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Companion Property and Casualty Insurance Co v. Wood

United States District Court, D. South Carolina, Columbia Division

July 20, 2017

COMPANION PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff,
v.
CHARLES DAVID WOOD, JR.; AMS STAFF LEASING, INC., d/b/a/ AMS Staff Leasing Corporation; BRECKENRIDGE ENTERPRISES, INC., d/b/a/ AMS Staff Leasing II; AMS Staff Leasing II, Inc.; HIGHPOINT RISK SERVICES, LLC; and ASPEN ADMINISTRATORS, INC., Defendants.

          OPINION AND ORDER NON-JURY ISSUES

          CAMERON MCGOWAN CURRIE SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the court for resolution of six issues that raise predominantly legal questions. The issues are as follows:

         1. Whether Companion Property and Casualty Insurance Company (“Companion”) is obligated to provide Defendants AMS Staff Leasing, Inc., Breckenridge Enterprises, Inc., and AMS Staff Leasing II, Inc. (collectively “AMS” or “AMS Defendants”) with collateral statements, claims data, and updated claims records as to open claims and consult with AMS prior to settling workers' compensation claims using AMS funds;

         2. Whether Defendant Charles David Wood Jr. (“Wood”) is obligated to pay Companion unreimbursed and future below-deductible claims and collateral obligations of AMS, arising under the Coverage Agreement dated December 1, 2006 (“2006 Coverage Agreement”), as well as other liabilities and losses relating to those obligations, based on paragraph I (“Guaranty Provision”) of the Guaranty and Indemnity Agreement Wood signed in favor of Companion (“Wood Guaranty”);

         3. Whether Wood must indemnify Companion, based on paragraph II (“Indemnity Provision”) of the Wood Guaranty, for any liability imposed on Companion in favor of AMS for unreimbursed above-deductible claims payments made on policies governed by the 2006 Coverage Agreement;

         4. Whether Companion is entitled to all earnings, including reinvested earnings, accrued on assets deposited in the trust account at State Street Bank & Trust Company (“State Street Account”) that is governed by a Trust Agreement between Companion, AMS, and State Street Bank and has an effective date of January 31, 2012 (“Trust Agreement”);

         5. Whether all funds held in the State Street Account are held solely for the benefit of AMS, regardless of the entity that deposited the funds (or other assets) or on whose behalf funds were deposited;

         6. Whether Wood must indemnify Companion for all reasonable attorney's fees and expenses incurred in connection with this action.

         The parties seek declaratory relief as to each of the issues listed above.[1]

         Prior to filing their memoranda, the parties agreed Defendants would bear the burden of proof on the first issue and Companion would bear the burden of proof on the remaining five issues. See ECF No. 409-1 Joint Submission; ECF No. 379 (docket text order noting agreement and setting briefing schedule).

         STANDARD

         The parties have stipulated the court may resolve the non-jury issues on the written submissions even if it becomes necessary to determine a dispute of fact or draw inferences from the facts. ECF No. 409.

         FACTS [2]

         1. The AMS Defendants are professional employer organizations (“PEOs”), entities that provide leased employees to other businesses, primarily in the construction industry. The AMS Defendants provide workers' compensation coverage for the leased employees.

         2. Wood owns the AMS Defendants. Wood also owns Defendants Aspen Administrators, Inc. (“Aspen”), and Highpoint Risk Services, LLC (“Highpoint”).[3] Wood previously owned an entity that was named Dallas National Insurance Company (“Dallas National”). Dallas National provided reinsurance for certain policies at issue in this action. It is, however, in receivership and no claims are asserted against it in this action.[4]

         3. Companion is a business that provides, inter alia, workers' compensation insurance in a number of states including but not limited to Texas and Florida.

         4. Companion and AMS (as well as other entities) are parties to the 2006 Coverage Agreement (ECF No. 340-1 at 3-9). That agreement established a relationship through which Companion provided certain forms of insurance to AMS, including workers' compensation insurance for AMS employees. The insurance provided pursuant to the 2006 Coverage Agreement is governed by separate policies (“Policies”). The relationship established was not, however, a traditional insurance relationship. It was, instead, what the parties have described as a “fronting” arrangement, meaning Policies were issued in Companion's name but all risk was to be borne by the other contracting parties through a combination of high-deductibles, reinsurance, and other protections.[5] Wood signed the 2006 Coverage Agreement on behalf of all AMS Defendants (and some other “AMS Entities”)[6] but is not, himself, a party to that agreement. Id. at 9.

         5. Companion and Wood are parties to the Wood Guaranty. Id. at 28-46. The Wood Guaranty included both a Guaranty Provision and an Indemnity Provision. The Guaranty Provision (Wood Guaranty ¶ I) guaranteed performance under “Subject Agreements” that include the 2006 Coverage Agreement, Policies, and a related third-party claims administration agreement (“TPA Agreement”).[7] Id. at 28. The Indemnity Provision (Wood Guaranty ¶ II) indemnified Companion for claims, losses, and liabilities related directly or indirectly to the Subject Agreements, including attorney's fees and costs. Id. at 29. Wood signed the Wood Guaranty on his own behalf. Id. at 45.

         6. In general terms, the 2006 Coverage Agreement provided for establishment of two distinct accounts, a “Claims Operating Account” and a “Claims Reserve Fund.”[8] 2006 Coverage Agreement ¶¶ 12, 13. The Claims Operating Account was to be controlled by Aspen as third-party claims administrator and funded by the AMS Entities who were to be invoiced on a periodic basis. Id. ¶ 12. All claims were to be paid from the Claims Operating Account. Id. The Claims Reserve Fund was to be established by Companion in its own name but funded by the AMS Entities. Id. ¶ 13. The 2006 Coverage Agreement called for quarterly audits to “determine the appropriate amount of the Required Reserve for the next quarter[.]” Id. The AMS Entities were to deposit additional amounts on a monthly basis to ensure “the Required Reserve is maintained in the Claims Reserve Fund at all times.” Id.[9]

         7. In mid-2011, Companion entered a consent order with the Florida Office of Insurance Regulation (respectively, “Florida Consent Order” and “Florida OIR”). ECF No. 310; see also ECF No. 384 at 3, 4 (Defendants' memorandum addressing changes resulting from Florida Consent Order). Certain aspects of the relationship established by the 2006 Coverage Agreement and TPA Agreement were modified as a result of the Florida Consent Order. Most critically, at least as to Florida Policies, (1) Companion took over claims processing and payment duties for Aspen and (2) AMS's Claims Reserve Fund was moved from the Bank of America account where funds deposited by AMS were held in common with other collateral to a separate trust account at State Street Bank. See, e.g., Id. ¶¶ 6. (c), (d), (g); ECF No. 398-15 (Nov. 29, 2011 letter from Companion's president to Florida OIR); ECF No. 411-2 (Dec. 1, 2011 email from Florida OIR to Companion's vice-president and CEO advising a trust account was required).

         8. In or around July 2013, Companion terminated AMS's authority to write new business or renew policies under the 2006 Coverage Agreement. The relationship between the parties was not, however, ended as claims continued to be processed and paid during the run-off period that followed (“Run-Off”). See generally ECF No. 258 at 3, 13-17 (Order on cross motions for partial summary judgment (“Summary Judgment Order”) discussing handling of claims during Run-Off and resulting disputes); ECF No. 384 at 4-5 (Defendants' memorandum addressing RunOff period).

         9. In October 2013, AMS refused to continue making payments to Companion to cover claims as they were incurred. See generally ECF No. 258 at 11. AMS, instead, directed Companion to pay future claims from the Claims Reserve Fund. Companion, thereafter, paid (and continues paying) claims from the Claims Reserve Fund held in the State Street Account.

         10. The present litigation ensued.[10] Allegations relevant to the issues addressed here include Companion's allegation AMS breached the 2006 Coverage Agreement by refusing to pay claims as incurred, forcing Companion to pay claims from the Claims Reserve Fund. Companion contends this course of action resulted in significant underfunding of the Claims Reserve Fund. Companion seeks to recover for the underfunding from (1) AMS based on the 2006 Coverage Agreement and (2) Wood based on the Guaranty Provision of the Wood Guaranty. Defendants maintain the Claims Reserve Fund is overfunded and they are due a refund.

         11. By agreement, whether the Claims Reserve Fund is over or underfunded, as well as certain related issues, will be resolved through independent accounting and actuarial review (collectively “Initial Review”). ECF No. 409-1. The Initial Review will cover the period ending April 30, 2017, and the initial report is due on or about July 31, 2017. See ECF Nos. 386, 387 (orders appointing experts). Thereafter, the independent experts are to conduct quarterly reviews (“Quarterly Reviews”). The parties have agreed to “abide by the Required Reserve determinations made by the independent actuarial firm” and that “the independent accounting firm shall calculate the amount of AMS collateral needed” based on the actuary's Required Reserve determinations. ECF No. 409-1 § IV.A & B. They further agree additional funds will be contributed if these determinations demonstrate underfunding or excess funds will be refunded if the Required Reserve is found to be overfunded based on the Initial Review and subsequent Quarterly Reviews. Id.

         DISCUSSION

         The six non-jury issues raised by the parties are addressed seriatim below.

         I. Companion's obligation to provide information and notification or consultation.

         Defendants' arguments.

Relying on an insurer's duty of good faith and fair dealing, Defendants seek a judicial declaration that Companion owes AMS a duty “to timely provide claims data, information regarding AMS collateral, and information regarding the administration of workers' compensation claims.” ECF No. 384 at 1; see also Id. at 10 (arguing Companion must “timely provide claims data, collateral statements, and updated claims records to AMS for open claims under the AMS policies”). Defendants, nonetheless, concede “Companion has already been ordered to produce, or has voluntarily agreed to provide, claims data, claims files, reserve information, and information regarding its use of AMS collateral.” Id. at 8; see also Id. at 9 (noting Companion's agreement, as part of a joint proposal for resolution of non-jury issues, to provide data simultaneously to Defendants and an independent actuarial firm). Defendants do not identify any document or category of information sought that Companion has not already agreed to provide or the court has not previously ordered be produced.

         In their opening memorandum, Defendants also argue “Companion should be required [to] consult with AMS prior to settling any remaining claims using AMS funds.” Id. at 10; see also id. at 9 (asserting “Companion must consult with AMS regarding the settlement of any AMS claims using AMS funds” (emphasis added)). Defendants modified their position on reply, explaining “AMS does not seek to insert itself into the resolution of open claims[.]” ECF No. 402 at 3. Defendants, instead, argue they are entitled to notification “prior to [Companion] entering into a lump-sum (i.e., non-routine) settlement using AMS funds[.]” Id. at 8 (emphasis added). Defendants argue this notification as to non-routine settlements is appropriate because lump-sum settlements are outside the normal course and may pose a conflict of interest between Companion and AMS. Id. The potential conflict identified is the risk Companion may favor immediate payment of a higher amount within AMS's deductible over the risk of future payments that may become Companion's sole responsibility because they exceed the deductible. Id. AMS also argues immediate payment of an amount that might otherwise be paid over a period of years may harm AMS because of the effect on cash flow and a risk Companion may fail to reduce anticipated future payments to present value.

         Companion's response.

Companion responds to Defendants' opening arguments, first, by asserting AMS failed to plead any claim for declaratory relief, most critically any claim “seek[ing] prospective relief that would allow Defendants to stand alongside Companion as a forced ‘consultant' in the settlement of workers' compensation claims[.]” Id. at 1, 2. While this argument at first blush appears to seek a ruling that no declaratory relief is proper because none was sought, in context it appears limited to the absence of any claim that Companion is obligated to consult AMS prior to settling claims. Thus, it focuses on an argument Defendants largely if not entirely abandoned through their reply. Companion's remaining arguments, likewise, are directed primarily to AMS's now-abandoned argument that Companion must consult with AMS before settling any claim.

         Companion addresses Defendants' argument for entitlement to information (as opposed to a right of consultation), only in its concluding paragraph. As to this issue, Companion states it “remains willing to work with Defendants regarding providing closed claims data for auditing purposes, as has been done in the past.” Id. at 9. It does not otherwise address what information might be covered by the requested declaration.

         Discussion.

As noted above, Defendants' reply abandons any argument Companion owes AMS a duty of consultation before settling claims in the ordinary course. Even were this argument not abandoned, the court would find imposition of such a duty inappropriate because no counterclaim predicted Defendants would seek such relief and because it is not supported by any language in the governing contracts or case law from a relevant jurisdiction.

         Defendants' modified request for declaratory relief, seeking a declaration Companion owes a prior duty of notification before settling certain categories of claim, is denied for much the same reasons. No counterclaim predicts a request for such relief and it is not supported by any language in the governing contracts, certainly none that has been drawn to the court's attention. The argument for prior notification has, moreover, not been properly raised or adequately briefed because Defendants first raised this request on reply. For all of these reasons, the court denies Defendants' request for a declaration Companion must either consult or notify AMS prior to settlement of any claim, whether in the ordinary course or the lump-sum settlements addressed in Defendants' reply.

         This leaves Defendants' request for a declaration Companion must “timely provide claims data, collateral statements, and updated claims records to AMS for open claims under the AMS policies.” ECF No. 384 at 10. Defendants concede the requested relief has largely been resolved by agreement or prior order. Id. at 8 (“Companion has already been ordered to produce, or has voluntarily agreed to provide, claims data, claims files, reserve information, and information regarding its use of AMS collateral.”). They fail to identify any specific information or document sought through their request for declaratory relief that is not covered by prior agreement or order and also fail to direct the court to the source of any duty of disclosure. This leaves the court with a request for a declaration that lacks necessary specificity and support. The court, therefore, denies this aspect of Defendants' request for declaratory relief.

         While the court denies the requested relief, it does not modify other orders or agreements that are in place. Most critically, as previously ordered and agreed by the parties, the court appointed both an independent accounting expert (“Independent Accountant”) and an independent actuarial expert (“Independent Actuary”) who will prepare reports covering a multiyear period ending April 30, 2017. ECF Nos. 386, 387. These reports will be based on extensive documentation compiled by the parties relating to claims and dealings between the parties through April 30, 2017. See generally ECF No. 396-1 (letters and attachments sent to experts explaining how to access documents and data, delineating tasks to be performed, and providing instructions for preparation of initial and final reports).

         The data and documentation provided to the experts is and will be equally available to both sides. The experts' reports shall, likewise, be equally available. Indeed, the plan for preparation of final reports, developed jointly by the parties, anticipates each side will have an opportunity to provide feedback to the experts between preparation of the experts' initial and final reports. Id. Both experts will, moreover, prepare subsequent quarterly reports on an ongoing basis after the first report is final.[11] Information necessary to conduct the Initial Review and subsequent Quarterly Reviews will, pursuant to prior order and agreement, be made available to Defendants prior to or at the same time it is made available to the Independent Actuary and Independent Accountant. Presumably at least some other information will be provided to Defendants by Companion in the ordinary course of business (e.g., invoices for claims paid or to be paid).[12]

         In sum, Defendants' request for declaratory relief is denied because Defendants have failed to (1) specifically identify any documentation or information that Companion has not previously produced (including through discovery or pursuant to court order) or agreed to provide in the future (including in connection with the Initial Reviews and future Quarterly Reviews), or (2) identified the source of any duty to provide information or documentation beyond that already ordered or agreed to be produced. To the extent Defendants seek to impose any duty of consultation before claims are settled, the relief sought is also denied because it is not predicted by any counterclaim.

         II. Wood's guarantee of AMS's below-deductible payment and collateral obligations.

         Companion's opening argument.

Companion seeks a judicial declaration Wood is obligated, under the Wood Guaranty, to fulfill various obligations AMS has failed to fulfill under the 2006 Coverage Agreement and related Policies. ECF No. 382 at 5-11. More specifically, Companion asks the court to declare Wood must “(i) promptly indemnify Companion for unreimbursed below-deductible claims paid by Companion to date under the AMS Policies, (ii) pay all such claims in the future as they come due, and (iii) fund any below-deductible collateral owed to Companion now and in the future.” Id. at 11.

         As a factual threshold, Companion asserts AMS has refused to pay or reimburse any below-deductible claims since October 28, 2013, forcing Companion to use collateral to pay claims, and “leaving the collateral account underfunded under the actuarial methodologies contractually approved by Companion.” ECF No. 328 at 5, 6. As to the status of the collateral, Companion notes Defendants have taken the position since December 10, 2013, that the collateral is overfunded. Id. at 6. Companion further asserts it has demanded but Wood has refused to pay claims and make up the alleged collateral shortfall for a period of over two-and-a-half years. Id.

at 10.[13]

         Companion argues Wood should be directed to pay the claims as they come due and make up any collateral shortfall under the Wood Guaranty, which (1) defines “Subject Agreements” to include the 2006 Coverage Agreement and Policies issued pursuant to that agreement; (2) provides Wood “absolutely and unconditionally guarantees . . . full and prompt performance and payment when due, of all obligations of each OBLIGOR under the Subject Agreements[, ]” (3) provides the guaranty “is direct and unconditional and may be enforced by [Companion] without first resorting to any right or remedy against any OBLIGOR or any other person[.]” and (4) also provides Wood will “indemnify and hold harmless [Companion] . . . from and against any and all claims, suits, hearings, proceedings, actions, damages, liabilities, fines, penalties, losses, costs or expenses . . . arising out of or otherwise related to, directly or indirectly, the Subject Agreements.” Id. at 9 (quoting 2006 Coverage Agreement ¶ 15 and Wood Guaranty, Background, ¶¶ 1.A. & B, II.A.). Companion notes the express purpose of the Wood Guaranty is to “ensure [Companion] incurs no pecuniary liability whatsoever in entering into the Subject Agreements.” Id. at 10 (quoting Wood Guaranty, Background and noting 2006 Coverage Agreement characterizes the Wood Guaranty as an essential inducement).

         Defendants' response.

Defendants oppose Companion's requested declaratory relief, characterizing it as a “request for an across-the-board declaration” that violates rules against “issuing an advisory opinion on matters that are not yet ripe[.]” ECF No. 398 at 5.[14] Defendants also assert the declaration “would violate Wood's rights under the Guaranty Agreement because they would vitiate his express rights to notice and presentment.” Id. Expanding on these arguments and characterizing Wood's obligations as “potential secondary obligations, ” Defendants argue no amount will be due from AMS (or Wood) until the “independent experts resolve the outstanding accounting disputes.” Id. at 7, 8.

         Companion's reply.

On Reply, Companion notes Defendants “do not dispute that Wood must guaranty AMS's below-deductible claims payment and collateral funding obligations under the 2006 Coverage Agreement and the related AMS Policies.” ECF No. 400 at 1. Rather, they rely on what are essentially arguments as to timing. Id.

         Companion argues the relief sought is neither premature nor advisory. It relies in particular on the age and stage of the litigation. Id. (noting litigation has been pending for nearly three years). Companion notes the parties' agreed to submit this issue, among others, to the court for non-jury resolution. Id. at 2 (quoting Joint Submission). Finally, Companion notes the very purpose of declaratory relief is to clarify respective obligations going forward. Id. at 3.

         Companion contends Defendants' argument that Wood is entitled to notice and presentment prior to incurring any obligation under the Wood Guaranty is inconsistent with the agreement as expressed in the Joint Submission (setting out agreement for resolution of jury and non-jury issues). Id. Relying on the Guaranty Provision's statement Wood's liability “is direct and unconditional and may be enforced . . . without first resorting to any right or remedy against any [AMS Entity] or any other person, ” Companion argues Wood's obligations are not secondary to those of AMS and, consequently, do not require prior demand. Id. at 4 (quoting Wood Guaranty ¶ I.B.). Finally, Companion points to evidence of prior demands, including one sent by counsel on September 29, 2014, addressing claims in this and related litigation. Id.[15]

         Discussion-Ripeness.

The dispute as to Defendants' liability for claims payments and collateral arose no later than October 28, 2013, when representatives of Defendants advised Companion they would no longer make payment for claims as incurred and, instead, directed Companion to pay claims from collateral. The dispute as to Woods' responsibility for claims payments and collateral arose no later than September 19, 2014, when this action was filed seeking, inter alia, relief from Wood based on the Wood Guaranty. ECF No. 1 at ¶¶ 65-69 (indemnification claim); see also ECF No. 382-2 (September 29, 2014 demand letter to Wood covering, inter alia, claims in this action). The matter has, since that time, proceeded through discovery, dispositive motions, jury selection, negotiation and agreement as to resolution of all remaining issues through a combination of jury trial, independent expert reviews, and non-jury ruling, settlement of jury issues on the eve of trial, appointment of experts, and full briefing on non-jury issues. This procedural history demonstrates any dispute as to interpretation of the Wood Guaranty is ripe for review as it applies to claims in this action.[16]

         This is particularly true in light of the April 17, 2017 Joint Submission through which the parties agreed the court would resolve, non-jury, “whether, as a matter of law, under the Guaranty and Indemnity Agreement . . . Wood must pay deductibles and/or below deducible collateral, if any, owed by AMS to Companion in connection with the AMS Policies in the amount determined by the independent actuary and accountant.” Joint Submission ¶ III.A. (ECF No. 409-1) (emphasis added). The same document addresses how the relative financial responsibilities will be determined. See Joint Submission § IV.A. (agreeing parties will “abide by the Required Reserve Determinations made by the independent actuarial firm”); id. § IV.B. (agreeing, “[b]ased on the independent accounting firm's examination, and the Required Reserve determined by the independent actuarial firm . . ., the independent accounting firm shall calculate the amount of AMS collateral needed as of April 30, 2017, and shall advise the parties and court of the same.”). It also addresses how the resulting financial responsibility will be resolved: “If additional collateral is needed for AMS, AMS and Wood will promptly assure that the collateral account is funded. On the other hand, if Companion is holding excess collateral on behalf of AMS, Companion will promptly assure that the excess collateral is refunded to AMS.” Id. § IV.B. Finally, it provides the process will be repeated after future Quarterly Reviews, after which “the parties shall continue to fund (or refund) as described above.Id.

         Merits.

Defendants' only argument on the merits is that Wood's responsibility is secondary to that of AMS, arising only if AMS does not timely perform. ECF No. 398 at 10 (arguing declaration sought would violate Wood's right to presentment and demand). Companion counters the Wood Guaranty provides “Wood's liability ‘is direct and unconditional and may be enforced by [Companion] without first resorting to any right or remedy against [AMS] or any other person.'” ECF No. 400 at 4 (quoting Wood Guaranty ¶ I.B.).

         Both are, in some respects, correct. As Companion notes, Section I of the Wood Guaranty provides Wood “absolutely and unconditionally guarantees . . . the full and prompt performance and payment when due of all obligations of all OBLIGORS [e.g., AMS] under the Subject Agreements [e.g., 2006 Coverage Agreement].” Wood Guaranty ¶ I.A. It further provides the guaranty is “a guaranty of performance and of payment and not of collection, and the liability of [Wood] is direct and unconditional and may be enforced . . . without first resorting to any right or remedy against any OBLIGOR or any other person.” id. ¶ I.B.; see also 2006 Coverage Agreement ¶ 15 (characterizing Wood Guaranty as an “essential inducement”). This, at the least, means Companion is not required to pursue collection or legal proceedings against AMS before invoking its rights under the Wood Guaranty. Read in isolation, it might also suggest Companion may seek payment from Wood without first seeking payment from AMS. However, that reading is precluded by Section III of the Wood Guaranty (“Demand”), which reads as follows:

         A. [Wood], within thirty (30) days of receipt of [Companion's] written demand from time to time, shall (as applicable):

         2. Pay to [Companion] in full in cash or immediately available funds any amount due and owing to [Companion] from any OBLIGOR under any Subject Agreement that has not been timely paid.

         3. Pay to [Companion] in cash or immediately available funds any and all amounts owing in respect of [Wood's] indemnity under Section I.B. hereunder.

         Wood Guaranty ¶ III (emphasis added); see also Wood Guaranty ¶ I.A. (stating Wood guarantees “full and prompt performance and payment when due and defining “prompt” as “unconditionally, without request for extension, and within thirty (30) days of [Companion's] written demand for payment.”).

         The second subparagraph's reference to amounts owing “that ha[ve] not been timely paid, ” presumes a prior request to an Obligor for payment and failure of that Obligor (e.g. AMS) to make payment in a timely manner under the relevant contract. AMS's obligation to pay claims and fund collateral arises under the 2006 Coverage Agreement (and related Policies). The court, therefore, looks to the 2006 Coverage Agreement to determine what constitutes a failure of timely performance of either obligation.[17]

         As to claims payments, the 2006 Coverage Agreement provides the claims administrator “shall invoice the appropriate AMS Entity for all incurred claims on a periodic basis and terms acceptable to [Companion.] All invoice payments shall be deposited into the [claims administrator's] Claims Operating Account . . . and all claims shall be paid from such account.” 2006 Coverage Agreement ¶ 12 (emphasis added). While this paragraph does not expressly state how quickly the invoices must be paid, it envisions claims payments will be made using AMS funds, thus, it envisions payments deposited before claims are paid. It follows that payment is due at some point prior to the earlier of when claims should be or actually are paid.

         The collateral provision requires an initial deposit of $1, 000, 000 and provides for quarterly reviews to determine future reserve needs. Rather than indicating payments (or refunds) will be made based on those quarterly reviews, it provides for monthly contributions based on the value of incurred claims and calls for payment by the tenth of the month. Id. ¶ 13 (“As actual claims are incurred the AMS Entities shall deposit into the Claims Reserve Fund the amount of such claims on a monthly basis by the 10th day of the month.”). While not explicit, this appears to envision a deposit within ten days of notification of claims incurred. Lacking any other guide, the court finds collateral deposits are timely if made within ten days of notification or invoicing of claims or collateral obligations (such as through quarterly reports).

         Claims and collateral obligations through April 30, 2017.

Since October 2013, AMS has refused to pay claims as incurred or make additional collateral contributions. It maintains this refusal is justified because existing collateral is more than sufficient to cover all current and reasonably anticipated future claims. Faced with AMS's refusal, Companion demanded Wood perform AMS's payment and funding obligations under the Wood Guaranty. This demand was clear no later than September 2014. Wood, like AMS, refused to perform. Both the demand and refusals to perform are ongoing and have remained so throughout this litigation. Thus, any prerequisites of a failure of timely performance by AMS and demand to Wood are satisfied as to any obligations predating April 30, 2017.[18] The only issue is whether AMS's (and Wood's) refusal to make payment is excused because collateral was (and remains) overfunded or at least sufficient to cover current and future claims.

         Sufficiency of collateral as of April 30, 2017, is being determined by the Initial Review by an the Independent Actuary and Independent Accountant. The Initial Review is being conducted by agreement and will take into account certain adjustments agreed to based on settlement of jury issues, claims that have been paid since October 2013, rulings in this order and certain other agreed adjustments. The parties have agreed to abide by the results of the Initial Review. If the Initial Review establishes the collateral account is underfunded, Wood will be responsible for the underfunded amount (jointly with AMS) because AMS's sole basis for refusing to pay claims will be resolved against it. For reasons explained above, there is no need for further demand of AMS and failure of timely payment before a demand may be made under the Wood Guaranty. The Initial Review itself, when final, will suffice as the demand and Wood will be jointly responsible with AMS for funding any deficiency that must be paid within thirty days of entry of judgment as contemplated by the Demand language quoted above.[19] Wood Guaranty ¶ III.A.

         Collateral going forward.

The parties have agreed to Quarterly Reviews of collateral going forward and to abide by the results of those reviews. Joint Submission ¶ IV.B. (“The independent accounting firm shall repeat this process after each subsequent, updated actuarial report, and the parties shall continue to fund (or refund) as described above.”). As to these Quarterly Reviews, the court agrees the Wood Guaranty is triggered only if AMS fails to make timely payment. Nonetheless, in light of the parties' agreement to abide by the results of the Quarterly Reviews, those reviews will, themselves, be deemed the invoice or notice to AMS. If AMS does not satisfy the obligation within ten calendar days of receipt of a Quarterly Review, that failure shall automatically be deemed a demand on Wood following a failure of timely payment, triggering his duty to perform within thirty days of the expiration of AMS's ten-day period for performance. See supra pp. 18, 19 (addressing Wood Guaranty ¶ I.A. and 2006 Coverage Agreement ¶ 13).[20]

         Claims going forward.

The claims payment and collateral obligations are distinct, though related, obligations. See 2006 Coverage Agreement ¶¶ 12, 13. Therefore, in addition to the collateral funding procedures addressed above, Companion shall invoice AMS as claims are incurred and before they are paid. 2006 Coverage Agreement ¶ 12. If it does so, AMS shall fund the claims in sufficient time to allow for timely payment. Id. As noted above, the 2006 Coverage Agreement does not provide a specific timeframe for funding. However, drawing on the timeframe suggested for deposit of collateral (¶ 13), the court finds ten days is an appropriate period for “timely” payment to Companion. If AMS fails to fund claims payments within ten days of notification, Companion may make a demand for payment under the Wood Guaranty that must be satisfied within thirty days after demand.

         III. Wood's obligation to indemnify Companion for liability on above-deductible claims.

         Companion's opening argument.

Companion seeks a declaration Wood must indemnify Companion for any liability Companion incurs for unreimbursed above-deductible claims payments made from AMS funds.[21] This relief is within the scope of Companion's fifteenth cause of action for recovery based on the Wood Guaranty.[22]

         Companion relies on the first subparagraph of the Indemnity Provision of the Wood Guaranty (¶ II.A.). ECF No. 382 at 12-13. Companion notes this provision is broadly worded, promising to indemnify and hold Companion harmless “from and against any and all claims, suits hearings, proceedings, actions, damages, liabilities, fines, penalties, losses, costs or expenses, including without limitation reasonable attorney's fees, at any time arising out of or otherwise related to, directly or indirectly, the Subject Agreements[.]” Id. at 13 (quoting Wood Guaranty ¶ II.A.).[23] Companion points to distinctions between the Guaranty and Indemnity Provisions, most critically that the Guaranty Provision (Wood Guaranty ¶ I) guarantees performance and payment of obligations of defined “OBLIGORS” (i.e. AMS Entities)[24] arising under the “Subject Agreements” (e.g., 2006 Coverage Agreement), while the cited portion of the ...


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