Court Opinion

ID: 6331732
Source: CourtListenerOpinion
Date Created: 2022-04-14 17:01:38.462726+00
Date Added: 2024-06-11T09:23:14.011904
License: Public Domain

Appellate Case: 21-5043     Document: 010110671073       Date Filed: 04/14/2022    Page: 1
                                                                                   FILED
                                                                       United States Court of Appeals
                       UNITED STATES COURT OF APPEALS                          Tenth Circuit

                              FOR THE TENTH CIRCUIT                           April 14, 2022
                          _________________________________
                                                                          Christopher M. Wolpert
                                                                              Clerk of Court
  T. D. WILLIAMSON, INC.,

        Plaintiff - Appellant,

  v.                                                          No. 21-5043
                                                   (D.C. No. 4:20-CV00571-GKF-JFJ)
  FEDERAL INSURANCE COMPANY,                                  (N.D. Okla.)

        Defendant - Appellee.
                       _________________________________

                              ORDER AND JUDGMENT*
                          _________________________________

 Before ROSSMAN, KELLY, and MURPHY, Circuit Judges.
                   _________________________________

       T.D. Williamson (TDW) appeals from the district court’s decision that a

 directors and officers liability (D&O) policy issued by Federal Insurance Company

 (Federal) provided no coverage for claims arising from an underlying lawsuit. The

 underlying lawsuit involved one company director suing other company directors, all

 of whom were insured under the D&O policy. On cross-motions for summary

 judgment, the district court relied on the policy’s “Insured versus Insured,” or IvI,

 exclusion and held that Federal had no duty to defend or indemnify. T.D.

       *
          This order and judgment is not binding precedent, except under the doctrines
 of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
 its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Appellate Case: 21-5043     Document: 010110671073        Date Filed: 04/14/2022     Page: 2

 Williamson, Inc. v. Fed. Ins. Co., No. 20-CV-571, 2021 WL 2117054, at *5 (N.D.

 Okla. May 25, 2021). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

                                       Background

        The parties are familiar with the facts, so we need not set out the policy

 provisions in full. Suffice it to say that under subsection (b)(iii) of the IvI exclusion,

 Federal is not liable for loss on account of claims “brought by an Organization

 against an Insured Person of such Organization,” except for a claim brought as “a

 securityholder derivative action.” Additionally, under subsection (c) of the IvI

 exclusion, Federal is not liable for claims “brought by an Insured Person in any

 capacity against an Insured” except with respect to certain claims which are not

 present here.

        During the policy period, Richard Williamson, then a director and majority

 shareholder of TDW, initiated a suit against eight other directors in Oklahoma state

 court. The defendants included Mr. Williamson’s brother and sister. Mr. Williamson

 alleged in a footnote of the petition that “his claims based upon the facts and conduct

 presented herein are direct, not derivative, but in the alternative, and without waiver

 of his position that the claims are direct, he also pleads them alternatively as

 derivative claims.”

        Federal denied coverage based on subsection (c) of the IvI exclusion. The

 district court found subsection (c) to be “unambiguous and clear,” and interpreted the

 “ordinary, plain meaning” of the subsection to mean that “there is no coverage for

 Claims brought by an Insured Person (Mr. Williamson) in any capacity against

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 Insureds, including in his capacity as a securityholder.” T.D. Williamson, 2021 WL

 2117054, at *5 (emphasis omitted). The court also found that “[t]he exception [or

 carve-out] for securityholder derivative actions in subsection (b) [was] inapplicable.”

 Id. The court concluded that this case illustrated “the prototypical purpose of IvI

 Exclusions,” namely to prevent coverage of personal disputes between family

 members within a corporation. Id.

         On appeal, TDW argues that the district court erred by: (1) failing to recognize

 that the derivative claims could only have been brought by TDW; (2) failing to

 construe the IvI exclusion and its “brought by” language liberally and in favor of

 coverage; (3) failing to adequately consider that the structure of the IvI exclusion

 demonstrates that derivative claims could only be brought by TDW; (4) interpreting

 the IvI exclusion such that the “securityholder derivative action” carve-out is

 superfluous; (5) reading the subsections of the IvI exclusion independently and

 applying them separately; and (6) in holding the IvI exclusion is unambiguous. As

 TDW’s arguments largely address whether the district court erred by finding

 subsection (c) of the IvI exclusion applies and the carve-out from subsection (b)(iii)

 does not operate to provide coverage, our analysis proceeds along these lines.

                                        Discussion

    A.      The IvI Exclusion Unambiguously Applies.

         We review a district court’s ruling on cross-motions for summary judgment de

 novo, viewing the evidence and its inferences in the light most favorable to the party

 that did not prevail. Cyprus Amax Mins. Co. v. TCI Pac. Commc’ns, LLC, – F.4th –

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 (10th Cir. 2022). This court, sitting in diversity, applies Oklahoma law to interpret

 the insurance contract. Emcasco Ins. Co. v. CE Design, Ltd., 784 F.3d 1371, 1378

 (10th Cir. 2015).

       An unambiguous contract is accepted “in its plain, ordinary, and popular

 sense.” Haworth v. Jantzen, 172 P.3d 193, 197 (Okla. 2006). However, when an

 insurance contract is ambiguous or uncertain, it will be construed “against the insurer

 and in favor of the insured,” id., as long as the construction gives reasonable effect to

 all of its provisions, Cranfill v. Aetna Life Ins. Co., 49 P.3d 703, 706 (Okla. 2002).

 Additionally, “the scope of an agreement is not determined in a vacuum, but instead

 with reference to extrinsic circumstances.” Max True Plastering Co. v. U.S. Fid. &

 Guar. Co., 912 P.2d 861, 865 (Okla. 1996). IvI exclusions protect insurers from

 collusive suits among directors and officers. Am. Cas. Co. v. F.D.I.C., 791 F. Supp.

 276, 278 (W.D. Okla. 1992). Consequently, Oklahoma recognizes that “the term

 ‘any insured’ in an exclusionary clause is unambiguous and expresses a definite and

 certain intent to deny coverage to all insureds.” BP Am., Inc. v. State Auto Prop. &

 Cas. Ins. Co., 148 P.3d 832, 836 (Okla. 2005).

       Subsection (c) of the IvI exclusion is unambiguous and clearly precludes

 coverage for the underlying suit. It makes clear that the policy does not cover a

 claim “brought by an Insured Person in any capacity against an Insured.” As both

 parties agree that Mr. Williamson was an “Insured Person,” claims arising from the

 suit he brought are not covered by the policy. This is the typical case envisioned by

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 the IvI exclusion. Mr. Williamson was a director of TDW, and his suit was against

 other directors and officers of the company, including his siblings.

       In response, TDW argues that subsection (c) only applies to direct suits and

 that subsection (b)(iii) allows derivative suits by an insured. TDW argues this is

 because “derivative claims may only be brought on behalf of a corporation, and not

 on behalf of any individual shareholder.” Consequently, TDW argues that subsection

 (c) only applies to direct suits. However, there are several problems with this

 argument.

       First, the plain language of the IvI exclusion does not make a distinction

 between direct and derivative suits in subsection (c) and this court “will not create an

 ambiguity by using a forced or strained construction.” Wynn v. Avemco Ins. Co.,

 963 P.2d 572, 575 (Okla. 1998).

       Second, TDW’s interpretation of the exclusion would require Federal to cover

 all shareholder derivative suits regardless of whether the suits were brought by an

 insured or a non-insured, a result which is supported by neither the language of the

 policy nor reason. If derivative suits were solely addressed by subsection (b) of the

 exclusion, and all derivative suits were carved out under subsection (b)(iii), then

 derivative suits could never be subject to the IvI exclusion. This would undermine

 one of the fundamental reasons for an IvI exclusion: to prevent collusive suits. See

 Am. Cas. Co.,791 F. Supp. at 278.

       Third, this interpretation equates the party who brings a suit with the party

 who holds an interest in the suit. We recognize that derivative suits are “maintained

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 for the benefit of the corporation.” Beard v. Love, 173 P.3d 796, 802 (Okla. Civ.

 App. 2007). And that the shareholder’s “rights are no greater than [the corporation’s]

 rights.” Arn v. Operators Royalty & Producing Co., 13 F. Supp. 769, 772 (N.D.

 Okla. 1936). Regardless, a shareholder is the “nominal plaintiff,” Ross v. Bernhard,

 396 U.S. 531, 538 (1970); the corporation is the defendant, id.; and the shareholder

 must comply with procedural requirements before bringing a shareholder derivative

 suit, see Watkins v. Hamm, 419 P.3d 353, 361 (Okla. Civ. App. 2017) (citing Okla.

 Stat. tit. 12, § 2023.1 (1984)). The language “brought by” in subsection (c) clearly

 encompasses a shareholder in a derivative action.

        Finally, TDW interprets subsection (b)(iii) and subsection (c) in concert.

 However, when interpreting insurance contracts, “[p]olicy exclusions are read

 seriatim; each exclusion eliminates coverage and operates independently against the

 general declaration of insurance coverage and all prior exclusions.” Alfalfa Elec.

 Coop., Inc. v. Mid-Continent Cas. Co., 350 P.3d 1276, 1283 (Okla. Civ. App. 2014)

 (emphasis omitted) (quoting Dodson v. St. Paul Ins. Co., 812 P.2d 372, 377 (Okla.

 1991)). Consequently, subsection (c) should be interpreted independently of

 subsection (b)(iii).

        TDW also argues that the district court’s interpretation would render the

 shareholder derivative suit carve-out in subsection (b)(iii) superfluous. However, not

 all shareholders are “Insured Person[s].” Under the policy, an “Insured Person” is

 “any Executive or Employee of an Organization.” Thus, the plain language of the

 policy makes clear that subsection (b)(iii) still has force where a shareholder who is

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 not a director or officer of the company brings a derivative suit. The district court’s

 interpretation does not render subsection (b)(iii) superfluous.

    B.      Certification Is Inappropriate.

         TDW alternatively urges this court to certify to the Oklahoma Supreme Court

 the question whether the phrase “brought by” refers to the shareholder or corporation

 in a derivative suit. This court will only certify a question when it “(1) may be

 determinative of the case at hand and (2) is sufficiently novel that we feel

 uncomfortable attempting to decide it without further guidance.” Pino v. United

 States, 507 F.3d 1233, 1236 (10th Cir. 2007).

         TDW’s proposed question is neither determinative nor sufficiently novel. As

 subsection (c) applies regardless of the nature of the suit, this court need not

 determine whether the underlying suit was direct or derivative. Furthermore, the

 interpretation of the phrase “brought by” is not sufficiently novel. Though the

 meaning of the phrase may never have been specifically addressed by the Oklahoma

 Supreme Court, TDW errs by suggesting that it can mean anything other than the

 procedural act of bringing a suit. Certification is not appropriate.

         AFFIRMED. We DENY TDW’s motion for certification.

                                              Entered for the Court

                                              Paul J. Kelly, Jr.
                                              Circuit Judge

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