Opinion
Case No. 2:04-cv-908.
July 10, 2007
OPINION AND ORDER
This action is an insurance dispute over the proceeds of an excess directors and officers ("D O") policy purchased by National Century Financial Enterprises, Inc. from Great American Insurance Company. The policy provided coverage of National Century's directors and officers for claims made against them based on "wrongful acts." The policy also provided entity coverage of National Century itself for claims based on wrongful acts.
National Century brought this action to recover proceeds under the policy. Great American asserted a counterclaim for rescission, alleging that the policy was procured by fraud. National Century has moved to dismiss Great American's counterclaim for rescission. National Century argues, among other things, that the policy contains no provision allowing Great American to rescind coverage. Great American responds by arguing that an insurer has a common law right to rescind a policy procured by fraud.
Also before the court is the motion of Donald Ayers, a former director of National Century, to advance defense costs under the Great American D O policy. Ayers has been sued in numerous civil suits filed by former investors of National Century and has been named as a defendant in criminal proceedings now pending in this court. Certain other of National Century directors and officers, who have likewise been named as defendants in those civil and criminal actions, have joined in the motion to advance defense costs.
I. Background
A. The D O Policies
National Century purchased two separate directors and officers ("D O") insurance policies on March 28, 2002. The primary policy was issued by Gulf Insurance Company and provided $5 million of coverage. National Century purchased an excess policy from Great American, also in the amount of $5 million upon exhaustion of the Gulf policy. The insureds under both policies were National Century itself and its directors and officers. The policy period ran to March 28, 2003. National Century exercised an option under both policies to an additional one-year extended discovery period for bringing claims that arose during the original policy period. Though the Great American policy is at issue in this case, the Gulf policy must be reviewed because the Great American policy was a "follow form" policy. See Great American Policy (stating that, with certain exceptions, "this excess policy will conform to the exact terms, conditions, endorsements, insureds and additional insureds of the Primary Policy"). The Gulf policy contains four "insuring clauses" under which the insurer generally agrees to pay losses incurred by an insured as a result of a claim made against the insured for a wrongful act. See Gulf Policy, § 1. A loss includes amounts the insured is legally obligated to pay as a result of all claims made against the insured, including defense costs incurred in defending or investigating a claim. See id., § 2.Q. Wrongful acts include "any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed or attempted, or allegedly committed or attempted, by one or more Director or Officer. . . ." Id., § 2.II.
Neither the Gulf policy nor the Great American policy contain a "priority of payments" section determining how proceeds should be distributed if multiple insureds make claims for losses exceeding the policy limit.
B. Procedural History
On November 18, 2002, National Century filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. National Century's investors filed numerous civil actions against National Century's founders (Lance Poulsen, Barbara Poulsen, Donald Ayers, and Rebecca Parrett), its outside directors (Harold Pote, Thomas Mendell, and Eric Wilkinson), and other persons and entities involved in company's operations. The Judicial Panel on Multidistrict Litigation consolidated those actions before this court in November 2003. See In re National Century Fin. Enter., Inc., Inv. Litig., 2:03-md-1565 (S.D. Ohio). On December 21, 2005, the S.E.C. filed a civil action against Lance Poulsen, Ayers, and Parrett. See S.E.C. v. Poulsen, et al., 2:05-cv-1142 (S.D. Ohio). On May 19, 2006, Lance Poulsen, Ayers, and Parrett, among others, were indicted on counts of securities fraud, wire fraud, mail fraud, money laundering, and conspiracy. See U.S. v. Poulsen, et al., 2:06-cr-129 (S.D. Ohio). The criminal proceedings are set for trial on November 5, 2007.
In bankruptcy court, National Century filed an adversary proceeding against Gulf, Great American, and the other potential insureds under the two D O policies. The complaint sought a declaration that the policies were enforceable and requested an equitable procedure for apportioning the proceeds among the insureds.
National Century has been replaced as a party by the Unencumbered Assets Trust ("UAT"). The UAT is a successor-in-interest to certain legal causes of action that belonged to National Century and was established by the bankruptcy court for the benefit of National Century's many creditors.
Gulf filed a motion to deposit the policy limit and obtain a discharge of liability. The bankruptcy court granted this motion, and Gulf deposited $5 million into an escrow account. The bankruptcy court held a hearing to determine covered losses under the Gulf policy and how to allocate the proceeds. Aside from National Century, seven individuals asserted a right to proceeds: Lance Poulsen, Barbara Poulsen, Donald Ayers, Rebecca Parrett, Harold Pote, Thomas Mendell, and Eric Wilkinson. The court issued an opinion and order on January 10, 2005 finding that National Century and the seven individuals had all incurred covered losses. The court ordered that National Century receive $1.5 million and that each of the seven individuals receive $500,000. None of the parties appealed the bankruptcy court's decision.
Meanwhile, Great American asserted counterclaims seeking rescission of its policy, or, alternatively, declaratory judgment that the policy was void for fraud. National Century filed a motion to dismiss the counterclaim. Rebecca Parrett joined in the motion to dismiss. In addition, Donald Ayers filed a motion for advancement of defense costs, with which Parrett joined.
The bankruptcy court severed all claims, cross-claims, counterclaims, and defenses relating to the Great American policy so that the court could move forward with the Gulf policy dispute. Great American moved to withdraw the reference of the excess D O policy dispute. This court granted the motion to withdraw on July 5, 2005.
Ayers re-filed his motion to advance defense costs under the Great American policy on January 27, 2006. The matter was then stayed for a time pending mediation. Attempts at mediation were unsuccessful.
On September 27, 2006, Lance Poulsen and Barbara Poulsen joined in the motion to advance defense costs. On November 14, 2006, James Dierker, a former officer of National Century and a defendant in U.S. v. Poulsen, filed a motion to advance defense costs, adopting Ayers's motion by reference. The Outside Directors filed a notice stating the they take no position on whether Great American should be required to advance defense costs. None of the other potential insured directors or officers have filed a response to the motion of Ayers.
II. Motion to Dismiss the Rescission Counterclaim
A. Standard of Review
When considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a court must construe the counterclaim in the light most favorable to the counterclaimant and accept all well-pleaded material allegations as true. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Roth Steel Prods. v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1982). A counterclaim may be dismissed for failure to state a claim only when "it appears beyond a doubt that the [counterclaimant] can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). A motion to dismiss under Rule 12(b)(6) will be granted if the counterclaim is without merit due to an absence of law to support a claim of the type made or of facts sufficient to make a valid claim, or when the face of the counterclaim reveals that there is an insurmountable bar to relief. Rauch v. Day Night Mfg. Corp., 576 F.2d 697 (6th Cir. 1978).
Because a motion under Rule 12(b)(6) is directed solely to the counterclaim itself, the court must focus on whether the counterclaimant is entitled to offer evidence to support the claims, rather than whether he will ultimately prevail. Scheuer, 416 U.S. at 236; Roth Steel Prods., 705 F.2d at 155. A counterclaim must contain either direct or inferential allegations with respect to all material elements necessary to sustain a recovery under some viable legal theory. Weiner v. Klais Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997). While the counterclaim need not contain detailed factual allegations, the factual allegations must be enough to raise the claimed right to relief above the speculative level and to create a reasonable expectation that discovery will reveal evidence to support the counterclaim. Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964-65 (2007). The court is not required to accept as true unwarranted legal conclusions or factual inferences.Morgan v. Church's Fried Chicken, 829 F.2d 10 (6th Cir. 1987). Nor may the court consider extrinsic evidence in determining whether a counterclaim states a claim. Roth Steel Prods., 705 F.2d at 155; Sims v. Mercy Hosp. of Monroe, 451 F.2d 171, 173 (6th Cir. 1983).
B. Discussion
1. Rescission versus Cancellation
In its counterclaim, Great American alleges that it issued the excess D O policy pursuant to a proposal form dated March 7, 2002 and signed by Lance Poulsen. The proposal form stated:
It is agreed by the Company and the Insured Persons that the particulars and statements contained in this Proposal Form and any information provided herewith . . . are the basis of this Policy and are to be considered as incorporated in and constituting a part of this Policy. It is further understood and agreed by the Company and the Directors and Officers that the statements in this Proposal Form or any information provided herewith are their representations, that they are material and that this Policy is issued in reliance upon the truth of such representations. . . .
Great American's Counterclaim, ¶ 144.
Great American alleges that the proposal form incorporated certain documents, including National Century's three most recent annual reports and its latest interim financial statement, as part of the proposal form. Further, Poulsen indicated on the proposal form that National Century and its affiliates were not contemplating bankruptcy or reorganization during the next 12 months. Great American alleges that Poulsen signed the proposal form despite knowing that National Century was insolvent and that the annual reports and interim financial statement contained misrepresentations and fraudulent financial information.
National Century argues in its motion to dismiss that Great American cannot rescind the D O policy unless permitted to do so by an express statutory provision or by a provision in the policy itself. National Century contends that there is no applicable statute permitting rescission in this case and that there is no provision in the policy allowing for rescission.
This argument must be rejected because National Century has confused cancellation with rescission. The cases cited by National Century speak to the issue of when a party may cancel a contract of insurance. See, e.g., Canter v. Christopher, 80 Ohio App.3d 465, 467, 609 N.E.2d 609, 611 (Ohio Ct.App. 1992) ("[I]n the absence of any controlling statute, the cancellation of an insurance policy and the respective rights of the parties `are as fixed by the contract as set forth in the policy.'") (quotingGibbons v. Kelly, 156 Ohio St. 163, 101 N.E.2d 497, paragraph two of the syllabus (Ohio 1951)).
Great American asserts a counterclaim for rescission, not cancellation. "[C]ancellation and rescission are two different remedies and a statute applying to ordinary cancellation has no bearing on the insurer's common law right to rescind a policy procured by fraud." McGuire v. Erie Ins. Exchange, No. 92-CA-5, 1992 WL 518771, at *3 (Ohio Ct.App. Dec. 11, 1992); see also Ferrell v. Columbia Mut. Cas. Ins. Co., 306 Ark. 533, 537, 816 S.W.2d 593, 595 (Ark. 1991) ("Rescission of a contract and cancellation of a contract are two distinct remedies, based on different grounds."); Ohio Farmers Ins. Co. v. Michigan Mut. Ins. Co., 179 Mich. App. 355, 363 n. 4, 445 N.W.2d 228, 231 (Mich.Ct.App. 1989) ("We recognize that there is a difference between cancellation of an insurance policy . . . and the rescission ab initio of a policy."). Great American has grounded its claim on a common law right, not a statute or provision of the contract.See Cross v. Ledford, 161 Ohio St. 469, 120 N.E.2d 118 (Ohio 1954) (at common law, a party who has been fraudulently induced to enter into a contract has the option of rescinding the contract); Mid-America Acceptance Co. v. Lightle, 63 Ohio App.3d 590, 599, 579 N.E.2d 721, 727 (Ohio Ct.App. 1989) (same).
2. Elements of a Rescission Claim
National Century next argues that the counterclaim fails because Great American has not pleaded all the material elements of a rescission claim. In order to rescind an insurance contract on the grounds that it was procured by fraudulent representations, an insurer must show that: (1) there were actual or implied representations of material matters of fact; (2) those representations were false; (3) those representations were made by one party to the other with knowledge of their falsity; (4) those representations were made with an intent to mislead a party to rely thereon; (5) and the insurer reasonably relied on those representations. Cross v. Ledford, 161 Ohio St. 469, 475, 120 N.E.2d 118, 122 (Ohio 1954).
The court finds that Great American has sufficiently pleaded the elements of rescission. Great American alleges that Poulsen represented in the policy form that National Century was not contemplating bankruptcy. Poulsen knew this representation was false, Great American alleges, because he was intimately familiar with National Century's operations and knew National Century was already insolvent at the time he signed the proposal form. Great American's allegations support an inference that Poulsen was primarily responsible for directing National Century into insolvency by causing the company to engage in fraudulent transactions. Further, Great American's counterclaim recites language from the proposal form stating that the representations made in the proposal form were material and that Great American would issue the policy in reliance on the truth of the representations in the proposal form. Thus, the Court finds that Great American has stated a counterclaim for rescission as it concerns alleged misrepresentations of National Century's solvency.
However, to the extent that Great American's rescission claim is based on being provided with false annual reports and a false interim financial statement, the claim lacks sufficient particularity. Under Rule 9(b), Fed.R.Civ.P., averments of fraud and the circumstances constituting the fraud must be stated with "particularity." To comply with Rule 9(b), "a plaintiff, at a minimum, must `allege the time, place, and content of the alleged misrepresentation on which he or she relied." Walburn v. Lockheed Martin Corp., 431 F.3d 966, 972 (6th Cir. 2005) (quotingCoffey v. Foamex L.P., 2 F.3d 157, 161-62 (6th Cir. 1993)).
Great American alleges that the proposal form incorporated National Century's three most recent annual reports and its latest interim financial statement. Great American broadly alleges that these documents contained misrepresentations, but fails to identify the content of the misrepresentation. Great American does not specify anything that was false about the annual reports and financial statement. Thus, Rule 9(b) is not satisfied.
3. Adverse Interest Exception
National Century argues that even if Poulsen fraudulently procured the D O policy, his fraud would rescind coverage of only him individually and not the entity coverage of the company. National Century cites the "adverse interest" exception to agency law. Under this exception, "knowledge on the part of the agent will not be imputed to the principal where the agent's relations to the subject-matter, his previous conduct, or his adverse interests render it certain that he will not disclose such knowledge." First Nat'l Bank of New Bremen v. Burns, 88 Ohio St. 434, 103 N.E. 93, (Ohio 1913); Burger v. Board of Liquor Control, 135 N.E.2d 786, 787 (Ohio Ct.App. 1955). See also Collins v. Pioneer Title Ins. Co., 629 F.2d 429, 436 (6th Cir. 1980) ("The principal is not ordinarily charged with the knowledge of the agent in a matter where the agent's interests are adverse to those of the principal.").
It is true that Great American's counterclaim does allege that Poulsen at times acted adversely to the interests of National Century, even to the point of directing the company into insolvency. However, the court is not convinced at this stage that the adverse interest exception should be applied to Poulsen's decision to obtain a D O insurance policy. It is a common business practice for companies to obtain such policies, and Great American's counterclaim does not allege that Poulsen acted adversely to National Century's interests in procuring the policy.
4. Motion to Strike National Century's Reply Brief
In its reply brief, National Century raises an argument that asks the court to determine whether Poulsen's alleged misrepresentation rendered the policy voidable instead of void ab initio. If the policy was merely voidable, then National Century argues that Great American did not meet the policy's time limits for voiding the policy.
Great American has moved to strike this argument because it was not raised in the original motion to dismiss. The court agrees and will not now determine whether the alleged misrepresentation rendered the policy voidable or void ab initio. See Bishop v. Oakstone Academy, 477 F.Supp.2d 876, 889 (S.D. Ohio 2007) ("[I]t is well established that a moving party may not raise new issues for the first time in its reply brief.").
III. Motion to Advance Defense Costs
A. Introduction
Donald Ayers has filed a motion to require the advancement of defense costs. In his motion, Ayers argues that Great American is obligated under the excess D O policy to advance the defense costs that he incurs in defending the civil and criminal litigation against him. Anticipating that Great American will object on the grounds that it has a right of rescission, Ayers argues that Great American's obligation to advance defense costs is independent from any right of rescission that Great American may have. According to Ayers, Great American cannot avoid advancing defense costs by claiming that the issue of rescission must first be resolved.
As will be discussed below, the court finds that the motion suffers from many defects. For instance, the motion does not refer to any rule of civil procedure under which it is being filed. Further, it fails to address several threshold issues, such as whether Ayers has exhausted the proceeds he received under the primary D O policy, which state's law should be applied in interpreting the Great American policy, and the effect of entity coverage in this case.
B. Procedural Posture and Standard of Review
The initial difficulty in examining the motion to advance defense costs is that Ayers does not cite any rule of civil procedure in relation to his motion. Ayers is not seeking to dismiss a claim, so it is fair to say that Rule 12(b), Fed.R.Civ.P., does not apply. The nature of his motion is more in seeking a judgment that he is entitled to defense costs under the policy. Ayers seeks a declaration that Great American is required to advance defense costs under the policy.
Given the nature of the relief requested, Ayers could possibly be bringing his motion under either Rule 12(c), motion for judgment on the pleadings, or Rule 56, motion for summary judgment. Ayers has attached to his motion evidentiary items outside the pleadings, so the court finds that Rule 56 is the applicable standard under which to review the motion. See Fed.R.Civ.P. 12(c) (court must treat motion that relies on matters outside the pleadings as one for summary judgment). This conclusion is supported by the fact that the two cases on which Ayers primarily relies in support of his motion are ones in which an insured director filed a motion for partial summary judgment to require the advancement of defense costs under a D O policy.See AEGIS v. Rigas, 382 F.Supp.2d 685 (E.D. Pa. 2004), andFederal Ins. Co. v. Tyco Int'l Ltd., No. 600507/03, 2004 WL 583829 (Sup.Ct. N.Y. March 5, 2004).
Great American, operating under the assumption that Rule 56 would be applied, argues that the motion is nonetheless defective because Ayers has never asserted a claim, counterclaim, or cross-claim in this action. Great American argues that Ayers cannot obtain summary judgment on a claim he never asserted in the pleadings.
Under Rule 56(a), a "party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory judgment" may move for summary judgment. Fed. Rule Civ. P. 56(a) (emphasis added). Though Ayers has not filed a claim, counterclaim, or cross-claim in this action, his answers to the complaint and to Great American's counterclaim clearly assert a right to proceeds under the policy and seek declaratory relief that Great American "be ordered to comply with [its] contractual obligations" to Ayers under the excess D O policy. See Answer of Donald Ayers to National Century's Second Am. Compl., ¶ 87; Answer of Donald Ayers to Great American's Counterclaim, ¶ 88. The court finds that Ayers may seek summary judgment under Rule 56(a) on the issue of advancement of defense costs. See 10A Wright, Miller Kane, Federal Practice and Procedure § 2717 (3d ed. 1998) ("Rule 56(a) should be read broadly as embracing anyone seeking relief in an action.") (citing cases).
Lance Poulsen, Barbara Poulsen, Rebecca Parrett, and James Dierker — each of whom have joined in the motion to advance defense costs — have all similarly stated in their answers that they seek a declaration that they are entitled to proceeds under the Great American policy.
Under Fed.R.Civ.P. 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."See LaPointe v. United Autoworkers Local 600, 8 F.3d 376, 378 (6th Cir. 1993); Osborn v. Ashland County Bd. of Alcohol, Drug Addiction Mental Health Servs., 979 F.2d 1131, 1133 (6th Cir. 1992) (per curium). The party that moves for summary judgment has the burden of showing that there are no genuine issues of material fact in the case at issue, LaPointe, 8 F.3d at 378, which may be accomplished by pointing out to the court that the nonmoving party lacks evidence to support an essential element of its case.Barnhart v. Pickrel, Schaeffer Ebeling Co., L.P.A., 12 F.3d 1382, 1389 (6th Cir. 1993). In response, the nonmoving party must present "significant probative evidence" to demonstrate that "there is [more than] some metaphysical doubt as to the material facts." Moore v. Philip Morris Cos., Inc., 8 F.3d 335, 339-40 (6th Cir. 1993). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis added); see generally Booker v. Brown Williamson Tobacco Co., Inc., 879 F.2d 1304, 1310 (6th Cir. 1989).
In reviewing a motion for summary judgment, "this Court must determine whether `the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'"Patton v. Bearden, 8 F.3d 343, 346 (6th Cir. 1993) (quotingAnderson, 477 U.S. at 251-53). The evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed in the light most favorable to the nonmoving party.Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). See also Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456 (1992). However, "[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252. See also Gregory v. Hunt, 24 F.3d 781, 784 (6th Cir. 1994). Finally, a district court considering a motion for summary judgment may not weigh evidence or make credibility determinations. Adams v. Metiva, 31 F.3d 375, 378 (6th Cir. 1994).
C. Exhaustion of the Gulf Proceeds
Both Great American and National Century oppose the motion to advance defense costs on the grounds that Ayers has not supported his motion with any evidence demonstrating that he has suffered a loss covered by the excess policy. Great American and National Century argue that Ayers cannot have a covered loss until he shows that he exhausted the proceeds he received under the Gulf policy.
The court agrees with this argument. Under the excess policy, a loss is covered only upon exhaustion of the underlying Gulf policy. See Great American Excess Follow Form Policy, § II.B ("This policy shall . . . apply as excess insurance in the event of exhaustion of the limits of liability of the Underlying Insurance. . . ."). Ayers received $500,000 of Gulf policy proceeds pursuant to the bankruptcy court's January 10, 2005 decision. Ayers had incurred $189,859 in legal fees and expenses when the bankruptcy court held its hearing on the matter. Ayers has failed to support his motion for advancement of defense costs with any evidence showing that he has exhausted the $500,000 to which the bankruptcy court found that he was entitled to under the primary policy. Until Ayers incurs more than $500,000 in covered losses, he is not entitled to any proceeds under the excess policy.
The same holds true for Lance and Barbara Poulsen. The bankruptcy court found that they had incurred a combined total of $591,954 in litigation costs. The court found that they were entitled to a combined $1 million under the Gulf policy. The Poulsens have not supported their request for advancement of defense costs with any evidence that they have exhausted the proceeds of the Gulf policy.
Rebecca Parrett, on the other hand, proved before the bankruptcy court that she had incurred $762,425 in litigation costs. Thus, she has demonstrated that she has exhausted the $500,000 that she received in Gulf proceeds.
James Dierker is in a different position from the others. He did not make a claim under the Gulf policy. After the Gulf matter had been resolved, he was indicted in U.S. v. Poulsen. By this time, the Gulf policy proceeds had been entirely distributed to other insureds. Thus, the Gulf policy proceeds are not available to Dierker and are exhausted as to him. Dierker is entitled to assert a claim under the Great American policy.
Parrett and Dierker, who are the only directors or officers who have satisfied the exhaustion requirement of the Great American policy, have adopted the motion of Ayers and not offered any additional arguments in favor of their request to advance defense costs. The court will therefore will look to the motion of Ayers in evaluating whether Parrett and Dierker are entitled to an advancement of defense costs.
D. Applicable State Law
Without discussing which state's law applies to the Great American policy, the motion to advance defense costs cites both Ohio and non-Ohio cases. It cites Ohio case law for the proposition that the terms of a contract will determine if an insurer has a duty to defend the insured. The motion turns to non-Ohio case law in arguing that a insurer must advance defense costs under a D O policy even when it is asserting a right to rescission. See AEGIS v. Rigas, 382 F.Supp.2d 685, 691 (E.D. Pa. 2004) ("[B]ecause a contract is in effect until the issue of rescission is adjudicated, an insurer is bound by the obligations in that contract to advance defense costs until the contract is found to be rescinded."); Federal Ins. Co. v. Tyco Int'l Ltd., No. 600507/03, 2004 WL 583829, at *6 (Sup.Ct. N.Y. March 5, 2004) ("Federal's unproven rescission claim does not affect its present obligation to defend Kozlowski or pay his defense costs under the Policies.").
Great American responds that the court need not follow AEGIS orTyco because they are not Ohio cases. Great American believes that Ohio law applies to the policy and argues that it makes a difference because a federal district court in Ohio has refused to apply Tyco in analyzing an insurer's contractual obligation to cover defense costs. See Schwartz v. CNA Ins. Co., 406 F.Supp.2d 844, 851-52 (N.D. Ohio 2005) ("Plaintiffs have neglected to explain or justify why this Court should apply New York state law to the instant case.").
"It is well-settled in Ohio that in cases involving a contract, the law of the state where the contract is made governs interpretation of the contract." Nationwide Mut. Ins. Co. v. Ferrin, 21 Ohio St.3d 43, 44, 487 N.E.2d 568, 569 (Ohio 1986) (citing cases). Absent a choice of law provision in the contract, a court may look at the following factors in determining where the contract was made: the place of contracting; the place of negotiations of the contract; the place of performance; the location of the subject matter of the contract; and the domicile, residence, nationality, place of incorporation and place of business of the parties. Gries Sports Enterprises, Inc. v. Modell, 15 Ohio St.3d 284, 287, 473 N.E.2d 807, 810 (Ohio 1984).
The court is not armed with sufficient information to decide, as a matter of law, which state's law applies in this case. Reviewing the policy, the court does not find a choice of law provision. Again, the motion did not address the issue and Ayers did not file a reply brief. Great American, while generally believing that Ohio law should apply, did not specifically address any of the factors enumerated in Gries.
E. Effect of Entity Coverage
National Century further opposes the motion to advance defense costs because the Great American policy, unlike the policies inAEGIS or Tyco, includes entity coverage. National Century contends that the motion blindly applies AEGIS or Tyco without taking into account the particular language of the Great American policy.
National Century correctly points out another defect in the motion to advance defense costs. The motion argues that advancing defense costs is proper under AEGIS and Tyco, but it never engages in any analysis of the language of the D O policy itself. The motion does not identify the operative provision under which the directors seek coverage for their defense costs. The policy contains four separate "insuring clauses." See Gulf Policy, § 1. The motion does not suggest which of the insuring clauses applies in this case. The policy contains a section entitled "Defense Costs." See id., § 7. The insurer's responsibilities concerning defense costs vary depending on whether there is entity coverage and whether a "duty to defend" option has been elected. The motion fails to address any of these matters.
What is important is not so much what New York or Pennsylvania cases say (unless the directors can prove that New York or Pennsylvania law applies to the D O policy), it is what the policy itself says regarding whether Great American must advance defense costs. Given the motion's failure to analyze the language of the policy and make an argument under the terms of the policy, the court cannot say, as a matter of law, that Parrett and Dierker are entitled to an advance of defense costs.
IV. Conclusion
For the reasons set forth above, National Century's motion to dismiss Great American's counterclaim for rescission is GRANTED IN PART and DENIED IN PART. The motion is granted insofar as the basis of the rescission claim is that the annual reports and interim financial statement submitted with the proposal form were false. The motion is denied insofar as the basis of the rescission claim is that Poulsen misrepresented National Century's solvency when he signed the proposal form.
Great American's motion to strike arguments raised for the first time in National Century's reply brief is GRANTED.
The motion of Donald Ayers for advancement of defense costs, in which Lance and Barbara Poulsen, Rebecca Parrett, and James Dierker joined, is DENIED.
Lance Poulsen's motion for expedited consideration of the pending motions in this case is DENIED AS MOOT.