IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE AT NASHVILLE FORBA HOLDINGS, LLC Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant. NO 310-CV-1018 JUDGE HAYNES MAGISTRATE BROWN ANSWER AND AFFIRMATIVE DEENSES OF ZURICH AMERICAN INSURANCE COMPANY Defendant Zurich American Insurance Company ( Zurich ) submits the following in answer to the Complaint of Forba Holdings, LLC ( Forba ). 1. Denied. The allegations in this paragraph are conclusions of law to which no response is required, and they are, therefore, deemed denied. 2. Denied. The Policies are writings which speak for themselves, and Zurich denies any characterization of the same contrary to their express terms. By way of further response, Zurich is without knowledge or information sufficient to form a belief as to the truth of the remaining allegations in this paragraph and, therefore, the allegations are deemed denied. 3. Admitted in part; denied as stated in part. It is admitted that Zurich is a corporation organized under the laws of the State of New York that maintains an administrative office at 1400 American Lane, Schaumberg, Illinois 60196. The remaining allegations in this paragraph are admitted. 4. It is admitted that this Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. 1332(a)(1). 5. It is admitted that this Court has personal jurisdiction over Zurich. Case 310-cv-01018 Document 23 Filed 12/23/10 Page 1 of 12 PageID # 158
6. It is admitted that venue is proper in this District. 7. Zurich incorporates by reference, as if fully set forth herein, its responses to the allegations in paragraphs 1 through 6. 8. Denied as stated. While Zurich admits that plaintiff makes certain allegations about media reports, Zurich is without knowledge or information sufficient to admit or deny Plaintiff s characterization of such media reports. By way of further response, however, upon information and belief, Forba and/or certain Small Smiles Dental Centers were the subject of media reports both prior to and after November 2007. 9. Denied as stated. While plaintiff alleges that Forba and certain Small Smiles Dental Centers received subpoenas, civil investigative demands, and other formal process, Zurich is without knowledge or information sufficient to admit or deny Plaintiff s characterization of the receipt of certain documents identified in this paragraph. By way of further answer, however, any subpoenas, civil investigative demands or other notices served on Forba and certain Small Smiles Dental Centers are writings which speak for themselves, and Zurich denies any characterization contrary to their express terms. The remaining allegations in this paragraph, including any descriptions of the aforementioned writings as a series of claims or other formal process, are conclusions of law to which no response is required, and they are, therefore, deemed denied. 10. (a-i) The investigations and corresponding allegations to which Forba refers in this paragraph are in writing, the terms of which speak for themselves, and Zurich denies any characterization contrary to their express terms. 11. Denied. Zurich is without knowledge or information sufficient to form a belief as to the truth of the allegations in this paragraph, and they are, therefore, denied. 2 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 2 of 12 PageID # 159
12. Denied as stated. Zurich is without knowledge or information sufficient to admit or deny Plaintiff s characterization of the circumstances surrounding the signing of the settlement agreement identified in this paragraph ( DOJ Settlement ). By way of further answer, the DOJ Settlement is a writing which speaks for itself, and Zurich denies any characterization of the same contrary to its express terms. By way of further answer, the remaining allegation in this paragraph is a conclusion of law to which no response is required, and it is, therefore, deemed denied. 13. Admitted in part, denied in part. It is admitted only that Forba entered into settlement agreements with the District of Columbia and each of the states referenced in this paragraph ( State Settlements ). By way of further response, the State Settlements are writings, the terms of which speak for themselves, and Zurich denies any characterization contrary to their express terms. 14. Denied. The 2006-2007 Policy is a writing which speaks for itself, and Zurich denies any characterization of the same contrary to its express terms. 15. Admitted in part, denied in part. It is admitted only that the 2006-2007 Policy was renewed by Zurich. The remaining allegations of paragraph 15 are denied as the 2007-2008 Policy is a writing which speaks for itself, and Zurich denies any characterization of the same contrary to its express terms. 16. Denied. The Policies are writings which speak for themselves, and Zurich denies any characterization of the same contrary to their express terms. 17. Denied. The Policies are writings which speak for themselves, and Zurich denies any characterization of the same contrary to their express terms. 3 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 3 of 12 PageID # 160
18. Denied. The Policies are writings which speak for themselves, and Zurich denies any characterization of the same contrary to their express terms. 19. Denied. The Policies are writings which speak for themselves, and Zurich denies any characterization of the same contrary to their express terms. 20. Admitted in part; denied in part. It is admitted only that Zurich was paid premiums for the Policies. The remaining allegations are denied as the Policies are writings which speak for themselves, and Zurich denies any characterization of the same contrary to their express terms. 21. Denied. The allegations of paragraph 21 attempt to characterize the Policies, which are writings and speak for themselves. Zurich denies any characterizations of the same contrary to their express terms. By way of further answer, the allegations in this paragraph are conclusions of law to which no response is required, and they are, therefore, deemed denied. 22. Denied as stated. It is admitted only, on information and belief, that Forba was served with certain subpoenas in November 2007 and that Forba provided Zurich with notice of the same on or around February 2008. By way of further response, the remaining allegations in this paragraph attempt to characterize the Policy(ies), the terms of which speak for themselves, and Zurich denies any characterizations of the same contrary to their express terms. Finally, and in any event, the remaining allegations in this paragraph are also conclusions of law to which no response is required, and they are, likewise, deemed denied. However, to the extent that these allegations are deemed factual, it is specifically denied that the subject subpoenas are Claims under the Policy(ies). 23. Denied. 4 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 4 of 12 PageID # 161
24. Denied. Paragraph 24 characterizes, in part, Zurich s coverage positions as set forth in one or more letters to Forba and its counsel from Zurich and/or its counsel E. Joseph O Neil, which are writings and speak for themselves, Zurich denies any characterizations of the same contrary to their express terms. By way of further response, the remaining allegations in this paragraph are conclusions of law to which no response is required, and they are, therefore, deemed denied. However, to the extent that any such allegations are deemed factual, it is specifically denied that Zurich wrongfully or unreasonably denied coverage to Forba. 25. Denied. Paragraph 25 characterizes, in part, Zurich s coverage positions as set forth in one or more letters to Forba and its counsel from Zurich and/or its counsel E. Joseph O Neil, which are writings and speak for themselves. Zurich denies any characterizations of the same contrary to their express terms. By way of further response, the remaining allegations in this paragraph are conclusions of law to which not response is required, and they are, therefore deemed denied. However, to the extent that any such allegations are deemed factual, it is specifically denied that Zurich wrongfully or unreasonably denied coverage to Forba. 26. Denied. 27. Denied. 28. Admitted in part; denied in part. It is admitted only that the Policies are insurance contracts, that Zurich was paid premiums for them, and that Zurich properly denied coverage for the government investigations and settlement payments made to resolve them. The remaining allegations of Paragraph 28 are denied as conclusions of law. However, to the extent that any such allegations are deemed factual, it is specifically denied that Zurich wrongfully or unreasonably denied coverage to Forba. 5 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 5 of 12 PageID # 162
COUNT I BREACH OF CONTRACT 29. Zurich incorporates by reference, as if fully set forth herein, its responses to the allegations in paragraphs 1 through 28. 30. Denied. 31. Denied. 32. Denied. 33. Denied. COUNT II DECLARATORY JUDGMENT 34. Zurich incorporates by reference, as if fully set forth herein, its responses to the allegations in paragraphs 1 through 28. 35. Admitted in part; denied in part. It is admitted only that Zurich was paid premiums for the Policies, and that Zurich properly refused to pay Forba s defense costs and settlement payments. The remaining allegations of Paragraph 35 are denied as conclusions of law. However, to the extent that any such allegations are deemed factual, it is specifically denied that Zurich wrongfully or unreasonably denied coverage to Forba. 36. Denied. The allegations in this paragraph constitute conclusions of law to which no response is required, and it is, therefore, deemed denied. 37. (a)-(b) It is admitted only that Forba seeks a declaratory judgment from this Court. However, it is specifically denied that Forba is entitled to the relief requested. WHEREFORE, defendant Zurich requests that the Court enter judgment in its favor and against plaintiff, Forba, together with attorneys' fees, costs, and such other relief as the Court deems appropriate. AFFIRMATIVE DEFENSES 38. Forba s Complaint fails to state a claim upon which relief may be granted. 6 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 6 of 12 PageID # 163
39. Forba s claims are barred in whole or in part by the applicable statutes of limitations. 40. Coverage is barred to the extent that Forba s claim(s) does/do not fall within certain of the Policies insuring agreements. 41. Coverage is barred in whole or in part under the Policies definition of Claim. 42. Coverage is barred in whole or in part under the Policies definition of Defense Costs. 43. Coverage is barred in whole or in part under the Policies definition of Loss. 44. Coverage is barred in whole or in part by the Policies Professional Services Exclusion and/or Endorsements 10 & 8 to the 2006-2007 and 2007-2008 Policies respectively 45. Coverage is barred in whole or in part by the Policies Prior Acts Exclusion and/or Endorsement 3 & 2 to the 2006-2007 and 2007-2008 Policies respectively. 46. Coverage is barred in whole or in part by the Policies Prior/Pending Litigation Exclusion and/or Exclusion A(2) of Coverage Section I under the Policies. 47. Coverage is barred in whole or in part to the extent that any Wrongful Act occurred prior to the Policies Continuity Date, if on such date any Insured knew or reasonably could have foreseen that such Wrongful Act could lead to a Claim and/or under Exclusion A(9) of Coverage Section I of the Policies. 48. Coverage is barred in whole or in part by the Policies exclusion for deliberately fraudulent acts or omissions or willful violation of statutes or regulations and/or Exclusion A(12) of Coverage Section I under the Policies. 7 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 7 of 12 PageID # 164
49. Coverage is barred in whole or in part by the Policies exclusion for financial gain to which the insured was not legally entitled and/or Exclusion A(13) of Coverage Section I, as amended by Endorsements 7 and 5 respectively of the 2006-2007 Policy and the 2007-2008 Policy. 50. Coverage under the Policies is barred in whole or in part by the Policies Exclusion for claims arising out of or attributable to bodily injury, mental anguish, emotional distress, sickness, disease or death of any person and/or Exclusion A(5) of Coverage Section I, as modified by Endorsements 5 & 3 respectively to the 2006-2007 and 2007-2008 Policies. 51. Coverage is barred in whole or in part by the Polices exclusions for detention, assault, and battery and/or Exclusions A(8) and B(5) of Coverage Section I. 52. Coverage is barred in whole or in part by the Policies contractual liability exclusion and/or Exclusion B(2) of Coverage Section I under the Policies. 53. Coverage is barred in whole or in part by the Policies exclusion for customer/client service and/or Exclusion B(3) of Coverage Section I under the Policies. 54. Coverage under the Policies is barred in whole or in part by false statements in the policy applications submitted on Forba s behalf and/or under Condition IV(D) of the Common Policy Terms, as amended by Endorsements 8 and 6 respectively to the 2006-2007 Policy and the 2007-2008 Policy. 55. Coverage is barred in whole or in part to the extent that general insurance principles prohibit coverage for restitutionary relief and/or because Forba s settlement constitutes uninsurable restitution. 56. Coverage under the Policies is barred in whole or in part to the extent that the terms of Forba s settlement were not reasonable. 8 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 8 of 12 PageID # 165
57. Coverage is barred in whole or in part to the extent that punitive or exemplary damages are prohibited by applicable law and/or public policy. 58. Coverage is barred in whole or in part to the extent that a claim arises out of any fact, circumstance or situation which has been the subject of any written notice given under a policy for which any policy subject to this lawsuit is a direct renewal or replacement and/or under Exclusion A(1) of Coverage Section I. 59. Coverage under the Policies may be barred in whole or in part because of the availability of other insurance for the alleged loss and/or shall apply only excess over any valid collectible insurance or any indemnity rights as set forth under Section IV(E) of the Policies Common Policy Terms. 60. Forba s claims are barred in whole or in part by the terms, definitions, exclusions, conditions and limitations contained or incorporated in the Policies, all of which are reserved and none of which are waived. 61. Forba s claims are barred in whole or in part to the extent that Forba failed to satisfy any and all conditions precedent to coverage. 62. Forba s claims are barred in whole or in part by the doctrines of laches and/or unclean hands. 63. Forba s claims are barred or otherwise diminished to the extent they constitute criminal, fraudulent, dishonest and intentional conduct, and it is against public policy for Zurich to provide insurance against such claims. 64. Forba s claims against Zurich are barred by the doctrine of avoidable consequences. 9 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 9 of 12 PageID # 166
65. There is no coverage under the Policies to the extent the underlying claim arose from conditions, perils, hazards, losses or liabilities that were known to the insured at the time of the issuance of the Policies, were the result of non-fortuitous events and/or otherwise constituted an uninsurable risk. 66. Forba s claim for coverage is subject to the applicable self-insured retentions set forth in the Policies. 67. Forba s claim for coverage is subject to the applicable limits of liability set forth in the Policies. 68. Defense costs are included within and not in addition to applicable limits of liability set forth in the Policies. 69. The Policies may be rescinded or otherwise deemed void to the extent that Forba and/or any insured, as part of its/their application for insurance coverage, knowingly or otherwise made false statements or omitted facts material to the acceptance of the risks assumed by Zurich and/or upon which Zurich relied in pricing and/or issuing the subject Policies. 70. Forba s claims fail because Zurich did not breach any obligation owed Forba under its insurance policy. 71. At all times relevant hereto, Zurich acted reasonably, prudently, promptly and with due regard to the interests of its insured. 72. Zurich reserves the right to assert any defenses that may arise out of the course of discovery of this litigation. 10 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 10 of 12 PageID # 167
WHEREFORE, defendant Zurich requests that the Court enter judgment in its favor and against plaintiff, Forba, together with attorneys' fees, costs, and such other relief as the Court deems appropriate. HANGLEY ARONCHICK SEGAL & PUDLIN Dated December 23, 2010 By /s/ Ronald P. Schiller Ronald P. Schiller admitted pro hac vice Nicole J. Rosenblum admitted pro hac vice Lisa Salazar admitted pro hac vice One Logan Square, 27 th Floor Philadelphia, PA 19103 (215) 568-6200 rschiller@hangley.com HOWARD, TATE, SOWELL, WILSON LEATHERS & JOHNSON, PLLC William H. Tate, (TN Bar No.06797) 150 Second Avenue North, Suite 201 Nashville, Tennessee 37201 Tel (615) 265-1125 Fax (615) 244-5467 whtate@howardtatelaw.com Attorneys for Defendant Zurich American Insurance Company 11 Case 310-cv-01018 Document 23 Filed 12/23/10 Page 11 of 12 PageID # 168
CERTIFICATE OF SERVICE I hereby certify that on this 23rd day of December, 2010 a copy of the foregoing Answer and Affirmative Defenses was filed electronically. Notice of this filing will be sent by operation of the Court s electronic filing system. Parties may access this filing through the Court s electronic filing system. Robert J. Walker J. Mark Tipps Emily B. Warth Walker, Tipps & Malone PLC 2300 One Nashville Place 150 Fourth Avenue North Nashville, TN 37219 Attorneys for Plaintiff L. Joseph Loveland King & Spalding 1180 Peachtree Street, NE Atlanta, GA 30309-3521 Attorney for Plaintiff (Of Counsel) /s/ Ronald P. Schiller Ronald P. Schiller Case 310-cv-01018 Document 23 Filed 12/23/10 Page 12 of 12 PageID # 169