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David Feldman v. Illinois Union Insurance Company

September 6, 2011

DAVID FELDMAN, PLAINTIFF AND APPELLANT,
v.
ILLINOIS UNION INSURANCE COMPANY, DEFENDANT AND RESPONDENT.



Trial Court: Santa Clara County Superior Court Trial Judge: Hon. Joseph H. Huber Super. Ct. No. 1-04-CV-017803)

The opinion of the court was delivered by: Elia, J.

CERTIFIED FOR PUBLICATION

(Santa Clara County

In this appeal plaintiff David Feldman seeks review of a summary judgment entered in favor of Illinois Union Insurance Company, which had declined to defend or indemnify Feldman or his company, ZF Micro Solutions, against a cross-action by a third party. Feldman contends that the superior court erroneously found no potential for coverage under the liability policy issued to him and ZF Micro Solutions and therefore no duty to defend or indemnify the insureds. We agree with the superior court that the claims made by the third party during the policy period were excluded from coverage. Accordingly, we must affirm the judgment.

Background

Appellant David Feldman is the president and chief executive officer of ZF Micro Solutions, Inc. (referred to by the parties as "ZF Solutions"). ZF Solutions is the successor company to ZF Micro Devices, Inc. ("ZF Devices"), replacing the latter as of March 1, 2002. As it represents itself, ZF Solutions designs, markets, and sells semiconductor devices "into the embedded microprocessor market."

1. The Underlying Litigation

On April 25, 2002 ZF Solutions sued National Semiconductor Corporation (NSC) for failing to produce devices for ZF Solutions in accordance with the parties' contract. On May 28, 2002, NSC filed a cross-complaint against both ZF Devices and ZF Solutions (as successor) for failure to pay for custom integrated circuits (chips) it had produced and sent to ZF Devices in accordance with the same contract.

NSC filed a first amended cross-complaint one year later, on April 25, 2003.*fn1 In this pleading NSC added Feldman and two others as cross-defendants and asserted new causes of action against the cross-defendants, including breach of fiduciary duty and fraudulent transfer of assets from ZF Devices to ZF Solutions. In June 2004 the litigation between ZF Solutions and NSC culminated in a jury verdict finding both ZF Solutions and NSC liable to each other.*fn2

2. The Insurance Litigation

From November 23, 2001 to July 1, 2002 ZF Solutions was insured by a liability policy issued by "certain Underwriters at Lloyd's, London" (Underwriters). That policy covered directors and officers as well as the corporation. Respondent Illinois Union Insurance Company (Illinois Union) covered ZF Solutions and its directors and officers from July 1, 2002 to July 1, 2003.

On about March 28, 2003, Feldman tendered the defense of NSC's amended cross-complaint to Illinois Union through the insurance broker. Illinois Union denied coverage, asserting that NSC's claim had originally been made on May 28, 2002, before the inception date of the Illinois Union policy. Illinois Union also asserted exclusions for claims involving a contract and claims involving fraudulent acts by any of the insureds. In a written request for reconsideration, the insurance broker pointed out that the claim that was tendered was not for breach of contract but only for breach of fiduciary duty and related allegations against new defendants, including Feldman. Illinois Union, however, adhered to its denial of defense and indemnity based on lack of coverage. This time the company invoked a policy provision that deemed "Interrelated Wrongful Acts" to constitute a single claim and which required such a claim to be made during the policy period. Under this provision, Illinois Union explained, NSC's claim was made before the inception date of the policy.

ZF Solutions, ZF Devices, and Feldman then brought this action against both Illinois Union and Underwriters, which had also denied coverage.*fn3 In the plaintiffs' first amended complaint only Feldman asserted claims against Illinois Union, for declaratory relief (fourth cause of action), breach of insurance contract (fifth cause of action), and breach of the covenant of good faith and fair dealing (sixth cause of action).*fn4 In the fourth cause of action he sought a declaration that Illinois Union owed a duty to defend him in the NSC cross-action and to indemnify him for the resulting judgment.

Illinois Union moved for summary judgment, or alternatively, summary adjudication, on the ground that there was no potential for coverage under its liability policy. Illinois Union argued that (1) NSC's claims were first made before the policy period began; (2) no coverage was available under an insolvency exclusion of the policy; and (3) an allegation that ...


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