Opinion ID: 2810496
Heading Depth: 3
Heading Rank: 1

Heading: Exclusion 4(g)

Text: Exclusion 4(g) provides: The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured: .... (g) alleging, arising out of, based upon or attributable to any actual or alleged act or omission of an Individual Insured serving in any capacity, other than as Executive or Employee of a Company, or as an Outside Entity Executive of an Outside Entity. [R. 52-1, at 25–26 (emphasis omitted).] The district court concluded that this provision excluded TLC’s claim for coverage and advancement of defense costs. The court ruled that the genesis of the allegations in the state-court complaint and 17 Case: 14-12723 Date Filed: 06/22/2015 Page: 18 of 42 in the TLC counterclaim arose out of alleged wrongdoing by Johnny and Harley Langdale as the Virginia Miller Trust’s trustees, rather than as TLC’s directors or officers. TLC argues that the district court erred by interpreting Exclusion 4(g) to apply to allegations of corporate, rather than merely individual, wrongdoing; reading “Claim” too broadly; and misapplying Exclusion 4(g)’s “arising out of” language.
TLC contends that Exclusion 4(g) applies only to claims against a company’s individual directors or officers, not to claims against the company itself. Coverage A provides “Individual Insured Insurance” and Coverage B provides “Private Company Insurance.” [R. 52-1, at 20.] Coverage B is divided into B(i), providing coverage for claims “made against the Company,” and (B)(ii), for claims “made against an Individual Insured.” [Id.] TLC asserts that Exclusion 4(g) applies only to claims made under Coverage A or Coverage B(ii), but not under Coverage B(i). TLC argues that “Exclusion 4(g) has no field of operation as to TLC when allegations are made directly against TLC” because it could be “potentially liable only if its” executives or employees “were acting in their capacity as such.” Aplt. Br. at 26. TLC argues that because it indemnified Johnny Langdale in the suit the Trust beneficiaries filed against him, and because TLC was itself sued in the counterclaim the beneficiaries filed, the defense costs it incurred 18 Case: 14-12723 Date Filed: 06/22/2015 Page: 19 of 42 were to defend against allegations that it—not just Johnny Langdale—committed wrongful acts. TLC contends that Exclusion 4(g), which applies only to allegations of wrongdoing by individual directors or officers such as Johnny and Harley Langdale, simply does not apply. We disagree. Exclusion 4(g) does not distinguish between claims that fall under Coverage A or under Coverage B. Nor does it distinguish between claims under the two Coverage B subparts. Exclusion 4(g) excludes coverage for “any Claim” made against “an Insured,” such as TLC, arising out of the alleged wrongdoing by “an Individual Insured,” such as Johnny or Harley Langdale, committed in any capacity other than as a director or officer. The policy does not state that Exclusion 4(g) applies only to coverage for individuals under Coverage A, only to claims against the insured Company under Coverage B(i), or only to claims against an Individual Insured under Coverage B(ii). By contrast, a separate exclusion, Exclusion 4(t), is expressly limited to “Coverage B(i) only.” [R. 52-1, at 29.] A “reasonable person in [TLC’s] position would [not] understand” that the policy limited Exclusion 4(g) to specific coverage categories. See Am. Strategic Ins. Corp. v. Helm, 759 S.E.2d 563, 566 (Ga. Ct. App. 2014). And, in any event, TLC based its claim for defense costs under the policy on the state-court complaint allegations that Johnny Langdale had committed wrongful acts as a trustee of the Virginia Langdale Miller Trust and as a TLC 19 Case: 14-12723 Date Filed: 06/22/2015 Page: 20 of 42 officer and director. Exclusion 4(g) excludes coverage for the claims against Johnny and Harley Langdale based on the acts they allegedly committed in capacities other than as TLC officers or directors. Exclusion 4(g) also applies to exclude coverage for claims against TLC itself, so long as those claims arise out of the alleged acts Johnny and Harley Langdale committed as trustees of the Virginia Miller Langdale Trust. 2. The Argument that Each Cause of Action is a “Claim” TLC argues that the district court interpreted the term “Claim” too broadly by treating the claims in the consolidated underlying litigation as a single “Claim.” See Aplt. Br. at 29 (arguing that it is “nonsensical for an entire lawsuit to constitute a single claim when applying a claims-made policy”). TLC argues that the policy language and Georgia law required the court to treat each cause of action as a separate “Claim” for the purpose of Exclusion 4(g). According to TLC, because National Union had the duty to defend at least one claim alleged in the complaint or counterclaim, it had the “duty to defend all the claims asserted.” See HDIGerling Am. Ins. v. Morrison Homes, Inc., 701 F.3d 662, 666 (11th Cir. 2012). TLC contends that the district court’s overly broad approach to claims led it to ask whether the litigation as a whole arose out of allegations that Johnny and Harley Langdale committed wrongful acts as trustees rather than as TLC officers or directors. TLC argues that this is the wrong question and that the right question is 20 Case: 14-12723 Date Filed: 06/22/2015 Page: 21 of 42 whether the specific claims the Trust beneficiaries asserted against TLC arose out of TLC’s own alleged wrongful acts or only out of Johnny and Harley Langdale’s alleged wrongful acts as TLC officers or directors as well as trustees of the Trust. The policy defines “Claim” as: (i) “a written demand for monetary or nonmonetary relief (including any request to toll or waive any statute of limitations); (ii) “a civil . . . proceeding for monetary . . . relief which is commenced by . . . service of a complaint or similar pleading”; or (iii) “a civil, criminal, administrative or regulatory investigation of an Individual Insured.” [R. 52-1, at 21 (emphasis omitted).]7 The policy language provides some support for both parties’ arguments, but we need not resolve this question. Even accepting TLC’s narrower interpretation of “Claim,” the district court did not err in holding that Exclusion 4(g) precluded coverage. See Miller v. Harget, 458 F.3d 1251, 1256 (11th Cir. 2006) (“We may affirm the [d]istrict [c]ourt on any basis supported by the record.”). As discussed below, even if each cause of action is treated as a separate “Claim” for the purpose of applying Exclusion 4(g), both Count III of the state-court complaint and Count V of the counterclaim “arose out of” allegations that Johnny and Harley Langdale committed wrongful acts as trustees of the Trust. 3. The Argument that the Causes of Action for Officer or Director Misconduct Did Not “Arise Out Of” Johnny and Harley Langdale’s Alleged Wrongful Acts as Trustees 7 The term also “include[s] any Securities Claim and any Derivative Demand.” [R. 52-1, at 21.] 21 Case: 14-12723 Date Filed: 06/22/2015 Page: 22 of 42 “When the phrase ‘arising out of’ is found in an exclusionary clause of an insurance policy, [Georgia courts] apply the ‘but for’ test traditionally used to determine cause-in-fact for tort liability.” Hays, 722 S.E.2d at 927 (quoting Barrett v. Nat. Union Fire Ins. Co., etc., 696 S.E.2d 326, 331–32 (Ga. Ct. App. 2010)). “[T]he exclusionary clause is focused solely upon the genesis of the underlying plaintiff’s claims—if those claims arose out of the excluded acts . . . then coverage need not be provided. Claims arise out of [t]he excluded conduct when ‘but for’ that conduct, there could be no claim against the insured.” Id. (internal quotation marks omitted). A “claim does not ‘arise out of’ a circumstance if, independent of that circumstance, the claim could still exist.” USMoney Source, Inc. v. Am. Int’l Specialty Lines Ins. Co., 288 F. App’x 558, 560 (11th Cir. 2008) (internal quotation marks omitted). Count III of the state-court complaint sought damages for Johnny and Harley Langdale’s breaches of the fiduciary duties they owed as TLC directors to TLC’s minority shareholders, the Trust beneficiaries. Count III alleged that Johnny and Harley Langdale “had documents created and caused the execution of agreements that granted Harley [Langdale] the right to purchase TLC stock both from the Trust itself and from the beneficiaries individually” and “induced the beneficiaries to grant those rights.” [R. 77-52, at 73–74.] Count III alleged that Johnny and Harley Langdale “were personally enriched” by TLC’s 1999 and 2000 redemption of the 22 Case: 14-12723 Date Filed: 06/22/2015 Page: 23 of 42 beneficiaries’ shares that had been held in the Trust, and that they “failed to deal fairly with the beneficiaries” by “fail[ing] to disclose” and “deliberately conceal[ing] critical information.” [Id. at 74.] Count V of the counterclaim sought to hold TLC vicariously liable “for its officers’ misconduct.” [R. 77-53, at 91.] Like Count III of the complaint, Count V of the counterclaim alleged that Harley and Johnny Langdale, and Johnny’s father, John Sr., breached the fiduciary duties they owed as TLC directors and officers to the Trust beneficiaries by engaging in self-dealing; and by failing to disclose material information to, and by deliberately concealing critical information from, the beneficiaries, relating to TLC’s adoption of the Shareholders’ Agreement and the Redemption Agreement, and to the redemption transaction itself. Both the self-dealing and the misrepresentation causes of action arose out of Johnny and Harley Langdale’s alleged breaches of their duties as trustees. The state-court complaint and the counterclaim alleged that, beginning in the early to mid-1990s, “[t]he Trustees and TLC embarked on a scheme . . . to make the Trustees’ control over TLC permanent, to have TLC redeem the Trust’s stock, and to do so at an absurdly low price.” [R. 77-53, at 37.] The alleged scheme included: (1) causing TLC to adopt a Shareholders’ Agreement to enable the company to redeem the Trust’s stock at a favorable price before the Trust beneficiaries could sell their stock to third parties; (2) misrepresenting the Trust’s 23 Case: 14-12723 Date Filed: 06/22/2015 Page: 24 of 42 termination date to convince the beneficiaries to sell by 1999 to avoid potentially devastating estate and tax consequences; (3) telling the beneficiaries that Johnny and Harley Langdale would not take any action as TLC directors to increase the dividends or liquidity of TLC stock; (4) telling the beneficiaries that there was no market for their TLC stock because it represented only a minority interest; (5) hiding the redemption of the beneficiaries’ stock from the co-directors, Billy and Robert Langdale, so that they could not tell the beneficiaries truthful information before the plan was executed; and (6) terminating the Shareholders’ Agreement after the stock was redeemed so that Johnny Langdale could purchase Harley Langdale’s voting stock “without having to first offer that stock to TLC or other shareholders.” [R. 77-53, at 38–39; see also R. 77-52, at 31–32, 41–42.] According to the counterclaim, “[e]ach of these acts were part and parcel of the Trustees’ fraudulent scheme to obtain 2/3 control of TLC by . . . redeeming the stock at an absurdly low price, in which scheme TLC was fully complicit.” [R. 7753, at 39.] The counterclaim alleged that “[t]he Trustees and TLC were complicit in the scheme to breach the Trustee’s [sic] duties to the beneficiaries by procuring adoption of the ‘Shareholders’ Agreement.’” [R. 77-53, at 51.] The counterclaim alleged that Johnny and Harley Langdale “did not inform Virginia and her surviving children that they had initiated adoption of the ‘Shareholders’ Agreement,’” which Johnny and Harley “signed [as trustees] . . . on the 24 Case: 14-12723 Date Filed: 06/22/2015 Page: 25 of 42 beneficiaries’ behalf.” [R. 77-52, at 37.] Nor did Johnny and Harley Langdale inform their co-directors, Billy and Robert Langdale, “about the purpose of the ‘Shareholders’ Agreement’ or their plans to use it and then terminate it.” [R. 7752, at 37.] The counterclaim also alleged that Johnny and Harley Langdale’s misrepresentation to the Trust’s beneficiaries that “the Trust terminated in 1999, with the attendant estate tax consequences to Virginia, was the very premise on which the sale of the Trust’s stock to TLC was based.” [R. 77-53, at 47.] “Without the misrepresentation about termination in 1999,” the counterclaim alleged, “the beneficiaries would not have consented to the sale of the stock, thus thwarting the Trustees’ scheme to cheat the beneficiaries and gain total control of TLC.” [Id.] The counterclaim allegations include statements that Johnny and Harley Langdale acted in their capacities as TLC officers and directors in carrying out the scheme that resulted in the Trust beneficiaries selling their TLC stock to the company at the redemption price. But the pleadings make it clear that Johnny and Harley Langdale’s alleged misconduct as officers and directors necessarily arose out of their alleged breaches of the fiduciary duties they owed as trustees to the Trust beneficiaries. The underlying litigation pleadings confirm that the allegations against the Langdales in their capacities as TLC officers and directors 25 Case: 14-12723 Date Filed: 06/22/2015 Page: 26 of 42 arose out of actions they took in their capacities as trustees. Both the state-court complaint and the counterclaim alleged that “[e]very action undertaken by the Trustees or any of them with respect to the Trust or which affected the Trust or the Trust’s stock in TLC or the interests of the beneficiaries was necessarily a matter connected to the Trustees’ role as a trustee [sic], which invoked the Trustee’s [sic] fiduciary duty.” [R. 77-53, at 68; see also R. 77-52, at 56.] The underlying litigation allegations describe TLC’s financing of the transaction redeeming the Trust beneficiaries’ TLC stock. Count III of the statecourt complaint alleged that “[b]uying the Trust’s stock themselves would cost [Johnny and Harley Langdale] money. But if TLC redeemed the Trust’s stock, then [Johnny and Harley Langdale] would have permanent control over TLC because they would control two-thirds of the outstanding voting stock, at no cost” to themselves. [R. 77-52, at 30.] “Every dollar saved by TLC in purchasing the trust’s stock—and every dollar denied to the beneficiaries—redounded to Johnny[] and Harley [Langdale’s] own individual benefit, because each of them had a onethird interest in that dollar saved.” [R. 77-52, at 34.] Count V of the Trust beneficiaries’ counterclaim against TLC alleged that it was vicariously liable for Johnny and Harley Langdale’s misconduct as TLC officers and directors. The allegations against TLC in Count III of the beneficiaries’ state-court complaint and Count V of the counterclaim meet the but-for test. See Hays, 722 26 Case: 14-12723 Date Filed: 06/22/2015 Page: 27 of 42 S.E.2d at 927 (“Claims arise out of [t]he excluded conduct when ‘but for’ that conduct, there could be no claim against the insured.” (internal quotation marks omitted)). The allegations are of acts and omissions that would not have occurred had Johnny and Harley Langdale not breached their duties as trustees by using the redemption mechanism to consolidate control over TLC without having to purchase the Trust beneficiaries’ TLC shares themselves. The allegations of officer and director misconduct arose out of the allegations of misconduct as trustees of the Virginia Miller Trust. TLC contends that the causes of action against TLC for Johnny and Harley Langdale’s acts that allegedly breached the duties they owed not as trustees but as officers or directors could have existed independently from the beneficiaries’ causes of action against Johnny and Harley Langdale for breaching the duties they owed as trustees of the Virginia Miller Trust. We agree that “a claim does not ‘arise out of’ a circumstance if, independent of that circumstance, the claim could still exist.” USMoney, 288 F. App’x at 560 (internal quotation marks omitted). But we do not agree that the beneficiaries’ claims against TLC could have existed independent of their claims against Johnny and Harley Langdale as trustees. Because the causes of action alleged against TLC could not have existed in the absence of the claims that Johnny and Harley Langdale committed wrongful acts in the uninsured capacity as trustees, Exclusion 4(g) applies. 27 Case: 14-12723 Date Filed: 06/22/2015 Page: 28 of 42 The allegations of TLC’s liability for its officers’ and directors’ misconduct asserted against TLC in Count III of the state-court complaint and in Count V of the counterclaim arise from, and necessarily rely on, the allegations that Johnny and Harley Langdale conspired as trustees to manipulate the Trust’s beneficiaries into selling their shares back to TLC at an unfairly low price, enabling Johnny and Harley Langdale to consolidate their control over TLC at no personal financial cost. The allegations that TLC is vicariously liable because Johnny and Harley Langdale breached their duties as TLC officers and directors could not have existed independent of the allegations that Johnny and Harley Langdale breached their fiduciary duties as trustees of the Virginia Miller Trust. Continental Cas. Co. v. H.S.I. Fin. Servs., Inc., 466 S.E.2d 4 (Ga. 1996), is instructive. The insurer, Continental Casualty, had issued a professional liability policy to a law firm and its three named partners, Page, Sevy, and Henderson. See id. at 5. The policy excluded coverage for “[a]ny claim arising out of any dishonest, fraudulent, criminal, or malicious act by [an insured] or any of [an insured’s] partners, officers, stockholders, or employees.” Id. (alterations in original). HSI Financial Services, a client, sued the firm and the named partners, alleging that “Page had improperly withdrawn funds from HSI’s escrow account for his personal use” and that his partners, Sevy and Henderson, had negligently “failed to supervise and ensure the proper accounting of HSI’s escrowed funds.” 28 Case: 14-12723 Date Filed: 06/22/2015 Page: 29 of 42 Id. The law firm and partners presented the claim to Continental Casualty, which sued for a declaratory judgment that it was not obligated to provide a defense against HSI’s claims. Continental Casualty invoked the “dishonest, fraudulent, criminal, or malicious act” policy exclusion. See id. at 6. The federal district court ruled in the law firm’s favor, applying Georgia law. On appeal, the Eleventh Circuit “noted that Page’s theft of the funds clearly [fell] within the exclusionary clause,” but certified the following question to the Georgia Supreme Court about the claims against the other two partners: “Does a claim for a law partner’s negligence with respect to supervising and mitigating a fellow partner’s criminal act ‘arise out of’ ‘any dishonest, fraudulent, criminal or malicious act’ within the meaning of this insurance policy exclusion?” Id. The Georgia Supreme Court answered the certified question in the affirmative and explained why: First, as noted above, there is no doubt that Page’s theft of the escrowed funds fell within the exclusion relating to “dishonest, fraudulent, criminal and malicious act[s].” Second, it is clear that HSI’s claim against Sevy and Henderson “arose out of” Page’s actions, because but for Page’s actions, there could be no claim against Sevy and Henderson. Sevy and Henderson argue that because HSI’s claims against them are based upon allegations that they negligently failed properly to supervise HSI’s accounts, the claims merely assert independent and concurrent causes of HSI’s loss, for which coverage must be provided. However, this argument misses the mark, because the exclusionary clause is not at all concerned with whether ancillary acts of less culpable partners may have contributed to the loss which HSI suffered as a result of Page’s actions. Rather, by its express terms, the exclusionary clause is focused solely upon 29 Case: 14-12723 Date Filed: 06/22/2015 Page: 30 of 42 the genesis of HSI’s claims—if those claims arose out of Page’s culpable conduct, as they did, then coverage need not be provided. Consequently, the fact that Sevy and Henderson may have negligently allowed Page to perpetuate his theft of HSI’s funds does not negate the plain effect of the policy’s exclusionary clause. Id. at 6 (emphasis in original). Just as the negligence claims against Page’s law partners in Continental Casualty arose out of Page’s excluded conduct, the misconduct claims against TLC based on Johnny and Harley Langdale’s alleged officer or director misconduct “arose out of [their] culpable conduct” as trustees. See id. The breach of their duties as trustees was the genesis of the claims against TLC for the breach of their duties as officers and directors. The claims against TLC arose out of Johnny and Harley Langdale’s allegedly culpable conduct as trustees, and could not have existed without that alleged wrongdoing. The allegations that TLC’s acts or omissions contributed to allowing Johnny and Harley Langdale to obtain control of TLC without personal cost, breaching their duties as trustees, does not negate the application of the exclusion. As in Continental Casualty, the focus is on the genesis of the underlying plaintiffs’ claims. See id. The beneficiaries’ allegations that Johnny and Harley Langdale’s acts as TLC directors and officers “may have [] allowed” them to more easily “perpetuate” their scheme to control TLC by arranging for TLC to purchase the 30 Case: 14-12723 Date Filed: 06/22/2015 Page: 31 of 42 beneficiaries’ stock “do[] not negate the plain effect of the policy’s exclusionary clause.” See id. TLC points to three cases in which courts rejected the insurer’s argument that an “arising out of” exclusion barred coverage: Cotton States Mut. Ins. Co. v. Crosby, 260 S.E.2d 860 (Ga. 1979); Fireman’s Fund Ins. Co. v. Univ. of Ga. Athletic Assoc., Inc., 654 S.E.2d 207 (Ga. Ct. Ap. 2007); and USMoney, 288 F. App’x 558 (11th Cir. 2008). Each case is distinguishable. In those cases, the nexus between the uninsured acts and the insured acts was more attenuated than in this case. None of those cases involved allegations, similar to the allegations in this case, of dual-capacity misconduct committed by the same actors. In Cotton States, the Georgia Supreme Court considered whether a policy provision excluding losses arising from “bodily injury” precluded a rape victim’s claims against school officials for negligently failing to safeguard the school premises and for unlawfully detaining her after she was raped. 260 S.E.2d at 861. The court concluded that the negligence claims arose out of bodily injury and were excluded from coverage, but the unlawful-detention claim did not arise out of the alleged bodily injury and was not subject to the exclusion. Id. at 861–63. The complaint in the underlying litigation did not allege that the school officials committed the act—rape—that caused the bodily injury. The exclusion applied to the allegations that the school officials’ acts facilitated or failed to prevent the rape. 31 Case: 14-12723 Date Filed: 06/22/2015 Page: 32 of 42 The exclusion did not apply to allegations that the school officials committed separate wrongs that did not depend on or arise from the rape. In contrast, the beneficiaries’ pleadings in the underlying litigation alleged that the same individuals who breached their duties as trustees—Johnny and Harley Langdale— also breached their duties as TLC officers and directors to obtain personal benefits at the Trust’s and beneficiaries’ expense. In Fireman’s Fund, a college football player informed the school’s assistant athletic director that he wanted to get school-sponsored disability insurance. 654 S.E.2d at 211. The assistant athletic director solicited quotes and took other steps to obtain that insurance, but he had not yet obtained the insurance a few days later, when the athlete was paralyzed in a football game. The athlete sued the assistant athletic director and the school’s athletic association for breach of fiduciary duties, breach of contract, and negligence in failing to have the disability insurance in place. The school’s insurer asserted a policy exclusion barring claims “arising out of, in consequence of or in any way related to [b]odily [i]njury.” Id. The Georgia Court of Appeals held that the bodily-injury exclusion did not apply. The court concluded that the claims against the school officials for failing to obtain the insurance before the athlete played arose out of the allegations that the athlete had to “face[] the hazards inherent in playing the game of football without the protection that would have been afforded by the disability insurance he requested,” 32 Case: 14-12723 Date Filed: 06/22/2015 Page: 33 of 42 not out of his subsequent bodily injury. Id. at 214. The defendants’ “actionable breaches of fiduciary or contractual duties, and/or duty of ordinary care were complete” before the athlete was hurt. Id. As a result, “[n]o conduct of the insureds [was] causally related to [the athlete’s] bodily injury.” Id. The “nexus” between the injury and the claims was “too attenuated to bring his claims within the ambit of the bodily injury exclusion.” Id. at 213–14. Here, by contrast, Johnny and Harley Langdale’s alleged breaches of their duties as trustees started before, and continued throughout, the period when they allegedly breached their duties as TLC officers and directors. The breaches of the duties they owed as trustees of the Trust allegedly caused or created the harm to the beneficiaries—the sale of their stock at a below-market price. Fireman’s Fund was “not a case in which the plaintiff claim[ed] that the insured’s wrongful conduct caused or created the conditions giving rise to bodily injury to the plaintiff.” Id. In this case, by contrast, the allegations in the underlying litigation are that Johnny and Harley Langdale’s wrongful conduct as trustees “caused or created the conditions giving rise to” the harm to the beneficiaries, facilitated by the Langdales’ wrongful acts as TLC directors or officers that are the basis for the direct and vicarious liability claims against TLC. See id. In the third case TLC cites, USMoney, 288 F. App’x 558, TierOne Bank had advanced loans to the insured, USMoney, under a line of credit agreement. 33 Case: 14-12723 Date Filed: 06/22/2015 Page: 34 of 42 USMoney used the loans to originate residential mortgages for sale on the open market. Id. at 559. When USMoney failed to repay the loans, TierOne sued, “in part because the loans were not secured by a valid and enforceable first lien on each of the subject properties.” Id. TierOne obtained a money judgment for USMoney’s breach of the line-of-credit agreement, negligently submitting the funding requests, and negligently including misrepresentations in the funding requests. Id. USMoney sought indemnification from its insurer, American, which invoked an exclusion barring claims “arising out of any defective deed or title.” Id. at 560. USMoney argued that, regardless of the lien status, TierOne still “would [] have had valid claims against [USMoney] based upon its negligence and breach of contract in submitting forged appraisals and fraudulent insured closing letters.” Id. at 561 (internal quotation marks omitted). USMoney asserted that “TierOne’s damages resulted as much from the forged appraisals and lack of closing insurance as they did from the lack of valid title, because forged appraisals and lack of closing insurance renders the mortgages unmarketable.” Id. The insurer responded that “the fraudulent closing letter and forged appraisal would not have been necessary if USMoney had valid title to the property, because the borrowers could have obtained a legitimate appraisal and a legitimate closing letter.” Id. at 561–62 (internal quotation marks omitted). 34 Case: 14-12723 Date Filed: 06/22/2015 Page: 35 of 42 The Eleventh Circuit, applying Georgia law, found that “both parties [were] partially correct.” Id. at 562. The court held that American was “under a duty to indemnify USMoney against two of TierOne’s claims—breach of contract and negligent misrepresentation.” Id. The court reached this conclusion “because the excluded circumstance—defective title—was not necessary to [these claims]”: [A]lthough . . . USMoney breached the Line of Credit Agreement in part because it failed to ensure TierOne had a valid first lien on the real estate for which the loans at issue were made[,] . . . USMoney [also] breached the Agreement by submitt[ing] funding requests to TierOne with representations and covenants containing false and inaccurate information. Examples of false information submitted by USMoney include the names and licensures of various closing companies or their agents. Because USMoney breached the Agreement in ways unrelated to defective title, the breach of contract claim does not “arise out of” the exclusion. .... Similarly, although the court found that USMoney negligently represented that the loans . . . were secured by valid first liens on the real estate, it went on to list further negligent representations by USMoney. USMoney could have made these negligent representations even with good title, and therefore, this claim does not “arise out of” defective title. Id. at 562 (internal quotation marks, ellipses, and citations omitted) (emphasis added). Because TierOne “could have maintained” its claims for breach of contract and negligent misrepresentation “against USMoney even if USMoney had obtained valid first liens securing the loans,” the court held that neither “arose out” of the defective title. Id. 35 Case: 14-12723 Date Filed: 06/22/2015 Page: 36 of 42 Here, unlike the breach-of-contract and negligent-misrepresentation claims in USMoney, Count III of the beneficiaries’ state-court complaint and Count V of the counterclaim did not allege that TLC’s directors committed wrongful acts “in ways unrelated” to Johnny and Harley Langdale’s wrongdoing as trustees. The allegations could not have been made if Johnny and Harley Langdale had not approved the Shareholders’ Agreement on the Trust beneficiaries’ behalf, misinformed the beneficiaries about the Trust’s termination date, or misrepresented the value of the Trust’s TLC stock. The claims in the underlying litigation against TLC for corporate wrongdoing necessarily included claims that Johnny and Harley Langdale breached the duties they owed as trustees to the Virginia Miller Trust beneficiaries, who were also the company’s minority shareholders. The allegedly wrongful acts committed by TLC and by TLC directors would not have occurred but for Johnny and Harley Langdale’s alleged wrongful acts as trustees. TLC contends that because Johnny and Harley Langdale were TLC directors and officers when they perpetrated the scheme to obtain control of TLC by causing TLC to purchase the beneficiaries’ shares at an unfairly low price, they necessarily acted in a capacity within the D&O coverage. But although Johnny and Harley Langdale were TLC directors during this period, their wrongful acts as TLC directors arose out of their wrongful acts as trustees of the Trust. For example, the underlying litigation pleadings allege that before breaching their duties to TLC as 36 Case: 14-12723 Date Filed: 06/22/2015 Page: 37 of 42 directors, and before causing TLC to approve the Redemption Agreement, they breached their duties as trustees by signing the Shareholders’ Agreement on the Trust beneficiaries’ behalf; misinforming the Trust beneficiaries about the Trust’s termination date; and misrepresenting the value of the Trust’s TLC shares. But for these alleged wrongful acts, Johnny and Harley Langdale would not have been able to breach their duties as TLC directors and officers, or cause TLC to commit allegedly wrongful acts, by approving the Redemption Agreement and executing the transaction without their co-directors’ or the minority shareholders’ approval. To the extent that Johnny and Harley Langdale were allegedly acting as directors and officers, that misconduct was so inextricably entwined with their alleged misconduct as trustees that the duty to advance defense costs was not triggered. See Cont’l Cas. Co. v. Adams, No. 3:CV02-1122, 2003 WL 22162379, at  (M.D. Pa. Sept. 12, 2003) (applying a similar policy exclusion because “the allegations . . . in the Underlying Action plainly show[ed] Adams and Leighton acting simultaneously in dual capacities: as officers and directors of both the insured and the uninsured corporations” and “[t]heir alleged negligent supervision of Sabol applie[d] both in their capacities as officers and directors of HSC, as well as in their capacities as officers and directors of HSCM”); Coregis Ins. Co. v. Bartos, Broughal & DeVito, LLP, 37 F. Supp. 2d 391, 394 & n.4 (E.D. Pa. 1999) (holding that a similar exclusion precluded coverage for an insured’s employee 37 Case: 14-12723 Date Filed: 06/22/2015 Page: 38 of 42 who “was an officer, director and shareholder of . . . a business enterprise other than the named insured” and who “solicited investors” on behalf of that noninsured business enterprise); cf. McAninch v. Wintermute, 491 F.3d 759, 772 (8th Cir. 2007) (holding that “an insurer may not avoid its duty to indemnify for alleged wrongful conduct merely by arguing the director was also an owner, shareholder, etc., without some explanation as to how this dual capacity relates to or facilitated the wrongful conduct alleged” (emphasis added)). TLC argues that Johnny Langdale’s actions as trustee could not have been the but-for cause of the Redemption Agreement and transaction because he was no longer a trustee when the Agreement was signed and the redemption sale occurred. TLC supports this assertion by pointing to the Redemption Agreement, which Harley Langdale—and not Johnny Langdale—signed as trustee. But the gravamen of the state-court complaint and the counterclaim is that Johnny and Harley Langdale conspired to breach their duties as trustees well before the Redemption Agreement was signed, to deprive the beneficiaries of the proper value of their TLC shares and consolidate their own control over TLC. The pleadings allege that “[n]otwithstanding Johnny’s strategically timed resignation, he planned and participated in the conspiracy to transfer the Trust’s stock at an unfair and absurdly low price.” [R. 77-52, at 45.] The state-court complaint and the counterclaim alleged that Johnny Langdale resigned as trustee just before Harley Langdale 38 Case: 14-12723 Date Filed: 06/22/2015 Page: 39 of 42 signed the Redemption Agreement for the Trust, agreeing to sell the Trust shares to TLC at a below-market price. Johnny Langdale signed for TLC. The pleadings allege that Johnny Langdale resigned as a trustee of the Trust to avoid signing the Redemption Agreement on behalf of both TLC and the Trust. The counterclaim allegations also make clear, however, that the Redemption Agreement was signed and the redemption sale occurred because Johnny and Harley Langdale had previously approved the Shareholders’ Agreement on the Trust’s behalf as trustees; failed to disclose material information to the Trust beneficiaries; and repeatedly misled the beneficiaries, all while Johnny Langdale was still a trustee. TLC argues that its decision to indemnify Johnny Langdale shows that the claims asserted in the underlying litigation did not arise out of his “actions in a capacity other than as a TLC [e]xecutive.” Aplt. Br. at 23. Georgia Code § 14-2- 853 allows corporations to “advance funds to pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding because he or she is a director if he or she delivers to the corporation”: (1) “[a] written affirmation of his or her good faith belief that he or she has met the relevant standard of conduct,” including acting in the company’s best interests in “his or her official capacity”; and (2) a written agreement to “repay any funds advanced if it is ultimately determined that the director is not entitled to indemnification.” GA. CODE ANN. §§ 14-2-853; 14-2-851. TLC argues that Johnny Langdale’s written affirmation “that 39 Case: 14-12723 Date Filed: 06/22/2015 Page: 40 of 42 his actions alleged in the lawsuit against him were conducted as an officer and director of” TLC “contradicts” the district court’s conclusion that the claims arose out of Johnny Langdale’s actions in a noninsured capacity. Aplt. Br. at 23. But, as TLC itself acknowledges, “an insured company could agree to indemnify an employee for something he/she has done that had nothing whatsoever to do with the company’s business.” [Id.] The risk of an insured creating coverage by agreeing to indemnify a director who allegedly committed wrongful acts is greater when, as here, the director has substantial control over the insured company, including over deciding whether to indemnify. TLC’s affirmation about Johnny Langdale and the capacity in which he acted and was sued does not bring the claims within the policy’s coverage. TLC contends that National Union’s letters offering to advance defense costs for only Count III of the state-court complaint and Count V of the counterclaim have “evidentiary value with respect to how National Union interprets its own policy” and “should preclude the grant of summary judgment” on Exclusion 4(g). Aplt. Br. at 35. But “[i]n summary judgments involving contract cases, the construction of a contract is a question of law for the trial court ‘where the language of a contract is clear and unambiguous and capable of only one reasonable interpretation as applied to the subject matter.’” Nolley v. Md. Cas. Ins. Co., 476 S.E.2d 622, 624 (Ga. Ct. App. 1996) (quoting Bress v. Keep-Safe 40 Case: 14-12723 Date Filed: 06/22/2015 Page: 41 of 42 Indus., 271 S.E.2d 867, 869 (Ga. Ct. App. 1980)). TLC does not argue that National Union waived, or should be estopped from asserting, Exclusion 4(g). See Aplt. Br. at 35.8 The claims against TLC for Johnny and Harley Langdale’s alleged misconduct as directors and officers could not have existed independent from their alleged misconduct as trustees of the Virginia Miller Trust. The claims against Johnny and Harley Langdale as TLC directors and officers could not have existed independent from their alleged misconduct as trustees. The allegations of wrongdoing in Counts III and V of the state-court complaint and the counterclaim “arose out of” Johnny and Harley Langdale’s wrongful acts in their capacities as trustees, and are subject to Exclusion 4(g). 9 8 TLC also argues that National Union’s admission that the underlying litigation “includes allegations made against Mr. Langdale in his insured capacity as an Executive/Employee of [TLC]” shows that Exclusion 4(g) does not apply. Aplt. Br. at 27–28 (emphasis omitted). [See also R. 84, ¶ 121.] But TLC misunderstands Exclusion 4(g). The exclusion applies to exclude otherwise covered wrongful acts that happen to “aris[e] out of” acts undertaken in a non-covered capacity. That is the case here. 9 TLC argues that this conclusion makes coverage “illusory” and undermines longstanding Georgia law that the duty to defend extends to every claim that arguably falls within the scope of coverage and that “where an insurer has a duty to defend a single claim the complaint presents, it has a duty to defend all the claims asserted.” HDI-Gerling Am. Ins. Co., 701 F.3d at 666. But just as the duty to defend may extend to claims that do not arguably fall within the scope of coverage because of one covered claim, it may be excluded from claims that otherwise do fall within the policy’s terms if the exclusion is an “arising out of” provision, such as Exclusion 4(g). “[T]hat is the nature of an exclusion—to exclude things that otherwise would be covered, when certain conditions are met.” Cynergy, LLC v. First Am. Title Ins. Co., 706 F.3d 1321, 1327 (11th Cir. 2013). 41 Case: 14-12723 Date Filed: 06/22/2015 Page: 42 of 42 We affirm the district court’s grant of summary judgment dismissing TLC’s claims for breach of contract and for a declaratory judgment on the basis that Exclusion 4(g) bars coverage. B. Whether TLC’s Bad Faith Claim Fails as a Matter of Law TLC also appeals the district court’s grant of summary judgment dismissing its bad-faith claim. Because the district court properly found no coverage under the D&O policy, we affirm the grant of summary judgment dismissing TLC’s badfaith claim. See OneBeacon Am. Ins. Co. v. Catholic Diocese of Savannah, 477 F. App’x 665, 673 (11th Cir. 2012) (“Under Georgia law, there can be no recovery for bad faith when there is no coverage.” (citing Morris v. Ins. Co. of N. Am., 151 S.E.2d 813, 814 (Ga. Ct. App. 1966)); BayRock Mortg. Corp. v. Chicago Title Ins. Co., 648 S.E.2d 433, 435 (Ga. Ct. App. 2007) (requiring that the insured prove “that the claim is covered under the policy” to prevail on a bad-faith claim under GA. CODE ANN. § 33-4-6).