Opinion
Civil Action No. 1:21-cv-02128-RBJ
2022-12-19
CEFO, INC., Plaintiff, v. NAVIGATORS SPECIALTY INSURANCE COMPANY, Defendant.
Jeremy Andrew Sitcoff, Kevin Patrick Ahearn, Levin Sitcoff Waneka PC, Denver, CO, for Plaintiff. Daniel Mermann Jozwiak, Cynthia A. Mitchell, Shoemaker Ghiselli & Schwartz LLC, Boulder, CO, for Defendant.
Jeremy Andrew Sitcoff, Kevin Patrick Ahearn, Levin Sitcoff Waneka PC, Denver, CO, for Plaintiff. Daniel Mermann Jozwiak, Cynthia A. Mitchell, Shoemaker Ghiselli & Schwartz LLC, Boulder, CO, for Defendant. ORDER ON MOTION FOR SUMMARY JUDGMENT R. Brooke Jackson, Senior United States District Judge
This matter is before the Court on defendant's motion for summary judgment at ECF No. 24. Defendant's motion is GRANTED.
FACTS
Plaintiff CeFO, Inc. provides accounting, tax consulting, and financial services for businesses, executives, and other professionals. ECF No. 22 at 1. CeFO is insured by defendant Navigators Specialty Insurance Co. under an errors and omissions policy that covers "damages and claim expenses" asserted against the insured "by reason of an act or omission including personal injury in the performance of professional services" (subject to several exclusions also enumerated in the policy). See ECF No. 24-5 at 6. The policy indicates that certain of its terms carry non-colloquial or specific definitions by rendering those terms in bold font and defining them in other provisions of the policy or policy declarations. See id. ("Words and phrases that appear in bold print have special meanings that are defined in Section III., DEFINITIONS.") (emphasis in original). "Professional services" are defined in Section III of the policy as "those services specified in Item 7. in the Declarations performed by an Insured for others for a fee." ECF No. 24-5 at 10 (emphasis in original). In turn, item 7 of the declarations defines professional services as "solely in the performance of outsourced CFO services, strategic business planning services, wealth management services, tax compliance and representation services, and medical billing & reimbursement services." Id. at 4. Those terms are not further defined in the policy or declarations. The subset of covered acts and omissions that constitutes "personal injury" also incorporates the definition of professional services—it is an "injury other than bodily injury arising out of [a list of specified conduct] by reason of an act or omission in the performance of professional services." Id. at 9 (emphasis in original).
The complete coverage language is as follows: "The Company [Navigators] will pay on behalf of the Insured [CeFO] all sums in excess of the deductible that the Insured becomes legally obligated to pay as damages and claim expenses as a result of a claim first made against the Insured and reported in writing to the Company during the policy period or Extended Reporting Period (if applicable), by reason of an act or omission including personal injury in the performance of professional services by the Insured . . . ." ECF No. 24-5 at 6 (emphasis in original).
CeFO has provided financial consulting services to its client Robert Wall since 2007. ECF No. 22 at 1. These services included paying various bills on Mr. Wall's behalf, by obtaining his authorization and then wiring funds from his account. See ECF No. 24-3 at 30:5-8. In March 2020, CeFO employee Jennifer Ducatte received email instructions—purportedly from Mr. Wall—to pay bills relating to a construction project by wiring funds from his account to a bank in Hong Kong. See ECF No. 22 at 1. Despite various "red flags" in the emails and without performing due diligence, Ms. Ducatte complied with the instructions in the emails and initiated wires of funds to the foreign bank on four separate occasions, transferring a total of over $350,000. Id.
Eventually, Mr. Wall and CeFO learned that Mr. Wall's email had been compromised, and that the emails instructing CeFO to transfer funds had been sent by those hackers without Mr. Wall's knowledge. ECF No. 22 at 2. One of the wires of $100,000 was clawed back, but authorities were unable to recover the remaining approximately $250,000 that had been wired to the foreign bank. Id.
Mr. Wall asserted an errors and omissions claim against CeFO to recover the $250,000, contending that CeFO had been negligent in failing to recognize or investigate the red flags in the email requests to send large sums of money to a foreign bank. Id. CeFO admitted that its conduct was erroneous and timely tendered Mr. Wall's claim to Navigators for coverage under the errors and omissions insurance policy. Id.
Navigators denied the claim, citing three policy exclusions: a failure to safeguard funds exclusion, a discretionary control exclusion, and an improper use of client funds exception. See ECF No. 28-1 at 5-6. The denial also noted that "if claimant's allegations do not allege professional services as defined by the Policy," the CeFO employees who caused Mr. Wall's loss "would not meet the Policy's definition of Insured" and that "all of Navigators' rights are reserved accordingly." Id. at 4, n. 2. After this denial, CeFO ultimately entered an agreement with Mr. Wall to pay back $217,687.32 of lost funds (in a down payment plus monthly installments). ECF No. 22 at 2.
In July 2021, CeFO filed a claim against Navigators in this Court, alleging breach of the insurance contract and unreasonable delay or denial of benefits. See, generally ECF No. 24-4. CeFO contends that Navigators breached its duty to defend the insured by denying a claim that potentially or arguably falls within the policy coverage, and that it is entitled to indemnification for the Wall claim. ECF No. 22 at 2-3.
Navigators filed the instant motion for summary judgment, arguing that the policy did not cover the conduct at issue in the first instance, and that even if it did, four policy exclusions also apply. I find that, although the policy exclusions likely do not apply, summary judgment in defendant's favor is nevertheless appropriate, because the claim does not arise from a "professional service" as defined by the contracting parties and therefore is not within the policy's coverage.
Although the initial denial of coverage cites only three policy exclusions (the failure to safeguard funds exclusion, discretionary control exclusion, and improper use of client funds exclusion), the motion for summary judgment also discusses a fourth—the breach of security exclusion. Because the argument that the policy did not cover the underlying conduct in the first instance is dispositive and the arguments regarding policy exclusions do not provide additional support, the exclusions are not discussed in detail in this order.
STANDARD OF REVIEW
Summary judgment is warranted when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A fact is "material" if it is essential to the proper disposition of the claim under the relevant substantive law. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). A dispute is "genuine" if the evidence is such that it might lead a reasonable jury to return a verdict for the non-moving party. Allen v. Muskogee, Okl., 119 F.3d 837, 839 (10th Cir. 1997). When reviewing a motion for summary judgment, a court must view the evidence in the light most favorable to the nonmoving party. Id. However, conclusory statements based merely on conjecture, speculation, or subjective belief do not constitute competent summary judgment evidence. Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In attempting to meet this standard, a movant who does not bear the ultimate burden of persuasion at trial does not need to disprove the other party's claim; rather, the movant need only point out a lack of evidence for the other party on an essential element of that party's claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
Once the movant has met its initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Id. Rather, the nonmoving party must offer "specific facts that would be admissible in evidence in the event of trial, from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671. Stated differently, the party must provide "significantly probative evidence" that would support a verdict in her favor. Jaramillo v. Adams Cnty. Sch. Dist. 14, 680 F.3d 1267, 1269 (10th Cir. 2012). "[T]he facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id.
ANALYSIS
Plaintiff argues here that defendant had both a duty to defend the claim and a duty to indemnify. See ECF No. 27 at 5-6. The duty to defend arises when "the alleged facts even potentially fall within the scope of coverage," while the duty to indemnify is triggered only when "the policy actually covers the alleged harm." Gen. Sec. Indem. Co. of Arizona v. Century Sur. Co., No. 08-CV-01528-PAB-MEH, 2009 WL 2407624, at *3 (D. Colo. Aug. 3, 2009) (quoting Constitution Assocs. v. New Hampshire Ins. Co., 930 P.2d 556, 563 (Colo. 1996)). Where there is no duty to defend, there can be no duty to indemnify. See Constitution Assocs., 930 P.2d at 563. Generally, the duty to defend is broad, but an insurer may be excused from that duty if there is no factual or legal basis on which the insurer might be held liable to indemnify the insured. Hecla Min. Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991).
Whether there is such a factual or legal basis "depends on the terms in the insurance policy, and the interpretation of those terms based upon the principles of contract interpretation." Id. Then, courts consider whether the facts alleged in the complaint fit within the policy's terms. See Melssen v. Auto-Owners Ins. Co., 285 P.3d 328, 334 (Colo. App. 2012). Here, because there is no reasonable interpretation of the terms of the insurance policy under which the conduct from which the Wall claim arose could have been covered, there is no genuine dispute that defendant had a duty to defend the claim, and therefore no genuine dispute that defendant had a duty to indemnify. See Constitution Assocs., 930 P.2d at 563.
I. POLICY COVERAGE.
A. Interpretation of coverage provision.
Defendant maintains that there is no reasonable argument that the conduct underlying the claim that Mr. Wall asserted against CeFO—the negligent wiring of funds to the Hong Kong bank without performing due diligence—falls within the errors and omissions policy coverage, which compensates the insured for damages alleged against it "by reason of an act or omission including personal injury in the performance of professional services by the Insured." See ECF No. 24-5 at 6.
Plaintiff in turn argues that several of the services it provides to Wall—including paying Wall's bills, maintaining his accounting books, reconciling his bank accounts, and generating financial reports—"arguably fall[ ] under the purview of CFO services," which is a category of "professional services" enumerated in the coverage provision of the policy. See ECF No. 27 at 7. Plaintiff also argues that its "tax compliance" services—including preparing year-end reports for tax preparation and assisting with tax compliance—are classified as professional services and therefore are independently sufficient to trigger coverage for the $250,000 Wall claim. See id. at 8. As discussed below, the first argument is foreclosed by the contract's unambiguous definition of "professional services" and deposition testimony by plaintiff that reveals an understanding of the term consistent with that plain meaning. The second argument is foreclosed by the ordinary meaning of the phrase "by reason of."
1. Applicable interpretive rules.
General principles of contract law govern interpretation of insurance contracts. F.D.I.C. v. American Cas. Co. of Reading, Pa., 843 P.2d 1285, 1289-90 (Colo. 1992). Courts enforce the plain and ordinary meaning of contractual terms unless they are ambiguous as a matter of law. See Colorado Intergovernmental Risk Sharing Agency v. Northfield Ins. Co., 207 P.3d 839, 841 (Colo. App. 2008). A contract is ambiguous where it reasonably bears more than one meaning. See id. (citing Thompson v. State Farm Fire & Cas. Co., 165 P.3d 900, 901 (Colo. App. 2007)). However, mere disagreement between the parties concerning the meaning of terms does not create an ambiguity. Thompson, 165 P.3d at 902.
Coverage provisions in an insurance policy are construed liberally in favor of the insured, while exclusions are construed strictly against the insurer. Tepe v. Rocky Mountain Hosp. & Med. Servs., 893 P.2d 1323, 1327 (Colo. App. 1994); J & S Enters., Inc. v. Continental Cas. Co., 825 P.2d 1020, 1023 (Colo. App. 1991). Nevertheless, if a limitation or exclusion in a contract is unambiguous, that limitation or exclusion must be enforced. Colorado Intergovernmental, 207 P.3d at 842 (citing State Farm Mut. Auto. Ins. Co. v. Mendiola, 865 P.2d 909, 912 (Colo. App. 1993)).
Although policy declarations are not necessarily considered part of an insurance contract, their terms may be enforceable as part of the contract if the parties so intended. Compare Van Enterprises, Inc. v. Avemco Ins. Co., 231 F. Supp. 2d 1071 (D. Kan. 2002) (disclosure statement filled out during application for insurance and not attached to the policy was not part of the insurance contract and not independently enforceable) with Begay v. Ziems Motor Co., 550 F.2d 1244, 1247 (10th Cir. 1977) (disclosures section stating that the additional terms and conditions it included were part of the contract was incorporated by reference and enforceable).
Here, like in Begay and unlike in Van Enterprises, the form and content of the contract indicate that the parties considered the declarations a necessary component of the policy itself, not a tangential document. The policy specifies that terms are bolded to indicate that they carry a non-standard definition in the context of the agreement. But although "professional services"—a term in the provision describing which claims are covered—is rendered in bold font to suggest that it has a particularized definition, the policy document does not provide a complete definition but rather refers to content from the declarations. See ECF No 25-5 at 9 ("Professional services means those services specified in Item 7. in the Declarations performed by an Insured for others for a fee.").
The fact that a definition the policy indicates will be provided is not available without reference to the declarations document implies that the parties intended to make the latter part of the contract. Furthermore, the declaration explicitly states that it is intended to be an enforceable part of the agreement. See ECF No 24-5 at 5 (noting that "the Insured agrees that the statements in the Declarations and the Application and any attachments hereto are the Insured's agreements and representations and that this policy embodies all agreements existing between the Insured and the Company or any of its representatives relating to this Insurance"). These characteristics indicate that the declarations are intended to be read as part of the contract.
2. The parties distinguish family office services from professional services.
In turn, the declarations define "professional services" as "solely in the performance of outsourced CFO services, strategic business planning services, wealth management services, tax compliance and representation services and medical billing & reimbursement services." ECF No. 24-5 at 5. Although the drafting is not grammatically flawless, the word "solely" followed by a list of financial services communicates the parties' intent to provide an exclusive list of the types of "professional services" covered by the contract, and it is appropriate to give effect to that apparent meaning. See Payless Shoesource, Inc. v. Travelers Companies, Inc., 585 F.3d 1366, 1372 (10th Cir. 2009) (noting in a contract interpretation dispute that the court was "entitled to acknowledge the parties' plain meaning without being strait-jacketed by a grammatical rule into reaching a patently unintended result").
Plaintiff does not dispute that this list of possible professional services is exhaustive, nor that it excludes another category of services called "family office services." See ECF No. 28 at 3 (plaintiff's distinguishing "other services" provided to Wall from the "family office services" and implying that only the "other services" are "included in the definition of 'professional services' "). According to CeFO founder William Shenkin's deposition testimony, family office services include paying clients' bills, maintaining accounting books, reconciling bank accounts, providing check registers, and classifying transactions to assist with preparation of tax returns. See ECF No. 27-11 at 16:21-17:22. Therefore, because the bill payment service from which the $250,000 claim by Mr. Wall arose is not enumerated in the policy as a "professional service," and because the parties confirm that they would classify bill payment as a family office service instead, it follows that the Wall claim was not arguably within the policy's coverage, and therefore that there was no duty for defendant to defend or indemnify.
3. Bill payment for an individual is not an "outsourced CFO service."
Plaintiff argues that the some of the financial services related to maintaining Wall's accounting books, reconciling his bank accounts, and generating financial reports "arguably" involve CeFO acting as something "akin to" a "chief financial officer" for Wall. See ECF No. 27 at 9. Then, plaintiff argues, the " 'outsourced CFO services' provision of the 'Professional Services' definition" applies and places the claim within the scope of the policy's coverage. See id. at 7-8. This argument is unpersuasive. In contrast to the parties' repeated and explicit statements that the contract employs a non-colloquial meaning of "professional services," there is no indication that the parties intended any such non-standard meaning for "CFO services." Therefore, the term must be assigned its plain meaning. See Colorado Intergovernmental, 207 P.3d at 842.
The ordinary meaning and common usage of the phrase "chief financial officer" denote an officer or agent serving a corporate entity, not an individual hiring someone to manage his accounting books. There is no indication that the parties intended an alternative, more expansive meaning by the phrase. Indeed, deposition testimony by CeFO's founder suggests the opposite. Mr. Shenkin agreed at his deposition that "the only services that CeFO has provided to [Mr. Wall] are family office services" and explicitly testified that CeFO did not provide strategic business planning services or chief financial officer services to Mr. Wall. See ECF 27-11 at 17:18-22, 18:13-14, 18:17-20 (emphasis added). This testimony contradicts both the notions that family office services are a species of chief financial officer services and that CeFO provided "outsourced CFO services" to Mr. Wall within the meaning of the coverage provision. Cf. ECF No. 27 at 7-8.
The interpretation suggested by plaintiff—in which a wealthy individual who hires an accounting firm is somehow transformed into a corporate entity with a fleet of acting officers—requires a literality that strains the metaphor beyond its reasonable capacity and contradicts the testimony of plaintiff's own agents. Moreover, to adopt the broad definition of "CFO services" urged by plaintiff—in which nearly any financial service performed for any client is an "outsourced CFO service"—would contravene principles of contract interpretation by rendering the other terms in the list defining "professional services" superfluous. See United States v. McLain Schmidt, 04-CR-00103-REB-05, 2008 WL 9412735, at *5 (D. Colo. Feb. 13, 2008), aff'd sub nom. United States v. Schmidt, 353 Fed. App'x 132 (10th Cir. 2009) (unpublished) ("An interpretation that gives a reasonable meaning to all of the contract's parts is preferred to one which leaves a portion of the contract inoperative, void, meaningless, or superfluous.") (unpublished) (internal quotations omitted).
Because strategic business planning, tax compliance, and investment management would be subsumed under plaintiff's expansive definition of CFO services, to accept plaintiff's proposed interpretation would require accepting the premise that the enumeration of these terms in the contract as separate species of professional services was mere superfluity, whereas the narrower definition of CFO services as referring to services provided to an organization or corporate entity not only comports with the ordinary meaning of the term but also avoids rendering duplicative the other terms in item 7. Therefore, the latter interpretation is appropriate. See McLain, 2008 WL 9412735, at *5.
Moreover, plaintiff's own fact testimony supports this narrower interpretation of "CFO services." See, e.g., ECF No. 24-1 at 13:9-10 (Shenkin testifying that "CeFO provides outsourced chief financial officer services to small to medium size businesses") (emphasis added); cf. ECF No. 24-1 at 13:23-25 (Shenkin testifying that "Mr. Wall was seeking what I would call typical family office services that we were providing"). Belated attempts to recast this testimony by plaintiff's counsel in its motion opposing summary judgment are ineffective to withstand summary judgment; a party cannot merely rely on contrary statements by its lawyers to create a genuine dispute of fact. See, e.g., ECF No. 27 at 9 (arguing that "it makes no difference that Shenkin testified that CeFO does not provide chief financial officer services for Wall" because the Policy does not explicitly "limit 'outsourced CFO services' to work performed for a business" and that therefore, it remains "arguable [that] CeFO performs services for Wall and his family akin to that of a CFO").
However, the language in the contract is "outsourced CFO services" not "akin to outsourced CFO services." Plaintiff's counsel cannot rewrite the contract language to rationalize Shenkin's testimony; nor can they render a term ambiguous merely by retroactively disputing its meaning—particularly when the meaning proposed is belied by the testimony of their own client. See Adler, 144 F.3d at 671. Because there is no reasonable definition of "outsourced CFO services" that includes the bill pay services from which the Wall claim arose, that category of professional services is not implicated, and the argument that coverage was triggered on that basis is unpersuasive and insufficient to impose a duty on Navigators to defend (or indemnify).
4. Unrelated tax compliance services do not trigger coverage.
Plaintiff's other argument—that the Wall claim falls within the policy's coverage because CeFO provides tax compliance services to Wall—requires ignoring the phrase "by reason of" in the definition of "professional services." See ECF No. 27 at 8. It is true that "tax compliance" is one of the enumerated categories of professional services in item 7 of the declarations, but the suggestion that the insured need only have a relationship with the client that includes a professional service for coverage to apply to any claims by the client against the insured is irreconcilable with the plain language of the contract. See ECF No. 24-5 at 10; ECF No. 24-5 at 6 (the policy covers "damages and claim expenses" asserted against the insured "by reason of an act or omission including personal injury in the performance of professional services").
The phrase "by reason of" indicates that the alleged loss must arise from or have been caused by the performance of a professional service; not merely that the insured carried out a professional service unrelated to the alleged loss at some point. See, e.g., Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 477, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006) (interpreting "by reason of" in the context of a civil RICO statute as requiring the violation to be both the cause-in-fact and the proximate cause of the plaintiff's injury and noting that this interpretation was "broad"); see also Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519, 561, 135 S.Ct. 2507, 192 L.Ed.2d 514 (2015) (Alito, J., dissenting) (noting in the context of interpreting the federal Fair Housing Act that the terms "by reason of," "because of," and "on account of" are synonymous with one another).
Here, to credit plaintiff's argument that the mere fact that Wall received tax compliance services from CeFO (a "professional service") triggers coverage for a claim arising from an unrelated bill payment service would be to either ignore the phrase "by reason of" or contort the phrase into meaning something like "along with." The language cannot reasonably bear this meaning. See Thompson, 165 P.3d at 902. Therefore, this argument cannot suffice to raise a triable issue that the policy applied.
Because payment of an individual client's personal bills cannot reasonably be interpreted as an "outsourced CFO service" and professional services unrelated to the loss from which the claim arose do not suffice to provide coverage under the plain meaning of the contract, there is no genuine dispute that Mr. Wall's claim against CeFO fell within the policy's coverage, and therefore no genuine dispute that defendant breached its duties to defend or indemnify any claims to which coverage did apply.
B. Waiver.
Plaintiff also argues that defendant waived or should be estopped from asserting the argument that Wall's claim was not covered, because the argument was "never raised in [the] coverage denial." ECF No. 27 at 7. This is simply untrue. See ECF No. 28-1 at 4, n. 2 (noting that "if claimant's allegations do not allege professional services as defined by the Policy," the CeFO employees who caused Mr. Wall's loss "would not meet the Policy's definition of Insured" and that "all of Navigators' rights are reserved accordingly").
Although argument in the denial was asserted in conditional rather than certain terms, plaintiff provides no caselaw suggesting that the conditional form is impermissible, and in fact provides caselaw that suggests the opposite. See U.S. Fid. & Guar. Co. v. Budget Rent-A-Car Sys., 842 P.2d 208, 210 n.3 (Colo. 1993) (insurer denying coverage must assert or specifically reserve all defenses within a reasonable amount of time) (emphasis added).
Furthermore, the policy concerns animating plaintiff's assertion that to allow insurers to provide reasons for denial retroactively would "essentially allow insurers to preemptively deny claims with no reason, and then keep going back to investigate and find new reasons to retroactively justify those denials when challenged" has little force here. ECF No. 27 at 7. Plaintiff is not prejudiced by defendant's raising the argument in the motion for summary judgment, since the argument was flagged and explicitly reserved in the initial denial. Moreover, Navigators here did not issue a denial with "no reason" and then retroactively generate rationales. Cf. ECF No. 27 at 7. Rather, Navigators enumerated in concrete and specific terms three reasons for denial and a fourth possible reason. ECF No. 28-1 at 4. Plaintiff's argument to bar defendant from asserting the argument now is therefore both factually untrue and equitably unpersuasive.
II. POLICY EXCLUSIONS.
Defendant argues in the alternative that the claim falls within four different exclusions enumerated in the July 9, 2019 endorsement. See ECF No. 24-5 at 19-20. The arguments that any of the exclusions apply are weak—the authority cited is largely inapt and insufficient to overcome the strong presumption of interpreting exclusions in insurance contracts narrowly. See J & S Enters., 825 P.2d at 1023. However, this analysis need not reach the question of what exclusions would or would not apply if the conduct were covered, because there is no genuine dispute of fact that the disputed services fell within the contract in the first instance.
ORDER and JUDGMENT
For the reasons above, defendant's motion for summary judgment at ECF No. 40 is GRANTED. This civil action is dismissed with prejudice. As the prevailing party, defendant is awarded reasonable costs to be taxed by the Clerk pursuant to Fed. R. Civ. P. 54(d)(1) and D.C.COLO. LCivR 54.1.