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Gateway, Inc., Formerly Known As Gateway 2000, Inc., A Corporation v. Gulf Insurance Company

August 15, 2011

GATEWAY, INC., FORMERLY KNOWN AS GATEWAY 2000, INC., A CORPORATION,
PLAINTIFF,
v.
GULF INSURANCE COMPANY, A CORPORATION; TRAVELERS INDEMNITY COMPANY, A CORPORATION; AND DOES 1 THROUGH 100, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hayes, Judge:

ORDER

The matters before the Court are the Motion for Summary Judgment filed by Defendant Travelers Indemnity Company ("Travelers"), ECF No. 23, and the Motion for Summary Judgment filed by Plaintiff Gateway Inc. ("Gateway"), ECF No. 24.

I. Background

On July 7, 2010, Gateway initiated this action by filing a Complaint against Defendants Travelers and Gulf Insurance Company ("Gulf") in San Diego County Superior Court. ECF No. 1, Ex. 1. The Complaint alleges a single claim for breach of an insurance contract.

On August 17, 2010, Travelers removed the action to this Court, alleging diversity jurisdiction.*fn1 ECF No. 1.

On April 13, 2011, the parties filed a Joint Statement of Stipulated Facts, accompanied by Exhibits. ECF No. 18.

On May 2, 2011, the parties filed their respective motions for summary judgment. ECF Nos. 23, 24-25. On June 10, 2011, each party filed an opposition to the opposing party's motion for summary judgment. ECF Nos. 29, 30. On June 24, 2011, each party filed a reply brief. ECF Nos. 31, 32.

On August 12, 2011, the Court conducted oral argument on the motions for summary judgment. ECF No. 34.

II. Facts

A. Facts

Gateway is a publicly traded company which manufactures and sells computer hardware to consumers. Stip. Facts ¶ 1, ECF No. 18.

Lloyd's of London issued Directors, Officers and Company Liability Policy No. 509/QB335898 (the "Primary Policy") effective for the period October 1, 1998 to October 1, 2001 (the "Policy Period"). Id. ¶ 2. Subject to its terms, conditions, and limitations, the Primary Policy provided up to $10 million in coverage. Id.

Effective for the Policy Period, Zurich-American Insurance Company ("Zurich") issued Directors and Officers Liability and Reimbursement Excess Policy No. DOC 8388226 04 (the "First Excess Policy"). Id. ¶ 4. Subject to its terms, conditions, and limitations, the First Excess Policy provided up to $10 million in coverage excess of the Primary Policy's $10 million in underlying insurance. Id.

Effective for the Policy Period, Travelers issued Excess Directors and Officers Liability and Company Indemnification Insurance Following Form Policy No. GB5840592 (the "Travelers Second Excess Policy" and, together with the Primary Policy and First Excess Policy, the "Policies"). Id. ¶ 6. Subject to its terms, conditions, and limitations, the Travelers Second Excess Policy provides up to $15 million of coverage excess of the Primary and First Excess Policies' combined $20 million limit of liability in underlying insurance. Id.

The respective Limits of Liability of the Primary Policy and the First Excess Policy have been exhausted through payment of covered Loss.*fn2 Id. ¶ 8.

Following issuance of the Policies, certain Claims were brought against Insureds that implicated the Policies including, but not limited to, SEC v. Todd, No. 3:03-cv-02230 (S.D. Cal., filed Nov. 13, 2003) (the "SEC Lawsuit"). Id. ¶ 9. The SEC Lawsuit was filed against John J. Todd, Robert D. Manza, and Jeffrey Weitzen (the "Individual Insureds"), who constitute "Directors and Officers" under the Travelers Second Excess Policy. Id. ¶ 10. Gateway was not named as a defendant in the SEC Lawsuit. Id.

As of February 21, 2011, Travelers has advanced $12,174,235.80 to or on behalf of Gateway and/or the Individual Insureds pursuant to Insuring Clause B of the Primary Policy for certain Loss-specifically, certain Costs, Charges and Expenses incurred by or on behalf of the Individual Insureds. Id. ¶ 11. As of February 21, 2011, the Travelers Second Excess Policy's remaining Limit of Liability was $2,825,764.20. Id. ¶ 12.

Between 2004 and 2007, Gateway retained the law firm of Morrison & Foerster LLP ("Morrison & Foerster") in connection with the SEC Lawsuit and other matters. Id. ¶ 13. Gateway also retained Morrison & Foerster to represent certain of Gateway's current and former employees who were not parties to the SEC Lawsuit and against whom no Claim was made. Id. ¶ 14. The current and former employees were compelled by subpoena to give deposition testimony in the SEC Lawsuit as fact witnesses. Id.

Morrison & Foerster had represented Gateway in 2001 in connection with an SEC investigation of Gateway, which culminated in Gateway reaching a settlement with the SEC and the SEC instituting the SEC Lawsuit against the Individual Defendants. Call Decl. ¶¶ 4-5, ECF No. 24-3. Gateway chose to engage Morrison & Foerster in 2004 because "the Morrison & Foerster team had had extensive knowledge of the issues and facts that carried over into the SEC's claims against the Individual Defendants in the SEC Lawsuit," and "the parties and their counsel could leverage the prior work done by Morrison & Foerster." Id. ¶ 6. Prior to engaging Morrison & Foerster in 2004, Gateway engaged in discussions with Zurich, and "Zurich consented to coverage [pursuant to the Primary Policy and the First Excess Policy] of Morrison & Foerster's fees for these services." Id. ¶ 7. "A key in those discussions was the fact that Morrison & Foerster's involvement would likely serve to reduce the overall costs of defense asserted by the Individual Defendants under the Policies because counsel for the Individual Defendants could make quick and efficient use of Morrison & Foerster's extensive knowledge, rather than having to invest similar, redundant effort to gain that knowledge." Id.

In representing certain of Gateway's current and former employees who were not parties to the SEC Lawsuit, as described above, Morrison & Foerster generated certain invoices (the "Morrison Invoices"), which Morrison & Foerster sent to Gateway and requested payment therefor. Stip. Facts ¶ 15, ECF No. 18. The total amount of the Morrison Invoices was $553,875.40 (the "Amount at Issue"). Id. ¶ 16.

Gateway forwarded the Morrison Invoices to Travelers and has requested that Travelers pay the Amount at Issue under the Travelers Second Excess Policy. Id. ¶ 19. Travelers denied coverage for the Morrison Invoices and the Amount at Issue. Id. ¶ 20. By this Lawsuit, Gateway seeks to recover the Amount at Issue from Travelers. Id. ¶ 21.

B. Policies

The Travelers Second Excess Policy incorporates the terms of the Primary Policy, including its Insuring Clauses. See Jt. Ex. 3 at J045, ECF No. 18-2.

The Insuring Clause of the Primary Policy provides coverage as follows:

A. Underwriters shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the Policy Period for an Individual Act.

B. Underwriters shall pay on behalf of the Company Loss which the Company is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any Claim first made against the Directors and Officers during the Policy Period for an Individual Act.

C. Underwriters shall pay on behalf of the Company Loss resulting from any Claim first made against the Company during the ...


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