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Desai v. Navigators Insurance Co.

United States District Court, M.D. Florida, Tampa Division

July 12, 2019

AKSHAY M. DESAI, Plaintiff,
v.
NAVIGATORS INSURANCE COMPANY, Defendant.

          ORDER

          WILLIAM F. JUNG, UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on the parties' cross motions for summary judgment (Dkts. 49-50, 52), as well as their respective responses and replies (Dkts. 58-59, 62, 65). The Court also received briefing from amicus curiae (see Dkt. 41), the Florida Department of Financial Services (Dkts. 51, 60, 64), and heard oral argument from counsel for the parties and the amicus curiae. Upon consideration, the Court grants Defendant's motion for summary judgment and denies Plaintiff's motion for summary judgment.

         I.FACTUAL BACKGROUND[2]

         A. Dr. Desai and the Universal Entities

         Plaintiff Akshay M. Desai, M.D. (“Dr. Desai”) is an officer and director of a number of companies, including parent company Universal Health Care Group, Inc. (“UHCG”), and subsidiaries Universal Health Care Insurance Company, Inc. (“UHCIC”), Universal Health Care, Inc. (“UHC”), and American Managed Care, LLC (“AMC”). Dkt. 52-1 ¶¶ 3-4 (Desai affidavit). Dr. Desai had an employment agreement with UHCG. Dkt. 52-4. The agreement provided him with a base annual salary of $900, 000 to serve as Chairman of the Board, Chief Executive Officer, and President of UHCG and each of its subsidiaries (that is, UHCIC, UHC, and AMC) and to be responsible for “the general management of the affairs of [UHCG] and its subsidiaries.” Id. at 2. In 2012, Dr. Desai received $2, 475, 000 in bonus compensation, as well as $62, 580 in other compensation. Dkt. 52-1 ¶ 7. The payments were made by AMC for services that Dr. Desai rendered under the employment contract. Id. The Board of Directors (of which Dr. Desai was the Chairman) approved the payments. Id.; Dkt. 52-4 at 2.

         B. Insurance Policies

         RSUI Indemnity Company (“RSUI”) issued Directors and Officers Liability Policy No. HP648986 to UHCG effective November 1, 2012 to November 1, 2013 (“RSUI Policy”), affording $5 million in limits. Dkt. 17-2. Defendant Navigators Insurance Company (“Navigators”) issued NAVEXCESS Policy No. PT12DOL301885NV for the same period (“Navigators Policy”). Dkt. 17-1 . The Navigators Policy is a “follow form” excess policy under which the RSUI Policy is the designated “followed policy.”[3] Id. at 2.[4] The Navigators Policy affords an additional $5 million in coverage after the limits of the RSUI Policy have been exhausted.[5] Id.

         The RSUI Policy (the terms of which are incorporated into the Navigators Policy, see Dkt. 17-2 at 2) states:

[T]he Insurer agrees . . . [w]ith the Insured Person that if a Claim for a Wrongful Act is first made against any Insured Person during the Policy Period and reported in accordance with SECTION V.-CONDITIONS, C. Notice of Claim or Circumstance of this policy, the Insurer will pay on behalf of such Insured Person all Loss such Insured Person is legally obligated to pay, except and to the extent that the Insured Organization is required or permitted to indemnify such Insured Persons.

Dkt. 17-2 at 23.[6] “Insured Person” means any “past, present or future director, officer, or Employee, management committee members or members of the Board of Managers” of UHCG and its subsidiaries. Id. at 1, 25. “Insured Organization” means UHCG and its subsidiaries. Id. at 1, 25. “Wrongful Act” means:

any actual or alleged act, error, omission, misstatement, misleading statement, neglect or breach of duty . . . by:
1. An Insured Person acting in his or her capacity as such and on behalf of the Insured Organization or any matter claimed against them solely by reason of their status as an Insured Person; or
2. The Insured Organization.

Id. at 26. “Loss” means:

damages (including back pay and front pay), settlements, judgments (including pre- and post-judgment interest on a covered judgment) and Defense Expenses.

Id. at 25. The policy also provides that “Loss (other than Defense Expenses) shall not include” a number of items, including “[m]atters that may be uninsurable under the law pursuant to which this policy shall be construed.” Id.

         The policy also includes a number of exclusions, including an exclusion for “Loss in connection with any Claim made against any Insured” that is

[b]ased upon, arising out of or attributable to any remuneration received by an Insured, or the granting of any remuneration to any Insured, without the previous approval of the stockholders or the Board of Directors, which remuneration is found to have been illegal; provided, this EXCLUSION shall not apply unless a judgment or other final adjudication adverse to any Insured in the Claim shall establish that such Insured received remuneration to which such Insured was not legally entitled.

Id. at 26 (the “Illegal Remuneration Exclusion”). There is also an exclusion for a loss that is

[b]ased upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving the gaining of any profit or advantage to which an Insured was not legally entitled; provided, this EXCLUSION shall not apply unless a judgment or other final adjudication adverse to any Insured in the Claim shall establish that such Insured gained profit or advantage to which such Insured was not legally entitled.

         Id. (the “Illegal Advantage Exclusion”).

         C. Insolvency Proceedings and DFS's Claim

         In February 2013, the Florida Department of Financial Services (“DFS”) began receivership proceedings in the Circuit Court for the Second Judicial Circuit of Florida in and for Leon County against UHCIC and UHC (the “Receivership Entities”) pursuant to Florida Statutes §§ 631.031 and 631.061.[7] Dkt. 52-1 ¶ 8. Soon after, UHCG and AMC filed for Chapter 11 bankruptcy protection. Id. ¶ 9. On March 22, 2013, the state court placed the Receivership Entities into receivership and appointed DFS as receiver. Dkt. 50-7.

         Florida Statutes § 631.261(1)(b) makes certain transfers of the property of an insurer voidable:

Any transfer of . . . the property of an insurer . . . which is made or created between 4 months and 1 year prior to the commencement of any delinquency proceeding under this chapter is void if such transfer . . . inured to the benefit of a director, officer, employee, stockholder, member . . ., or insider . . . .

         Florida Statutes § 631.154(1), in turn, provides:

If the receiver determines that funds, assets, or property in the possession of another person are rightfully the property of the estate, the receiver shall deliver to such person a written demand for immediate delivery of the funds, assets, or property to the receiver . . . . Any person who holds funds, assets, or other property belonging to an entity placed in receivership under this chapter shall deliver the funds, assets, or other property to the receiver on demand.

         On April 4, 2013, DFS (as receiver for the Receivership Entities) sent Dr. Desai a letter invoking Fla. Stat. §§ 631.154(1) and 631.261(1)(b) and demanding the return of $2, 537, 580:

As Receiver of UHCIC and UHC, the Department hereby demands the return of $2, 537, 580.00 received by you from the funds of UHCIC and/or UHC within one year of the Department's successful application for delinquency proceedings. According to the 2012 Supplemental Compensation Report filed by UHCIC, this amount consists of a “bonus” of $2, 475, 000.00 and “other compensation” in the amount of $62, 580.00 . . . . Pursuant to section 631.261, Florida Statutes, the $2, 537, 580.00 which you received from UHCIC and/or UHC in 2012 is a voidable transfer, which the Department, as Receiver of UHCIC and UHC, is entitled to recover.

Dkt. 50-8 at 1-3. This letter from DFS is the claim that is at the center of the dispute between the parties in this action (the claim is referred to as the “DFS Claw Back Claim” and the payment demanded is ...


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