United States District Court, E.D. Wisconsin
MICHAEL R. CASHMAN, Plaintiff,
BAYLAND BUILDINGS, INC., STEVE AMBROSIUS, ABRAHAM FARLEY, Defendants, ACUITY, A MUTUAL INSURANCE COMPANY, Intervenor Defendant.
DECISION AND ORDER GRANTING ACUITY’S MOTION FOR SUMMARY JUDGMENT
William C. Griesbach, Chief Judge.
This matter is before the Court on the motion of Intervenor Defendant Acuity, A Mutual Insurance Company (“Acuity”), for summary judgment declaring that Acuity has no duty to defend or indemnify its insureds, Defendants Bayland Buildings, Inc., Steven Ambrosius and Abraham Farley, on the claims asserted against them by Plaintiff and former Bayland employee Michael Cashman. The Court has jurisdiction over the ERISA claims asserted in Cashman’s complaint under 28 U.S.C. § 1331. The Court has supplemental jurisdiction pursuant to 28 U.S.C. § 1367 over the state law claims, including Acuity’s claim for declaratory relief. For the reasons below, Acuity’s motion will be granted.
Plaintiff Michael R. Cashman filed this suit alleging violations of the Employee Retirement Income Security Act of 1974 (ERISA) and numerous state law claims against Bayland Buildings, Inc., Steve Ambrosius, and Abraham Farley. Bayland, which is engaged in the business of designing and building commercial buildings, is Plaintiff’s former employer. Ambrosius and Farley are alleged to be fiduciaries of Bayland’s Employee Stock Ownership Plan (the Plan).
Bayland and the individual defendants tendered the defense of the action to Acuity, their liability insurer. Acuity elected to defend under a reservation of rights until a coverage determination was made by the Court and intervened in the action. Acuity now seeks such a coverage determination, arguing there is no initial grant of coverage under the EBL policy endorsement discussed below and that certain exclusions preclude coverage even if there is an initial grant of coverage.
The complaint alleges that Cashman and Bayland entered into an employment agreement in 2013 under which Bayland was obligated to pay him a base salary, plus a commission on the net profit of all commercial sales and agricultural projects, and benefits, including retirement and health benefits and inclusion in the Plan. The complaint further alleges that Farley and Ambrosius breached their duties as fiduciaries of the Plan by diverting Bayland profits for their personal use. Farley is alleged to have built a garage at his personal residence and billed almost $9, 000 in costs plus concrete to an existing job for a client of Bayland. Ambrosius is alleged to have used Bayland funds to make a personal loan of more than $75, 000 to an individual who is repaying the loan directly to Ambrosius. These and other transactions, according to the complaint, decreased Bayland’s profits and thereby negatively affected the Plan and its participants, including Cashman. The complaint also alleges that Cashman’s employment was terminated by Bayland on March 26, 2015, and that Bayland has failed to pay him more than $100, 000 in commissions owed him under his employment agreement with Bayland.
The complaint asserts eleven “claims for relief” based on these allegations. In essence, however, the complaint alleges breach of fiduciary duties under Section 409(a) of ERISA, 29 U.S.C. § 1109(a), by Farley and Ambrosius; non-payment of wages in violation of Wisconsin law; breach of contract; and breach of the duty of good faith and fair dealing, each arising out of the failure to pay commissions. See Compl. Counts 1-3 (ERISA), Count 4 (non-payment of wages under Wis.Stat. §§ 109.03 and 109.11), Counts 5-10 (breach of contract and alternative quasi-contractual claims), and Count 11 (breach of duty of good faith).
The only potentially applicable coverage provision of the insurance policy at issue is included in an “Employee Benefits Liability Coverage Part” (the EBL endorsement). The EBL endorsement states in relevant part:
We will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages sustained by an employee, former employee, prospective employee or their beneficiaries or legal representatives. The damages must be caused by any negligent act, error or omission of the insured, or any other person for whose acts the insured is legally liable, in the administration of the insured’s employee benefit programs . . . .
Ex. A to Aff. of Daniel J. Hurst, ECF No. 20-1 at 82 (underlining added). “Administration” is defined in the policy to mean: “a. Giving counsel to employees with respect to the employee benefit programs; b. Interpreting the employee benefit programs; c. Handling of employee records in connection with the employee benefit programs; and d. Effecting enrollment, termination or cancellation of employees under the employee benefit programs; provided all such acts are authorized by the named insured.” Id. at 85 (underlines added). An “employee benefit program” means “group life insurance, group accident or health insurance, profit sharing plans, pension plans, employee stock subscription plans, workers’ compensation, unemployment insurance, salary continuation plans, social security, disability benefits insurance, savings plans, vacation plans or any other similar employee benefit programs.” Id.
The policy also contains two relevant exclusions. The first excludes coverage for “[a]ny dishonest, fraudulent, criminal or malicious act, libel, slander, discrimination or humiliation.” The second excludes coverage for “[t]he insured’s failure to comply with any law, regulation or executive order, ” including without limitation claims based on the violation of a fiduciary duty imposed under ERISA, but not including, by virtue of an exception to the exclusion, such claims based on “the administration” of an employee benefit program. Id. at 82.
Based on the allegations in the complaint and the policy, Acuity requests summary judgment declaring it has no duty to defend or indemnify its insureds because (1) the insuring agreement does not provide coverage for the insureds’ conduct alleged in the complaint and (2) any coverage it arguably provides is removed by each exclusion above. The defendants/insureds oppose the motion, offering several arguments addressed below.
A. Summary Judgment ...