involving the same policy. In that case, Arch maintained 

the position that “establishing a ‘common nexus’ does not require 

uniform facts. Instead, the Wrongful Act or series of Wrongful 

Acts must have only a ‘common nexus.’ A ‘nexus’ can be defined as 

‘a connection, tie, or link between individuals of a group, members 

of a series, etc.’” (DE #40 at 18 (quoting DE #31-12 at 11 (quoting 

Webster’s New University Unabridged Dictionary (2d Ed. 1983)).) 

Here, Arch all but ignores the Policy’s definition of “Related 

Claims.” However, it does acknowledge that “multiple claims will 

be deemed related under a policy if they arise from a nexus of 

logically or casually related facts.” (DE #35 at 9 (citing 

Continental Cas. Co. v. Wendt, 205 F.3d 1258, 1263 (11th Cir. 

2000).)
‐23‐ 

financial advisor.” Id. at 926. But there, the policy at issue 

did not define the term “related,” so the Ninth Circuit looked to 

the Supreme Court of California’s consideration of the term 

“related” in a different policy. Id. at 926 (citing Bay Cities 

Paving & Grading, Inc. v. Lawyer’s Mutual Ins. Co., 855 P.2d 1263 

(Cal. 1993)). That policy language provided, “[t]wo or more claims 

arising out of a single act, error or omission or a series of 

related acts, errors or omissions shall be treated as a single 

claim.” Id. This language is narrower than the instant Policy’s 

broad definition of “Related Claims.” Moreover, the Ninth Circuit 

recognized that separate claims may be related where the insured 

gave the same advice to several parties to promote the same 

investment. Id. (citing Wendt, 205 F.3d 1258); see also Eureka 

Fed. Sav. and Loan Ass’n v. Am. Cas. Co. of Reading, Pa., 873 F.2d 

229, 235 (9th Cir. 1989) (noting that the Ninth Circuit “do[es] 

not foreclose the possibility . . . that loans to separate 

borrowers may be aggregated as a single loss in an appropriate 

fact situation”). Many of the cases cited by Arch found the claims 

at issue to be related. See Wendt, 205 F.3d at 1264 (“Though 

clearly this course of conduct involved different types of acts, 

these acts were all tied together because all were aimed at a 

single particular goal.”) (Florida law); Am. Med. Security Inc. v. 

Executive Risk Specialty Ins. Co., 393 F. Supp. 2d 693, 707 (E.D. 

Wisc. 2005) (finding 39 lawsuits were “clearly ‘related’” because 
‐24‐ 

they were based on the insured’s underwriting practices and 

business decision to market and sell certain policies as group 

health insurance). The cases cited by Arch that found claims to 

be unrelated generally involve policies with narrower definitions 

than the Related Claims definition at issue here. See, e.g., 

Dormitory Authority of New York v. Continental Cas. Co., 756 F.3d 

166, 170 (2d Cir. 2014) (defining “related claims” as “aris[ing] 

. . . out of a single wrongful act or related wrongful acts,” and 

finding claims were unrelated where they involved different design 

teams, manifested themselves at different times and resulted in 

different types of damage requiring different solutions); Fed. 

Deposit Ins. Corp. v. Mmahat, 907 F.2d 546, 553-54 (5th Cir. 1990) 

(defining “related acts” as “acts which are logically or causally 

connected,” and finding that “a single motive does not make a 

single act” where “discrete acts of malpractice resulted in 

discrete losses”) (internal quotations omitted); Eureka, 873 F.2d 

at 234-35 (where policy provided that “[c]laims based on or arising 

out of the same act, interrelated acts, or one or more series of 

similar acts, of one or more Directors or Officers shall be 

considered a single loss,” holding that the existence of an 

aggressive loan policy was insufficient as a matter of law to 

transform disparate acts and omissions made by five directors in 

issuing loans to over 200 unrelated borrowers into a single loss); 

Scott v. Am. Nat. Fire Ins. Co., Inc., 216 F. Supp. 2d 689, 693-
‐25‐ 

95 (N.D. Ohio 2002) (where policy provided “[c]laims alleging, 

based upon, arising out of or attributable to the same or related 

acts, errors, or omissions shall be treated as a single claim,” 

concluding that the claims were not “related” because the attorney 

owed a separate duty to each investor and the investors’ rights 

were independent from the corporation’s rights); cf. Westport, 

2009 WL 243096, at *8 (finding “the Scott court’s interpretation 

of the word ‘related’ was not in accord with the ‘natural and usual 

meaning’ of the word”).4

 Columbus lists several commonalities demonstrating that the 

Jesta Action and the Villagra Action are Related Claims under the 

Policy. Both actions allege that: (1) the plaintiffs relied on 

Papalia as their financial advisor; (2) Papalia recommended that 

the plaintiffs create a Section 419 Plan, and later, a Section 79 

Plan; (3) the plans were funded by Columbus insurance policies; 

(4) Papalia represented that the plans would qualify for taxadvantaged treatment, contributions to the plans would be tax 

                                                            

4 Arch also cites case law addressing the term “interrelated,” a 

term that is not at issue here. See, e.g., Sigma Fin. Corp. v. 

American Intern. Specialty Lines Ins. Co., 200 F. Supp. 2d 710, 

720 (E.D. Mich. 2002) (finding that certain “claims arising out of 

[an] occurrence are not ‘continuous, repeated, or interrelated’ as 

contemplated under the policy”); Nat’l Union Fire Ins. Co. of 

Pittsburgh, Pa. v. Ambassador Group, Inc., 691 F. Supp. 618, 623 

(E.D.N.Y. 1988) (finding that it was “not readily apparent” that 

the claims at issue arose out of “the same or interrelated acts” 

as provided in the policy); cf. Westport, 2009 WL 243096, at *6 

n.1 (noting that “[t]he term ‘interrelated,’ is more restrictive 

than the term ‘related’”). 
‐26‐ 

deductible, and withdrawals from the plans would be tax-fee; (5) 

Papalia concealed from the plaintiffs the truth regarding their 

plans’ tax status, and the likelihood that they would incur 

penalties; and (6) the plaintiffs were audited by the IRS, and 

were allegedly ordered to pay taxes, penalties and interest. 

Arch downplays these common allegations, asserting that the 

only commonality between the Villagra Action and the Jesta Action 

is that they both involve the sale of life insurance by a Columbus 

agent as part of retirement plans. Arch argues that the actions 

are not Related Claims because: (1) they arose from different 

clients of Papalia, who received advice from Papalia at different 

times and locations; (2) the plaintiffs in the Villagra Action and 

the Jesta Action sustained unique losses and pursued their claims 

separately; (3) the plaintiffs established separate plans based on 

life insurance policies; and (4) the plaintiffs alleged different 

types of misconduct, that is, the Villagras alleged faulty 

financial and tax advice, while the Jesta Rx Group alleged a scheme 

perpetrated by insurers and their agents.5

The Court finds that the Villagra Action and the Jesta Action 

are Related Claims, as that term is broadly defined in the Policy. 

The Villagra Action and Jesta Action arose out of series of 

                                                            

5 Arch also asserts that the plaintiffs in the Jesta Action and the 

Villagra Action “had varying investment goals and requirements, 

and sought the agent’s advice for their unique circumstances,” but 

cites no support for this proposition.
‐27‐ 

wrongful acts “that have as a common nexus of any fact, 

circumstance, situation, event, transaction, cause or series of 

causally connected facts, circumstances, situations, events, 

transactions or causes.” (DE #31-1 at 9.) Both actions arose out 

of Papalia’s alleged recommendation that the Villagras and the 

Jesta Rx Group create the same type of tax-advantaged plan funded 

by Columbus insurance policies. In both actions, Papalia allegedly 

misrepresented the tax advantages of the plans, and concealed the 

truth about the plans. Both actions allege that following 

Papalia’s recommendations resulted in IRS audits, unpaid taxes, 

penalties, early termination fees and other damages to the 

plaintiffs. 

Despite Arch’s objections, nothing in the language of the 

Policy requires that the source of the claims be identical in order 

to have “Related Claims.” Related Claims includes claims “made . 

. . by more than one claimant.” (DE #31-1 at 9.) The Policy does 

not require that different plaintiffs pursue their claims together 

in order to be deemed Related Claims. While the Villagra complaint 

and the Jesta petition assert different legal claims, these 

differences do not negate the common nexus between the two actions. 

See generally LaValley, 85 F. Supp. 2d at 747 (pointing out facts 

that somewhat or partially distinguish claims is a “fruitless 

exercise” where the policy does not require that the claims be 

identical); see also Wendt, 205 F.3d at 1264 (“The fact that these 
‐28‐ 

acts resulted in a number of different harms to different persons, 

who many have different types of causes of action against Hall do 

not render the ‘wrongful acts’ themselves to be ‘unrelated’ for 

the purposes of the insurance contract.”). 

Because the Villagra Action and the Jesta Action are Related 

Claims under the Policy, Columbus’s claim for coverage of the Jesta 

Action is considered first made on the date the Villagra Action 

was first made against Arch, during the 2011-12 policy period. 

Duty to Defend 

Columbus asserts that Arch had a duty to defend it in the 

Jesta Action because the Jesta petition includes allegations of 

vicarious liability against Columbus. In Ohio, an insurer’s duty 

to defend is broader than and distinct from its duty to indemnify. 

Ohio Govt. Risk Mgt. Plan v. Harrison, 874 N.E.2d 1155, 1159 (Ohio 

2007). “[W]hen all the claims are clearly and indisputably outside 

the contracted coverage,” an insurer need not defend any action or 

claims within the complaint. Id. at 1160. An insurer must defend 

an insured in an action when the allegations state a claim that 

“potentially or arguably” falls within the insurance coverage. 

Id. 

Columbus maintains that the allegations of its independent 

wrongdoing do not eliminate vicarious liability coverage under the 

Policy. The vicarious liability provision of the Policy states in 

relevant part: 
‐29‐ 

The Insurer shall pay on behalf the Sponsoring Company 

all Loss which the Sponsoring Company shall become 

legally obligated to pay because of a Claim . . . solely 

arising out of a Wrongful Act of an Insured . . . solely 

in the rendering or failing to render Professional 

Services. The Wrongful Act must be attributable solely 

to an Insured in the rendering or failing to render 

Professional Services and not due to any actual or 

alleged independent wrongdoing or bad faith of the 

Sponsoring Company. 

(DE #31-1 at 5 (emphasis added).) The defense and settlement 

provision of the Policy states in part that “[i]f a Claim made 

against the Sponsoring Company includes both covered and uncovered 

allegations, the Sponsoring Company and the Insurer agree to use 

their best efforts to agree upon a fair and proper allocation of 

the payment of Loss and Defense Costs for such Claim.” (Id. at 5-

6.) 

In response, Arch acknowledges that the Policy “undeniably 

require[s] allocation of Loss and Defense Costs ‘if’ a Claim 

against Columbus Life includes covered and uncovered allegations, 

which are those that arise from its own independent wrongdoing or 

bad faith.” (DE #35 at 14.) The Court agrees. Reading the 

vicarious liability provision and the defense and settlement 

provision together, the Policy clearly anticipates and accepts a 

duty to defend where a claim includes both covered and uncovered 

allegations. Owners Ins. Co. v. Barone, 832 F. Supp. 2d 804, 808 

(N.D. Ohio 2011) (courts “must give the terms of the contract their 

plain and natural meaning, and give meaning to every paragraph, 
‐30‐ 

clause, phrase, and word”) (citation and internal quotations 

omitted); cf. Lafayette Life Ins. Co., 784 F. Supp. 2d at 1042 

(allegations of independent wrongdoing do not preclude vicarious 

liability coverage under this policy) (Indiana law). Thus, the 

Jesta petition’s allegations of independent wrongdoing by Columbus 

do not preclude vicarious liability coverage under the Policy. 

The issue is whether the Jesta petition includes allegations of 

wrongdoing for which Columbus is vicariously liable. 

“Under Ohio law, the scope of the allegations in the complaint 

determines whether an insurance company has a duty to defend the 

insured.” Westfield Cos. v. O.K.L. CAN Line, 804 N.E.2d 45, 49 

(Ohio Ct. App. 2003) (citation omitted). “[W]here the insurer’s 

duty to defend is not apparent from the pleadings in the case 

against the insured, but the allegations do state a claim which is 

potentially or arguably within the policy coverage, or there is 

some doubt as to whether a theory of recovery within the policy 

coverage had been pleaded, the insurer must accept the defense of 

the claim.” City of Willoughby Hills v. Cincinnati Ins. Co., 459 

N.E.2d 555, 558 (Ohio 1984); see Harrison, 874 N.E.2d at 1160. 

Arch argues that the Jesta Action is not covered by the Policy 

because it does not assert a single allegation against Columbus 

based on vicarious liability. Rather, Arch insists that the Jesta 

Action seeks to hold Columbus directly liable. In support, Arch 

points to several allegations of Columbus’s independent 
‐31‐ 

wrongdoing, as well as allegations that the defendants “aided and 

abetted” each other, and were “cog[s] in the machine” designed to 

defraud the plaintiffs. (DE #31-8 at 19.) Columbus responds that 

while no count specifically asserts vicarious liability, the Jesta 

petition alleges misconduct that is attributed to Columbus through 

its agency relationship with Papalia. As the Supreme Court of 

Ohio has acknowledged, the “most common form of derivative or 

vicarious liability is that imposed by the law of agency.” Natl. 

Union Fire Ins. Co. of Pittsburgh, PA v. Wuerth, 913 N.E.2d 939, 

944 (Ohio 2009); see Currier v. Penn-Ohio Logistics, 931 N.E.2d 

129, 140 (Ohio Ct. App. 2010) (vicarious liability is “liability 

based entirely upon the relationship between the parties”). 

The Jesta petition alleges that Papalia acted as Columbus’s 

agent. (DE #31-8 at 18.) It further alleges that the defendants 

(including Columbus) “individually and/or through their agents” 

knowingly made false representations (id. at 60), and 

“individually and through their agents” negligently made false 

representations (id. at 63). The allegations that Columbus’s 

alleged misrepresentations were based, at least in part, on the 

conduct of its agent Papalia raise “some doubt” as to whether the 

claims against Columbus were based in part on vicarious liability. 

See Willoughby, 459 N.E.2d at 558. As such, Arch had a duty to 

defend Columbus in the Jesta Action. Arch breached that duty when 

it refused to defend Columbus in the Jesta Action. 
‐32‐ 

Defenses to Coverage 

Arch insists that even if it breached its duty to defend 

Columbus, it is entitled to contest coverage based on other 

limitations and exclusions in the Policy. Arch admits that under 

Ohio law, an insurer that denies defense coverage to an insured 

without a sufficient basis cannot thereafter assert that the 

insured breached a condition requiring consent to a reasonable 

settlement. The Supreme Court of Ohio has explained: 

[W]here an insurer unjustifiably refuses to defend an 

action, leaving the insureds to fend for themselves, the 

insureds are at liberty to make a reasonable settlement 

without prejudice to their rights under the contract. 

By abandoning the insureds to their own devices in 

resolving the suit, the insurer voluntarily forgoes the 

right to control the litigation and, consequently, will 

not be heard to complain concerning the resolution of 

the action in the absence of a showing of fraud, even if 

liability is conceded by the insureds as a part of 

settlement negotiations. 

Sanderson v. Ohio Edison Co., 635 N.E.2d 19, 24 (Ohio 1994); see

Travelers Ins. Co. v. Motorists Mut. Ins. Co., 178 N.E.2d 613, 618 

(Ohio Ct. App. 1961) (holding that an insurer’s breach of its duty 

to defend “raises a right in the insured to make reasonable 

settlement of the lawsuit”). 

Arch argues that even if it breached its duty to defend 

Columbus in the Jesta Action, it may assert other defenses to 

coverage. Ohio courts have not specifically addressed this issue. 

Arch cites several other jurisdictions for the proposition that an 

insurer is not precluded from contesting coverage because it 
‐33‐ 

breached its duty to defend. See Flannery v. Allstate Ins. Co., 

49 F. Supp. 2d 1223, 1229 (D. Col. 1999) (“an insurer is not 

precluded from contesting coverage when it has breached its 

obligation to defend its insured”); Spencer v. Assurance Co. of 

Am., 39 F.3d 1146, 1149 (11th Cir. 1994) (“liability of an insurer 

depends upon whether the insured’s claim is within the coverage of 

the policy . . . even when the insurer has unjustifiably failed to 

defend its insured in the underlying action”) (Florida law); 

Enserch Corp. v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1493 

(5th Cir. 1992) (“[a]n insurer that breaches its duty to defend . 

. . does not necessarily owe its insured complete indemnification 

for a settlement the insured reached on its own”) (Texas law); 

Alabama Hospital Ass’n Trust v. Mut. Assur. Society of Ala., 538 

So. 2d 1209, 1216 (Ala. 1989) (“failure of an insurer to defend a 

claim against an insured does not work an estoppel on the issue of 

coverage”). 

Columbus argues that Arch waived its defenses under the Policy 

by failing to defend the Jesta Action under a reservation of 

rights. In Ohio, an insurer “may defend [an insured] in good faith 

without waiving its right to assert at a later time the policy 

defenses it believes it has, provided that it gives its insured 

notice of any reservation of rights. . . . [T]he reservation of 

rights is obviously a sine qua non to avoiding a claim of estoppel 

or waiver.” Ins. Co. of N. Am. v. Travelers Ins. Co., 692 N.E.2d 
‐34‐ 

1028, 1035 (Ohio Ct. App. 1997). “[E]stoppel acts as a bar against 

an insurer who refuses to defend an insured when the insured has 

relied on the insurer’s conduct and was prejudiced in some material 

way.” GuideOne Mut. Ins. Co. v. Reno, No. 01-CA-68, 2002 WL 

857682, at *5 (Ohio Ct. App. Apr. 26, 2002). 

In Stoller v. Fidelity and Guaranty Insurance Underwriters, 

Inc., United States Fidelity and Guaranty Company (“USF&G”) had 

contracted to defend and indemnify an employer for negligence, but 

not for intentional torts. No. WD-87-64, 1988 WL 81809 (Ohio Ct. 

App. Aug. 5, 1988) (citations omitted). An employee filed a 

complaint alleging an intentional tort claim and a negligence claim 

against the employer. Id. at *1. USF&G denied coverage, and the 

employer and employee subsequently settled the underlying action. 

They then sued USF&G, and the trial court found that USF&G had 

breached its duty to defend the employer. Because the trial court 

was unable to determine whether the parties had allocated the 

settlement between the negligence claim and intentional tort 

claim, it held USF&G liable for 50% of the settlement. Id. at *5. 

On appeal, the Court of Appeals of Ohio explained that an 

insurer has the remedy of maintaining a declaratory action “for 

purposes of establishing its rights and obligations under a 

contract of insurance.” Id. at *4. An insurer may “adjudicat[e] 

its duty to defend and/or indemnify its insured in a tort action 

brought by a third party, even where the underlying tort complaint 
‐35‐ 

alleges conduct within the coverage of the contract of insurance.” 

Id. The court found that because USF&G “opted to simply deny 

coverage and refused to defend, in breach of its duty . . , [it] 

cannot now complain.” Id. The court explained that “[t]he Supreme 

Court of Ohio has ruled that an insurer who wrongfully disclaims 

and refuses to defend an insured does so at its own risk.” Id. at 

*6 (citing Aetna Cas. & Sur. Co. v. Buckeye Union Cas. Co., 105 

N.E.2d 568 (Ohio 1952)); see id. at *5 (quoting the court’s 

syllabus in Aetna, 105 N.E.2d at 568, for the proposition that 

where an insurer “wrongfully disclaims coverage and refuses to 

defend or participate in settlement of an action which is brought 

against the insured, such disclaimer is made at its peril”). The 

court held that, based on these circumstances, “absent fraud or 

bad faith, an insurer who wrongfully refuses to defend is liable 

for the full amount of any reasonable settlement reached by the 

insured even where one claim is within the policy and one claim is 

outside policy coverage.” Id. at *6. USF&G was ordered to pay 

the full amount of the settlement award. Id. at *7. 

Despite Columbus’s reliance on Stoller, Arch does not address 

or otherwise distinguish this case. The Stoller court’s 

admonishments of insurers who breach their duty to defend, coupled 

with its decision to hold the insurer liable for the settlement of 

a claim that was indisputably outside of the policy’s coverage, 

indicates that Ohio would not follow the jurisdictions cited by 
‐36‐ 

Arch, which allow an insurer to contest coverage after breaching 

its duty to defend. Rather, Stoller indicates that Ohio courts 

would hold that an insurer is estopped from denying coverage where 

it wrongfully disclaims coverage and refuses to defend or 

participate in the settlement of an action brought against an 

insured.6 Therefore, the Court finds that because Arch wrongfully 

breached its duty to defend Columbus in the Jesta Action, it is 

estopped from denying coverage under the Policy. 

Columbus also cites Stoller for the proposition that Arch is 

“on the hook for both covered and uncovered claims” because Arch 

wrongfully denied coverage of Columbus’s claim. (DE #41 at 10.) 

However, in Stoller, the court was unable to disaggregate the 

settlement between the covered and uncovered claims. In contrast, 

the settlement agreement in the Jesta Action parses the settlement 

amount between the two types of claims against Columbus. It 

explicitly provides that 90% of the settlement amount is solely to 

                                                            

6 The Court notes that other jurisdictions have found that an 

insurer that breaches its duty to defend may not deny insurance 

coverage. See, e.g., Nat’l Am. Ins. Co. v. Progressive Corp., 43 

F. Supp. 3d 873, 887 (N.D. Ill. 2014) (“[a]n insurer that violates 

its duty to defend is estopped from denying policy coverage in a 

subsequent lawsuit by the insured or the insured’s assignee”); In 

re Abrams & Abrams, P.A., 605 F.3d 238, 241 (4th Cir. 2010) (“if 

an insurer improperly refuses to defend a claim, it is estopped 

from denying coverage and must pay any reasonable settlement—even 

if it made an honest mistake in its denial”) (North Carolina law); 

Carney v. Vill. of Darien, 60 F.3d 1273, 1277 (7th Cir. 1995) 

(“[a]n insurer that breaches its duty to defend waives its right 

to later challenge coverage”) (Wisconsin law). 
‐37‐ 

resolve the Jesta Rx Group’s claims based on Columbus’s purported 

vicarious liability for the alleged acts and omissions of Papalia, 

and the remaining 10% is to resolve the claims based on the alleged 

independent wrongdoing by Columbus. (DE #31-11 at 6.) See Bank 

One, N.A. v. Echo Acceptance Corp., 522 F. Supp. 2d 959, 979-80 

(S.D. Ohio 2007) (declining to apply Stoller to find an indemnitor 

liable for a full settlement where the trial court could 

disaggregate covered claims from claims for which there was no 

duty to indemnify). Moreover, Ohio courts require that a 

settlement be “reasonable.” Sanderson, 635 N.E.2d at 24; 

Travelers, 178 N.E.2d at 618-19 (noting a reasonable settlement is 

one which prudence and caution might dictate to be advisable, made 

in good faith, and not excessive in amount). The parties do not 

address the reasonableness of Columbus’s settlement of the Jesta 

Action in any detail. Rather, Arch merely notes that the 

reasonableness of the settlement “is a topic for further 

litigation.” (DE #44 at 14; see also DE #35 at 16 n.3.) As such, 

the Court will not address this issue here. 

Attorneys’ Fees 

Columbus asserts that because Arch breached its duty to 

defend, Columbus is entitled to attorneys’ fees in defending the 

Jesta Action. Allen v. Standard Oil Co., 443 N.E.2d 497, 500 (Ohio 

1982). It also seeks an award of its attorneys’ fees in litigating 
‐38‐ 

the instant action against Arch. Columbus asserts that it is 

entitled to attorneys’ fees without proof of Arch’s bad faith. 

Arch acknowledges that Columbus may gain its reasonable 

defense costs incurred in the Jesta Action. (DE #44 at 15.) It 

contractually accepted the duty to defend Columbus against thirdparty lawsuits to which coverage potentially applied. By failing 

to defend Columbus in the Jesta Action, Arch breached its duty 

under the Policy. Thus, Columbus is entitled to an award of 

attorneys’ fees incurred in defending the Jesta Action. Westfield, 

804 N.E.2d at 54 (affirming award of legal fees for an underlying 

action where the insurer “contractually accepted the duty to defend 

[the insured] against third-party lawsuits to which coverage 

potentially applied”). 

Turning to Columbus’s attorneys’ fees incurred in the instant 

action, Columbus is only entitled to an award of such fees if Arch 

“acted in bad faith, vexatiously, wantonly, obdurately, or for 

oppressive reasons.” Id. at 56. Ohio courts have awarded 

attorneys’ fees where the insurer “‘vexatiously’ refused to pay a 

loss,” and engaged in other “obdurate” behavior, such as a 

“stubborn propensity for needless litigation.” Id. Columbus 

argues that Arch acted vexatiously and obdurately by denying 

coverage on a basis that this Court previously rejected under the 

same policy, and by taking opposing coverage positions regarding 

the Policy’s “Related Claims” provision in order to deny coverage. 
‐39‐ 

See Lafayette Life, 784 F. Supp. 2d at 1041-42. Arch maintains 

that Columbus is not entitled to its attorneys’ fees in this action 

because when Arch refused to defend Columbus in the Jesta Action, 

Arch offered to reconsider its position if Columbus disagreed or 

possessed additional information. Columbus did not respond to 

Arch’s offer; instead, it filed the instant action. The Court 

finds that that parties raise genuine issues of material fact as 

to whether Arch’s conduct was obdurate or vexatious, such that it 

warrants an award of attorneys’ fees incurred in litigating the 

instant action. 

Arch’s Counterclaim against Columbus 

 Columbus moves for summary judgment on Arch’s counterclaim 

for declaratory judgment, which includes six counts. Count I 

asserts that Columbus is not entitled to coverage under the Policy 

because the Jesta petition does not allege that Columbus is 

vicariously liable for an insured’s wrongdoing. As explained 

above, because there is “some doubt” as to whether the claims 

against Columbus in the Jesta petition were based in part on 

vicarious liability, Arch had a duty to defend Columbus in the 

Jesta Action. Count II asserts that Columbus is not entitled to 

coverage under the Policy because it failed to provide Arch with 

adequate notice of the claim, and because the Villagra Action and 

Jesta Action are not “Related Claims.” As explained above, the 

Court finds that the Jesta Action and the Villagra Action are 
‐40‐ 

Related Claims under the Policy. Counts III, IV, V, and VI assert 

that Columbus is not entitled to coverage under the Policy based 

on the definition of Loss and various policy exclusions. As 

explained above, the Court finds that Arch is estopped from 

asserting defenses to coverage because it breached its duty to 

defend. For these reasons, Arch’s counterclaim is DISMISSED. 

CONCLUSION 

 For the reasons set forth above, Columbus’s Motion for Partial 

Summary Judgment (DE #29) is GRANTED IN PART AND DENIED IN PART. 

Arch’s Motion for Summary Judgment (DE #34) is DENIED, and its 

Request for Hearing on its Motion for Summary Judgment (DE #37) is 

DENIED. Arch’s Counterclaim (DE #27) is DISMISSED. Further 

proceedings will involve the following remaining issues: (1) the 

reasonableness of the settlement in the Jesta Action; (2) issues 

of fact regarding Columbus’s claim for attorneys’ fees in 

litigating the instant action; (3) Columbus’s claim of bad faith; 

and (4) the amount of Columbus’s damages. 

DATED: May 17, 2016 /s/ RUDY LOZANO, Judge 

 United States District Court