District of Columbia
Court of Appeals
No. 14-CV-659 FEB 11 2016
CARLYLE INVESTMENT MANAGEMENT, LLC, et al.,
Appellants,
v. CAB-3190-13
ACE AMERICAN INSURANCE COMPANY, et al.,
Appellees.
On Appeal from the Superior Court of the District of Columbia
Civil Division
BEFORE: Thompson and Easterly, Associate Judges; and Reid, Senior Judge.
JUDGMENT
This case came to be heard on the transcript of record, the briefs filed, and
was argued by counsel. On consideration whereof, and as set forth in the opinion filed this
date, it is now hereby
ORDERED and ADJUDGED that the trial court‘s order of dismissal is
vacated, and the case is remanded to the trial court for discovery, and for dispositive
motions or trial.
For the Court:
Dated: February 11, 2016.
Opinion by Senior Judge Inez Smith Reid.
Notice: This opinion is subject to formal revision before publication in the
Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the
Court of any formal errors so that corrections may be made before the bound
volumes go to press.
2/11/16
DISTRICT OF COLUMBIA COURT OF APPEALS
No. 14-CV-659
CARLYLE INVESTMENT MANAGEMENT L.L.C., et al., APPELLANTS,
v.
ACE AMERICAN INSURANCE COMPANY, et al., APPELLEES.
Appeal from the Superior Court
of the District of Columbia
(CAB-3190-13)
(Hon. Frederick H. Weisberg, Trial Judge)
(Argued May 12, 2015 Decided February 11, 2016)
Stephen A. Weisbrod, with whom Martin Bienstock, Andrew W. Lamb, and
Sean J. Williams, were on the brief, for appellants.
Louis H. Kozloff, with whom Lawrence H. Mirel, Luke D. Lynch, Jr., and
David Kuffler, were on the brief, for appellees.
Before THOMPSON and EASTERLY, Associate Judges, and REID, Senior Judge.
REID, Senior Judge: This case involves efforts by appellants, Carlyle
Investment Management (―CIM‖), TC Group, L.L.C. (―TCG‖), and TCG Holdings,
L.L.C. (―TCGH‖) (collectively, ―appellants‖), to obtain declaratory relief indicating
that they are entitled to insurance coverage for defense costs incurred or to be
incurred in underlying lawsuits. The trial court granted the Super. Ct. Civ. R. 12
2
(b)(6) motion of appellees, Ace American Insurance Company and fifteen other
insurance companies, including Chartis Property Casualty Company and Chartis
Specialty Insurance Company (―the insurance companies‖), and dismissed
appellants‘ complaint. The trial court concluded that, as a matter of law, all of the
claims in the underlying lawsuits arise from ―professional services‖ provided to the
Carlyle Capital Corporation (―CCC‖), and hence, the claims fall under the insurance
policies‘ ―Carlyle Capital Corp Exclusion‖ (―the professional services exclusion‖ or
―the CCC exclusion‖). For the reasons stated below, we vacate the trial court‘s
order of dismissal and remand the case to the trial court for discovery, and for
dispositive motions or trial.
FACTUAL SUMMARY
According to appellants‘ complaint, The Carlyle Group formed CCC as an
independent company under the laws of the Island of Guernsey, Channel Islands, in
2006.1 CCC is governed by a small Board of Directors, and is managed by CIM
1
CCC has described The Carlyle Group as ―a private global investment
firm‖ that, among other activities, ―originates, structures and acts as lead equity
investor in management-led buyouts . . . [and in] equity private placements . . . .‖
Appellants‘ complaint also characterizes (1) The Carlyle Group as ―a global private
(continued…)
3
and its affiliates—TCG and TCGH.2
―CCC invested primarily in AAA-rated residential mortgage-backed
securities issued by Fannie Mae and Freddie Mac.‖ Initially Class A shares in CCC
were issued to beneficial voting shareholders. In September 2006, CCC prepared a
private placement memorandum governing the private placement of non-voting
shares. In late 2006 and in part of 2007, CCC offered its Class B shares to qualified
investors and raised $945 million. Among the investors in CCC were Michael
Huffington, and the National Industries Holding Group (―NIG‖) of Kuwait. After
CCC collapsed in 2008, due to ―the confluence of the mortgage and liquidity crises,‖
several legal actions were filed against The Carlyle Group, CCC, CCC Directors,
CIM, TCG, TCGH, and David Rubenstein (co-founder of The Carlyle Group);
plaintiffs in these actions included Mr. Huffington (2011 complaint), NIG (2009
complaint), the CCC liquidators (2012 complaint), and various shareholders (2011
complaint). As the legal actions unfolded in various courts, CIM, TCG and TCGH
gave the insurers notice of the lawsuits and made claims against the insurance
(…continued)
equity firm comprised of numerous companies, including CIM, TCG and TCGH‖;
(2) CIM as ―a subsidiary of TCG‖; and (3) TCG as ―a subsidiary of TCGH.‖
2
CCC and CIM (but not TCG and TCGH) executed an Investment
Management Agreement on September 20, 2006.
4
companies for the advancement and reimbursement of defense costs. The insurers
have denied the claims.
After the formation of CCC, The Carlyle Group had arranged for expanded
insurance coverage through a $15 million policy issued to TCG by American
International Specialty Lines Insurance in 2006/2007, and a $10 million policy
issued to TCG by the same company in 2007/2008 and 2008/2009. In 2009/2010,
Chartis Specialty Insurance Company (the new name for the former insurance
company) issued a $10 million private equity management and professional liability
policy to TCG; this policy was known as the TCG Program. Other insurers issued
excess policies to TCG, beginning with $50 million excess coverage for the year
2006/2007, $75 million in 2007/2008, $100 million in 2008/2009, and $145 million
in 2009/2010. In addition, The Carlyle Group and CCC purchased another policy
for CCC through Chartis Europe Limited; this policy was known as the CCC
Program and covered CCC Directors and CIM only for professional liability claims.
In 2007 (and continuing through the 2009/2010 insurance coverage period),
American International Specialty Lines, Chartis Specialty Insurance, and the excess
insurers added Endorsement #2, the ―Carlyle Capital Corp Exclusion,‖ to the TCG
policy. This professional services exclusion specified that, ―In consideration of the
5
premium charged, it is hereby understood and agreed that the Insurer shall not be
liable to make any payment for Loss in connection with any Professional Services
Claim arising from Professional Services provided to Carlyle Capital Corp.‖3
3
The 2009/2010 policy defined ―professional services claim‖ as ―a [c]laim
made against any [i]nsured arising out of, based upon or attributable to
[p]rofessional [s]ervices provided by an [i]nsured.‖ The policy defined
professional services as:
(1) [T]he giving of financial, economic or investment
advice regarding investments in any debt, equity or
convertible securities, collateralized debt obligations,
collateralized loan obligations, collateralized mortgage
obligations, . . . , including without limitation the
giving of financial advice to or on behalf of any [f]und
(or any prospective [f]und) or any separately managed
account or separate account holder or any limited
partner of any [f]und (or prospective [f]und) or any
other investor or client of, in or with an [o]rganization;
(2) [T]he rendering of or failure to render investment
management services, including without limitation
investment management services concerning any of
the foregoing investments, and including without
limitation, the rendering of or failure to render
investment management services to or on behalf of any
[f]und (or any prospective [f]und) or any separately
managed account or separate account holder or any
limited partner of any [f]und (or prospective [f]und) or
the rendering or failure to render investment
management services to or on behalf of any other
investor or client of, in or with an [o]rganization;
(continued…)
6
Appellants‘ complaint for declaratory relief and damages, filed in the
Superior Court of the District of Columbia on May 7, 2013, alleged two causes of
(…continued)
(3) [T]he organization or formation of, the purchase or sale
or offer or solicitation for the purchase or sale of any
interest(s) in, the calling of committed capital to, a
[f]und or prospective [f]und;
(4) [A]ny activity relating to the offer, purchase or sale or
solicitation for the purchase or sale, or disposition or
divestiture of any [p]ortfolio [e]ntity (or prospective
[p]ortfolio entity) or any interest(s) in a [p]ortfolio
[e]ntity (or prospective [p]ortfolio [e]ntity);
(5) [T]he providing of advisory, consulting, management,
monitoring, administrative, investment, financial or
legal advice or other services for, or the rendering of
any advice to, or with respect to, an [o]rganization, a
[f]und (or any of its limited partners or members) or a
[p]ortfolio [e]ntity (or a prospective [o]rganization,
[i]nvestment [f]und or [p]ortfolio [e]ntity)
(6) The solicitation, offer, syndication, promotion or
calling of capital by an [i]nsured for any manner of
co-investment in a [p]ortfolio [e]ntity or [p]rospective
[p]ortfolio [e]ntity, including but not limited to
fund-raising, road show, investor relations or pre-IPO
activities;
(7) [T]he payment or non-payment of any distribution,
dividends, redemption (whether in cash or in-kind) by
any [i]nsured], [p]ortfolio [e]ntity or any of their
respective parents, subsidiaries or affiliates; or
(8) Other similar or related services.
7
action. Count one sought a declaratory judgment concerning its policies, and, as
relief, appellants requested, in part, ―a judgment declaring that Carlyle has satisfied
the terms and conditions of the policies,‖ as well as:
a judgment declaring Carlyle‘s rights to coverage under
the policies in the TCG Program for CCC-related claims,
including Carlyle‘s rights to advancement of defense
costs, Carlyle‘s rights to reimbursement of
indemnification payments made to or on behalf of the
CCC Directors and Mr. Rubenstein, and Carlyle‘s rights
with respect to payments of judgments or settlements.
Count two alleged breach of contract and requested damages.
In response to the complaint, appellees filed a joint motion to dismiss on July
19, 2013, pursuant to Super. Ct. Civ. R. 12 (b)(6). Appellants lodged an opposition
to the motion on September 20, 2013; appellees filed a reply and appellants a
surreply. The parties also filed exhibits in support of the motion and opposition.
In addition, on March 19, 2014, appellees moved to stay discovery pending a
decision on their motion to dismiss. Appellants opposed the motion on April 17,
2014, and the parties filed additional pleadings pertaining to the motion to stay
discovery. On April 29, 2014, the trial court granted the motion to stay discovery,
asserting that despite the passage of time since the filing of the motion to dismiss, ―it
would be inefficient, and potentially unfair to [Appellees], to launch the parties into
8
expensive discovery while the court considers whether [Appellants] have a basis to
go forward with their complaint.‖
Subsequently, on May 15, 2014, the trial court signed an order granting
appellees‘ motion to dismiss. In essence, the trial court concluded that key terms
are so broadly defined in the insurance contract that everything alleged in the various
underlying complaints (Huffington, NIG, etc.), for which appellants sought defense
costs, is excluded from coverage. Specifically, the court declared that the terms
―Professional Services‖ and ―Professional Services Claim‖ ―are specifically defined
in the contract, the definitions are broad and unambiguous and, as used in the
Exclusion, they operate to exclude coverage for all of the losses (and defense costs)
at issue in this case.‖ The court asserted:
Although plead in a plethora of different legal theories and
multiple counts, the gravamen of all of the underlying
complaints is that [appellants] enticed the investors into
unsafe investments by falsely promising high returns with
minimal risk, misled or failed to warn investors about
increasing risk, and mismanaged the investments by
failing to guard against their inherent risk, even after
deteriorating market conditions should have dictated a
variety of conservative strategies designed to decrease
leverage and prevent the insolvency of the company and
investor losses that occurred in 2008.
The court acknowledged that appellants correctly contended:
that the court is required to consider each claim in each
9
complaint in deciding the coverage issue presented, but
the ‗eight corners rule‘ neither requires nor permits the
court to scrutinize each count in each complaint with a
dictionary in one hand and The Chicago Manual of Style
in the other to see if there is an allegation that could be
contorted so as to bear an interpretation that would take it
out of the Exclusion[;] [t]he exclusion is not ambiguous.[4]
The trial court rejected appellants‘ argument that ―‗management-liability
claims‘—those related to acts, errors, and omissions in corporate governance or
‗D&O‘ claims—are not excluded.‖ As the court put it:
Whatever might be true in the insurance industry
generally, in [the] insurance contract [at issue], ―Loss in
connection with any Professional Services Claim arising
from Professional Services provided to Carlyle Capital
4
The trial court concluded:
Each claim in each complaint arises from the
provision of Professional Services to CCC, whether it
relates to the alleged false marketing of the shares to
private investors (Huffington and NIG), the alleged failure
to make required disclosures to purchasers of publicly
traded shares (Shareholder Class Action), CIM‘s alleged
mismanagement of CCC under the IMA (Huffington,
NIG, Shareholder Class, and Liquidators), the alleged
misrepresentations or failure to warn investors and failure
to take appropriate actions to maintain adequate liquidity
when the market was showing signs of collapse and CCC
was over-leveraged (same), or the operation of CCC with
divided loyalties by acting as ―de facto directors‖ or
―shadow directors,‖ allegedly for the benefit of other
Carlyle interests and to the detriment of CCC and its
outside shareholders (Liquidators).
10
Corp.‖ was expressly excluded from coverage[;] [t]hose
terms were defined in the contract broadly enough to
include virtually all of the conduct alleged against
[appellants] (and those they are indemnifying) in the
underlying lawsuits, whether or not such conduct would
be characterized as professional services or corporate
management in the industry generally or in some other
insurance contract.
THE PARTIES’ ARGUMENTS
Appellants contend that the trial court erred by granting appellees‘ motion to
dismiss, pursuant to Super. Ct. Civ. R. 12 (b)(6). They essentially argue that the
trial court erred by construing the professional services exclusion ―broadly‖ and
―expansively‖ rather than ―narrowly.‖ They assert that the court further erred by
failing to recognize that the professional services exclusion of the insurance contract
is ‗―reasonably or fairly susceptible to different constructions or interpretations,‘ at
least one of which allows some coverage,‖ and that the professional services
exclusion ―is reasonably construed not to apply to the many [u]nderlying [c]laims
concerning CCC‘s corporate governance; conduct occurring after CCC was publicly
traded; or statements allegedly made to induce investors to hold onto interests in
CCC, which plainly are not ‗solicitation[s] for the purchase or sale of any
interest[s].‘‖ They also argue that the professional services exclusion is not
reasonably construed to apply to de facto and shadow director claims in the
11
liquidators‘ law suit; and that the trial court wrongly branded as ―irrelevant‖ the
professional services definition‘s ―recipient-entity requirements‖ (that is, for
example, the requirement in some of the subparts of the definition that the services
be rendered to a ―Fund,‖ ―Organization,‖ or ―Portfolio Entity).‖ They fault the trial
court for failing to ―specif[y] what part of the ―[p]rofessional [s]ervices‖ definition
purportedly applies unambiguously to corporate governance,‖ and for failing to
―consider[] whether the definition of ‗[p]rofessional [s]ervices‘ is ambiguous due to
its use of undefined phrases such as ‗investment management services‘ and
‗management services‘‖ (emphasis in original).
Appellants contend that ―[r]eversal is warranted here, [because] the terms
‗investment management services‘ and ‗management . . . services‘ do not
unambiguously encompass corporate governance,‖ that ―corporate governance is
not a ‗service,‘‖ and interpreting those services ―as not encompassing corporate
governance comports with common usage in the business world.‖ Appellants
further contend that ―[n]o other part of the [p]rofessional [s]ervices definition comes
close to encompassing corporate governance.‖5 Finally, appellants emphasize that
5
Appellants further claim that their policy interpretation is ―reasonable‖
under principles of contract interpretation, and ―fits the objective context in which
the parties agreed to the [p]olicy and [e]xclusion,‖ a context that recognizes
(continued…)
12
the trial court must ―analyz[e] each cause of action in each [underlying] lawsuit‖
(emphasis in original). And, they insist that, here, the trial court failed to apply the
correct standard in dismissing its complaint under Rule 12 (b)(6) – the ―defense-cost
standard‖ that ―precludes dismissal unless beyond doubt there is no possibility for
any coverage for any [u]nderlying [c]laim.‖
Appellees urge this court to ―hold as a matter of law that there is no coverage
for the [u]nderlying [l]awsuits and affirm the Superior Court‘s dismissal of the
[c]omplaint.‖ Appellees stress the plain words of the professional services
exclusion and the presence of the term ―arising out of‖ in the professional services
claim definition. Specifically, they contend that, ―The breadth of the definition . . .
assures Carlyle broad coverage for the range of activities it undertakes as part of its
private equity operations,‖ but ―it bars coverage for [c]laims ‗arising from‘ the
provision of those same services to CCC.‖ They further maintain that, ―[b]ecause
the CCC Exclusion excludes ―‘[p]rofessional services claims arising from
[p]rofessional [s]ervices provided to Carlyle Capital Corp.‘ [emphasis in original],
(…continued)
―industry custom and usage,‖ as well as ―the simultaneous underwriting of the TCG
and CCC Programs‖ and ―the CIM-CCC relationship.‖ They maintain that the trial
court erred by failing (in the absence of the benefit of discovery) to understand that
the professional services exclusion was an ―E&O‖ (errors and omissions) exclusion
and not a ―D&O‖ (directors and officers) exclusion.
13
the [c]ourt need not determine that literally every allegation in the [u]nderlying
[l]awsuits alleges an [i]nsured‘s provision of [p]rofessional [s]ervices to CCC.‖
They insist that each underlying claim arises from professional services provided to
CCC.
Appellees ―push back‖ against appellants‘ arguments by stressing the broad
definition of professional services, which they claim is unambiguous. They declare
that, ―the breadth of the definition of [p]rofessional [s]ervices‖ simply bolsters the
Superior Court‘s conclusion that whatever phrases like ‗management services‘ and
‗professional services‘ might mean in the abstract and out of context, as used in the
[p]olicy, they easily encompass both ‗operational management‘ and ‗corporate
governance‘ services.‖ Moreover, appellees agree with the trial court that whether
CCC, ―at any given point in time, was a [f]und, [o]rganization or some other form of
entity relevant to the [p]olicy‘s definition of [p]rofessional [s]ervices,‖ is irrelevant,
because ―the CCC Exclusion explicitly provides that it applies to all [p]rofessional
[s]ervices ‗provided to CCC.‘‖
ANALYSIS
Standard of Review
14
―We review de novo the trial court‘s dismissal of a complaint under Super. Ct.
Civ. R. 12 (b)(6).‖ Logan v. LaSalle Bank Nat’l Ass’n, 80 A.3d 1014, 1019 (D.C.
2013) (citation omitted). In this notice pleading jurisdiction, which has ―adopted
the pleading standard[s] articulated by the Supreme Court,‖ Equal Rights Ctr. v.
Properties Int’l, 110 A.3d 599, 602 (D.C. 2015) (per curiam), a complaint must
contain sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.‖ Logan, supra, 80 A.3d at 1019 (citing Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)) (internal quotation marks omitted); see also Comer v. Wells
Fargo Bank, 108 A.3d 364, 371 (D.C. 2015) (―to survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.‖) (internal quotation marks and citation omitted).
―Bare allegations of wrongdoing that are no more than conclusions are not entitled
to the assumption of truth, and are insufficient to sustain a complaint.‖ Logan,
supra, 80 A.3d at 1019 (citing Iqbal, supra, 556 U.S. at 679). ―However, [w]hen
there are well-pleaded factual allegations, a court should assume their veracity and
then determine whether they plausibly give rise to an entitlement to relief.‖ Id.
(internal quotation marks and citation omitted). We draw all inferences from the
factual allegations of the complaint in the plaintiff‘s favor. Equal Rights Center,
supra, 110 A.3d at 603 (citing Grayson v. AT&T Corporation, 15 A.3d 219, 288
(D.C. 2011) (en banc)). ―A complaint should not be dismissed because a court does
15
not believe that a plaintiff will prevail on [its] claim[;] [i]ndeed it may appear on the
face of the pleadings that a recovery is very remote and unlikely but that is not the
test.‖ Logan, supra, 803 A.3d at 1019 (citing Grayson, supra, 15 A.3d at 229
(internal quotation marks omitted)). ―Dismissal is proper only where it appears,
beyond doubt, that the plaintiff can prove no facts which would support the claim.‖
Schiff v. American Ass’n of Retired Persons, 697 A.2d 1193, 1196 (D.C. 1997)
(citations omitted).
Discussion
In this ―private equity management and professional liability insurance‖
contract case, that the trial court dismissed under Rule 12 (b)(6) and that involves a
demand for a declaratory judgment indicating that appellants are entitled to coverage
for defense costs and for settlements and judgments, we are unable to agree with the
trial court and appellees that appellants did not state a claim to relief that is plausible
on its face because, as a matter of law, the policy‘s professional services exclusion is
so broad and unambiguous that it precludes any coverage pertaining to appellants‘
defense of underlying lawsuits filed against them by Mr. Huffington, NIG, the CCC
liquidators, and shareholders. Before explaining our conclusion, we set forth legal
principles governing insurance contract interpretation.
16
Legal Principles Governing Interpretation of the Insurance Policies
Contract principles are applicable to the interpretation of an insurance policy.
Stevens v. United Gen. Title Ins. Co., 801 A.2d 61, 66 (D.C. 2002) (citation omitted).
―The proper interpretation of a contract, including whether a contract is ambiguous,
is a legal question, which this court reviews de novo.‖ Tillery v. District of
Columbia Contract Appeals Bd., 912 A.2d 1169, 1176 (D.C. 2006) (citation
omitted). This court ―adheres to an objective law of contracts, meaning that the
written language embodying the terms of an agreement will govern the rights and
liabilities of the parties regardless of the intent of the parties at the time they entered
the contract, unless the written language is not susceptible of a clear and definite
meaning.‖ Aziken v. District of Columbia, 70 A.3d 213, 218-19 (D.C. 2013)
(quotation marks and citation omitted). ―The writing must be interpreted as a
whole, giving a reasonable, lawful, and effective meaning to all its terms, and
ascertaining the meaning in light of all the circumstances surrounding the parties at
the time the contract was made.‖ Debnam v. Crane Co., 976 A.2d 193, 197 (D.C.
2009) (internal quotation marks and citation omitted). ―Where the contract
language is not susceptible of a clear and definite meaning—i.e., where the contract
is determined by the court to be ambiguous—external evidence may be admitted to
17
explain the surrounding circumstances and the positions and actions of the parties at
the time of contracting.‖ Aziken, supra, 70 A.3d at 219 (internal quotation marks
and citation omitted).
―[I]f the provisions of the contract are ambiguous, the correct interpretation
becomes a question for a factfinder.‖ Debnam, supra, 976 A.2d at 197-98.
However, ―a contract is not ambiguous merely because the parties do not agree over
its meaning, and courts are enjoined not to create ambiguity where none exists.‖
Tillery, supra, 912 A.2d at 1177 (internal quotation marks and citation omitted).
Generally, we ―determine what a reasonable person in the position of the parties
would have thought the disputed language meant.‖ Travelers Indem. Co. v. United
Food & Commercial Workers Int’l Union, 770 A.2d 978, 986 (D.C. 2001) (internal
quotation marks and citation omitted). We also examine the document on its face,
giving the language used its plain meaning, unless, in context, it is evident that the
terms used have a technical or specialized meaning.‖ Interstate Fire & Cas. Co. v.
Washington Hosp. Ctr. Corp., 758 F.3d 378, 383 (D.C. Cir. 2014) (citing Beck v.
Continental Cas. Co. (In re May), 936 A.2d 747, 751 (D.C. 2007)) (internal
quotation marks omitted). We follow ―[t]he general rule applicable in the
interpretation of an insurance policy . . . that, if its language is reasonably open to
two constructions, the one most favorable to the insured will be adopted.‖ Chase v.
18
State Farm Fire & Cas. Co., 780 A.2d 1123, 1127 (D.C. 2001).
The Contract’s Definition of Professional Services
Here, the definition of ―professional services‖ in the insurance contract at
issue is not a simple one; nor are the corporate structure of CCC and the underlying
complaints simple. The professional services definition consists of eight subparts
and is not easy to interpret, although it generally uses ordinary words.
Significantly, important terms are not defined, including ―investment management
services‖ and ―management services,‖ although terms such as ―management
control‖ are defined. The definition of professional services makes no mention of
other important terms such as ―corporate governance‖ and whether that is subsumed
under the concept of ―management services.‖ Still other terms which are used
repeatedly in the subparts of the definition, including ―fund,‖ ―organization,‖ and
―portfolio entity,‖ are not defined, and there are no discovery documents or
depositions bearing on their meaning. Nevertheless, principles of contract
interpretation require that we interpret the policy ―as a whole, giving a reasonable,
lawful, and effective meaning to all its terms, and ascertaining the meaning in light
of all the circumstances surrounding the parties at the time the contract was made.‖
Debnam, supra, 976 A.2d at 197. Thus, we cannot, as appellees urge in support of
19
the trial court‘s approach, declare some parts of the professional services definition
as ―irrelevant,‖ instead of allowing the case to proceed to discovery so that the court
may have the benefit of ―the surrounding circumstances and the positions and
actions of the parties at the time of contracting.‖ We believe that the term
―professional services‖ as used in the insurance policy is reasonably open to more
than one construction, and hence, the one most favorable to the insured must be
adopted. Chase, supra, 780 A.2d at 1127. In short, we hold that the definition of
professional services in appellants‘ private equity management and professional
liability insurance contract is ambiguous, Aziken, supra, 70 A.3d at 219, and thus,
the correct interpretation [of the professional services definition and the contract]
[is] a ―question for a factfinder,‖ Debnam, supra, 976 A.2d at 197-98.
Review of the Underlying Claims and the Duty to Defend
There is another reason why we are constrained to reverse the trial court‘s
Rule 12 (b)(6) judgment in this case. Based on the record before us, we cannot be
sure that at the early Rule 12 (b)(6) phase of the litigation, the trial court applied
legal principles governing not only the disposition of Rule 12 (b)(6) motions, but
also pertinent legal principles governing both the duty of an insurance company to
defend the insured and the obligation of the trial court to compare the underlying
20
complaints with the insurance contract. We previously indicated that the trial court
must accept as true the factual allegations in a well-pleaded complaint and must not
dismiss the complaint because the court believes that recovery by an appellant is
very remote and unlikely. See Logan, supra, 80 A.3d at 1019; Equal Rights Ctr.,
110 A.3d at 603. We now set forth other pertinent and applicable legal principles.
Applicable Legal Principles
To determine whether an insurance company has the duty to defend an
insured, this court examines both the underlying complaint and the insurance policy.
Stevens, supra, 801 A.2d at 66; see also Fogg v. Fidelity Nat’l Title Ins. Co., 89 A.3d
510, 512 (D.C. 2014) (this court applies the ―eight corners rule‖ set forth in Stevens,
supra,—compare the four corners of the complaint with the four corners of the
insurance policy). We must construe the underlying complaints in favor of the
insured. Adolph Coors Co. & Brewing Co. v. Truck Ins. Exch., 960 A.2d 617, 623
(D.C. 2008). ―If the allegations of the complaint state a cause of action within the
coverage of the policy the insurance company must defend.‖ Stevens, supra, 801
A.2d at 66 n.5. ―The duty to defend is broader than the duty to indemnify, and an
insurer may have to defend before it is clear whether there is a duty to indemnify.‖
Centennial Ins. Co., v. Patterson, 564 F.3d 46, 50 (1st Cir. 2009) (citation omitted).
21
If there is no duty to defend, there is no duty to indemnify. Massamont Ins. Agency,
Inc. v. Utica Mut. Ins. Co., 489 F.3d 71, 75 (1st Cir. 2007) (citation omitted).
If a professional liability policy contains policy exclusions, the policy ―do[es]
not insure against all liability incurred by the insured.‖ See Zurich Am. Ins. Co. v.
O’Hara Reg’l Ctr. for Rehab., 529 F.3d 916, 924 (10th Cir. 2008). However,
―exclusions from coverage are to be strictly construed, and any ambiguity in the
exclusion must be construed against the insurer.‖ Hakim v. Massachusetts
Insurers’ Insolvency Fund, 675 N.E. 2d 1161, 1165 (Mass. 1997) (internal quotation
marks and citation omitted). ―Where an insurer attempts to avoid liability under an
insurance policy on the ground that the loss for which recovery is sought is covered
by some exclusionary clause, the burden is on the insurer to prove the facts which
bring the case within the specified exception.‖ Cameron v. USAA Property & Cas.
Ins. Co., 733 A.2d 965, 968 (D.C. 1999).
―When the underlying lawsuit alleges injuries resulting from the provision of
both professional services and non-professional services, a professional services
exclusion does not negate the . . . duty to defend.‖ National Cas. Co. v. Western
World Ins. Co., 669 F.3d 608, 615 (5th Cir. 2012) (citation omitted).
―[P]rofessional services exclusions do not limit insurers‘ duty to defend lawsuits
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alleging injuries that result in part from the performance of administrative tasks….‖
Id. at 616.
The Claims in the Underlying Lawsuits
On the record in this case and at the Rule 12 (b)(6) phase of the litigation, we
have substantial doubt as to whether the trial court properly applied the ―eight
corners rule‖ in determining whether appellees had the duty to defend appellants.
We certainly agree with the trial court that it is not required ―to scrutinize each count
in each complaint with a dictionary in one hand and The Chicago Manual of Style in
the other‖ in reviewing the underlying complaints. However, more than a cursory
review of the underlying complaints and the policy exclusion is required in this case,
and it must be clear, without sweeping generalizations, that all claims in the
underlying complaints fall squarely within the professional services exclusion, and
thus, as a matter of law appellants have not stated a claim for relief that is plausible
on its face, Logan, supra, 80 A.3d at 1019, and they can prove no set of facts which
would support their claim for defense costs, Schiff, supra, 697 A.2d at 1196.
The underlying amended CCC liquidators complaint covers approximately
121 pages and raises nineteen individual claims against CCC‘s directors, CIM, and
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Carlyle; these claims pertain to alleged breach of fiduciary and other duties, breach
of fiduciary duty as a de facto or shadow director, wrongful trading under Guernsey
law, breach of contract, gross negligence or negligence, unjust enrichment, and the
claim for the return of CCC‘s books and records and other property. It is not clear
from the trial court‘s order why all aspects of these claims, as pled, fall under the
policies‘ professional services exclusion, as a matter of law, given our conclusion
that the professional services definition is ambiguous. With respect to the
Huffington complaint, filed first in Massachusetts and then in Delaware, it is not
clear from the trial court‘s order, as appellants contend, why misstatements and
omissions of material fact made after Mr. Huffington‘s investment took place, fall
under the professional services exclusion, as a matter of law. The same may be said
with respect to the shareholders complaint.
Accordingly, for the foregoing reasons, we vacate the trial court‘s order of
dismissal and remand this case to the trial court for discovery, and for dispositive
motions or trial.
So ordered.