Hertz Global Holdings, Inc. v. Alterra American Insurance Company.

      IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

HERTZ GLOBAL HOLDINGS, INC.,    )
                                )
                     Plaintiff, )
                                )
            v.                  ) C.A. No. N22C-01-153
                                )          PRW CCLD
ALTERRA AMERICAN INSURANCE )
COMPANY N/K/A PINNACLE          )
NATIONAL INSURANCE COMPANY, )
                                )
                     Defendant. )

                        Submitted: September 27, 2023
                         Decided: December 18, 2023

              Upon Hertz’s Motion for Partial Summary Judgment,
                                 DENIED.

                 Upon AAIC’s Motion for Summary Judgment,
                              GRANTED.

                 MEMORANDUM OPINION AND ORDER

Jennifer C. Wasson, Esquire, Carla M. Jones, Esquire, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware, David P. Bender Jr., Esquire, Joseph G.
Balice, Esquire, HAYNES AND BOONE, LLP, Costa Mesa, California, Benjamin L.
Mesches, Esquire, HAYNES AND BOONE, LLP, Dallas, Texas, Brian Singleterry,
Esquire, HAYNES AND BOONE, LLP, Fort Worth, Texas, Attorneys for Plaintiff Hertz
Global Holdings, Inc.
Thaddeus J. Weaver, Esquire, DILWORTH PAXSON LLP, Wilmington, Delaware,
Michael F. Perlis, Esquire, KAUFMAN BORGEEST & RYAN LLP, Woodland Hills,
California, Matthew I. Schiffhauer, Esquire, KAUFMAN BORGEEST & RYAN LLP,
Garden City, New York, Attorneys for Defendant Alterra America Insurance
Company n/k/a Pinnacle National Insurance Company.
WALLACE, J.
       Following an extensive SEC investigation, Hertz sought indemnification of

its legal fees and costs from its primary and first-excess insurance providers. Both

insurers denied coverage and Hertz sued to enforce the policies in the United States

District Court for the Southern District of New York. Finding that Hertz failed to

sufficiently plead it was seeking reimbursement for covered claims, the New York

federal court dismissed the suit and awarded no coverage.                Hertz now seeks

indemnification from Alterra American Insurance Company (“AAIC”), the second

excess insurer in its large insurance policy, via a single breach-of-contract claim.

       In the parties’ cross-motions for summary judgment, Hertz asks the Court to

rule on two of AAIC’s affirmative defenses (Affirmative Defenses #3 and #4)—

whether: (1) “the [SEC Letter and SEC Order (collectively the ‘SEC Matter’)]

constitutes a Securities Claim against Hertz for a Wrongful Act”; and (2) “the SEC

Matter constitutes a Claim against Insured Persons for a Wrongful Act.”1 In turn,

AAIC seeks summary judgment in its favor arguing that under multiple theories—

(1) the SEC Matter constitutes neither a Securities Claim against Hertz, nor a Claim

against an Insured Person, (2) Hertz failed to provide AAIC with proper notice,

(3) collateral estoppel and res judicata apply to bar this subsequent action, and

(4) the underlying insurance has not been exhausted—Hertz is not entitled to any



1
    Plaintiff’s Motion for Partial Summary Judgment (“Hertz’s Mot. for Partial Summ. J.”) at 2
(D.I. 58).

                                             -1-
relief.2

       Because the Securities Claim against Hertz was previously decided by the

New York federal court, collateral estoppel bars Hertz’s attempt to relitigate the

issue of whether the SEC Matter was covered as a Securities Claim against it—the

New York federal court already found it wasn’t covered.

       And because the SEC Matter is directed against Hertz, the SEC Matter does

not constitute a Claim against Insured Persons.

       For those and reasons explained below, AAIC’s Motion for Summary

Judgment is GRANTED and Hertz’s Motion for Partial Summary Judgment is

DENIED.

               II. FACTUAL AND PROCEDURAL BACKGROUND

       In November 2013, Hertz purchased a $200M insurance policy through a

number of insurers via an “insurance tower.”3

       National Union Fire Insurance Company of Pittsburgh is the primary insurer

and issued a policy in the amount of $15 million.4 U.S. Specialty Insurance

Company issued the first-excess level of coverage also in the amount of $15 million.5



2
    Defendant’s Cross-Motion for Summary Judgment (“AAIC’s Mot. for Summ. J.”) at 19-51
(D.I. 69).
3
    Hertz’s Mot. for Partial Summ. J. at 2.
4
    Hertz’s Mot. for Partial Summ. J., Ex. A (“Primary Policy”) § Declarations.
5
    Hertz’s Mot. for Partial Summ. J., Ex. B (“U.S. Specialty Policy”) § Declarations.

                                               -2-
U.S. Specialty’s coverage is an excess, follow-form policy.6

           AAIC issued the second-excess level of coverage also in the amount of

$15 million.7 Like the U.S. Specialty policy, AAIC’s coverage is an excess, follow-

form policy.8

           From 2014 to 2018, Hertz incurred significant legal expenses defending an

SEC investigation that ultimately concluded by way of settlement in lieu of formal

charges.9 Hertz incurred over $27 million in defense costs, which it first sought to

recover from National Union and U.S. Specialty as the primary and first excess level

insurers.10 Both insurers denied coverage.11

     A. HERTZ SUES NATIONAL UNION AND U.S. SPECIALTY
        IN NEW YORK FEDERAL COURT.

           Hertz sued National Union and U.S. Specialty in the United States District

Court for the Southern District of New York asserting breach-of-contract claims.12

The lawsuit was dismissed for failure to state a claim on which relief could be




6
     See generally U.S. Specialty Policy.
7
     Hertz’s Mot. for Partial Summ. J., Ex. C (“AAIC Policy”) § Declarations.
8
     See generally AAIC Policy.
9
   Hertz’s Mot. for Partial Summ. J., Ex. H (Oct. 18, 2021 Ltr. from Richard P. McEvily to Sara
Abrams) at 1-2.
10
     Id.
11
     Id.
12
   See generally Hertz Global Hldgs., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 

 (S.D.N.Y. 2021).

                                               -3-
granted.13 The New York federal court expressly declined to engage in a choice-of-

law analysis, finding that the parties failed to brief the issue. The federal court chose

to apply New York law, however, because there was no real conflict between New

York, Delaware, and Florida law.14 Although the court relied on New York case

law, it found resolution of the issue required applying only “the most basic contract

law principles.”15

         Hertz appealed that decision to the United States Court of Appeals for the

Second Circuit.16 Following the parties’ settlement of the dispute, the Second

Circuit entered an order dismissing the appeal and issued a mandate.17

     B. HERTZ SEEKS RECOVERY FROM AAIC IN DELAWARE.

         Hertz initiated this action asserting one count of breach of contract against

AAIC.18 Hertz says conditions precedent to trigger AAIC’s excess policy have been

satisfied or waived, including exhaustion of the AIG policy (the “Primary Policy”).19

         Hertz also says that coverage has been triggered because the “SEC Proceeding



13
     

.
14
     

.
15
    

 (“Because only the most basic contract law principles are necessary for resolving this
dispute, and the Court sees no variation in the states laws that would impact the analysis, the Court
will resolve this motion applying New York law.”).
16
     See C.A. No. 22-853 (2d Cir.).
17
     D.I. 112, Ex. 1 (C.A. No. 22-853 (2d. Cir.) Order and Mandate).
18
     Complaint (“Compl.”) (D.I. 1).
19
     Id. ¶ 66.

                                                -4-
constitutes both a Securities Claim as defined under [AAIC’s] Excess Policy, as well

as a Claim (as defined under the Policies) against Hertz’s directors and officers.” 20

Thus, Hertz seeks indemnification for the full policy amount to cover its costs and

fees incurred defending the SEC investigation.21

     C. AAIC’S INTERPLEADER ACTION IN NEW YORK.

           Before responding to the complaint here, AAIC filed a motion in the Southern

District of New York seeking to enjoin all other litigation (including this action)

until the Second Circuit appeal resolved.22 According to AAIC, if the Delaware

action were allowed to continue during the pendency of the appeal, it would give

Hertz “a second bite at the apple.”23 This is so, said AAIC, because the AAIC policy

is a “strict follow-form policy” and Hertz would be asking a Delaware court to

interpret “the same policy with the same language that [the New York federal court]

interpreted and that Hertz lost.”24

           The New York federal court denied AAIC’s motion, explaining that “[t]he

preclusive effect of a judgment is ordinarily decided in a subsequent action where

the preclusion issue is raised; the first court does not dictate the preclusive effect of


20
     Id. ¶ 67.
21
     Id. ¶¶ 62-70.
22
    See D.I. 35, Ex. 1 (“Transcript of Oral Argument and Ruling on AAIC’s interpleader action”)
at 2-3.
23
     Id. at 7.
24
     Id.

                                             -5-
its own judgment. Accordingly, the Delaware Action is a proper forum to decide

the issue of collateral estoppel.”25 Too, that court noted the Second Circuit’s

jurisdiction is over a case involving two other insurance companies and Hertz; thus,

no decision in AAIC’s case would “wrest jurisdiction from the Second Circuit.”26

     D. THE POLICY

        As relevant to the analysis here, the AAIC Policy follows the Primary

Policy.27 The Primary Policy defines coverage, in pertinent part, as follows:

        COVERAGE A: EXECUTIVE LIABILITY INSURANCE

        This policy shall pay the Loss of any Insured Person arising from a
        Claim made against such Insured Person for any Wrongful Act,
        except when and to the extent that an Organization has indemnified
        such Insured Person. Coverage A shall not apply to Loss arising from
        a Claim made against an Outside Entity Executive.

        COVERAGE B: ORGANIZATION INSURANCE

        (i) Organization Liability: This policy shall pay the Loss of any
        Organization arising from a Securities Claim made against such
        Organization for any Wrongful Act. The Insurer shall, in accordance
        with and subject to Clause 8, advance Defense Costs of such Claim
        prior to its final disposition.

        (ii) Indemnification of an Insured Person: This policy shall pay the
        Loss of an Organization arising from a Claim made against an
        Insured Person (including an Outside Entity Executive) for any
        Wrongful Act, but only to the extent that such Organization has

25
     Id. at 17-18 (internal citations omitted).
26
     Id. at 13-14.
27
   AAIC Policy § Declarations (“Unless otherwise designated above by an asterisk in front of
another Underlying Insurance, the Followed Policy is the Primary Policy.” (bold in original)).

                                                  -6-
        indemnified such Insured Person.28

The Primary Policy defines “Claim” as:

                (1) a written demand or notice for monetary, non-monetary or
                injunctive relief;

                (2) a civil, criminal (including any appeal therefrom),
                administrative, regulatory or arbitration proceeding for
                monetary, non-monetary or injunctive relief which is
                commenced by:

                       (i) service of a complaint, notice of deposition or similar
                       document;

                       (ii) return of an indictment, information or similar
                       document (in the case of a criminal proceeding); or

                       (iii) receipt or filing of a notice of charges or similar
                       document; or

                       (iv) a demand for mediation or other alternative dispute
                       resolution proceeding: or

                       (v) receipt of a complaint commencing an administrative
                       proceeding;

                (3) any official request for Extradition of any Insured Person
                or the execution of a warrant for the arrest of an Insured Person
                where such execution is an element of Extradition; or

                (4) any Organization Shareholder Derivative Investigations;
                or

                (5) a written request to toll or waive a period or statute of
                limitations; or

                (6) a civil, criminal, administrative or regulatory investigation
28
     Primary Policy § 1 (Insurance Agreements) (bold and italicization in original).

                                                -7-
                 (including, but not limited to, an SEC, DOJ, state attorney
                 general, Equal Employment Opportunity Commission
                 ("EEOC"), grand jury investigation or any self-regulatory
                 organization) of an Insured Person:

                         (i) once such Insured Person is identified in writing by
                         such investigating authority as a person against whom a
                         proceeding described in Definition (b)(2) may be
                         commenced; or

                         (ii) in the case of an investigation by the SEC or a similar
                         federal, state or foreign government authority, after the
                         service of a subpoena, entry of a formal order of
                         investigation, or Wells Notice or with regard to a foreign
                         proceeding, any foreign equivalent document, upon such
                         Insured Person; or

                         (iii) commenced by the arrest and detainment or
                         incarceration for more than 24 hours of an Insured Person
                         by any law enforcement authority in a Foreign
                         Jurisdiction; or

                 (7) the equivalent document in a Foreign Jurisdiction for (1)-(6)
                 above.

                 The term “Claim” shall include any Securities Claim and any
                 Employment Practices Claim, and any equivalent thereof in
                 any Foreign Jurisdiction.29

The Primary Policy defines “Organization” as:

                 (1) the Named Entity;

                 (2) each Subsidiary; and

                 (3) in the event a bankruptcy proceeding shall be instituted by or
                 against the foregoing entities, the resulting debtor-in-possession

29
     Id. § 2(b) (bold in original).

                                              -8-
                 (or equivalent status outside the United States), if any.30

The Primary Policy defines “Securities Claim” as:

         a Claim, other than an investigation of an Organization, made against
         any Insured and brought anywhere in the world:

                 (1) alleging a violation of any federal, state, local or foreign
                 regulation, rule or statute regulating securities or common law
                 (including but not limited to the purchase or sale or offer or
                 solicitation of an offer to purchase or sell securities) which is:

                         (i) brought by any person or entity alleging, arising out of,
                         based upon or attributable to the purchase or sale or offer
                         or solicitation of an offer to purchase or sell any securities
                         (as defined in the Securities Exchange Act of 1933) of an
                         Organization; or

                         (ii) brought by a security holder of an Organization,
                         whether individually or by class action, with respect to
                         such security holder’s interest in securities (as defined in
                         the Securities Exchange Act of 1933) of such
                         Organization; or

                 (2) which is a Derivative Suit.

                 Notwithstanding the foregoing, the term “Securities Claim”
                 shall include an administrative or regulatory proceeding against
                 an Organization.31

The Primary Policy defines “Wrongful Act” as:

                 (1) any actual or alleged breach of duty, neglect, error, statement,
                 misstatement, misleading statement, omission or act or any
                 actual or alleged Employment Practices Violation:


30
     Id. § 2(v) (bold in original).
31
     Id. § 2(bb) (bold in original).

                                               -9-
                         (i) with respect to any Executive of an Organization,
                         committed or attempted or allegedly committed or
                         attempted by such Executive in his or her capacity as such
                         or any matter claimed against such Executive solely by
                         reason of his or her status as such; or

                         (ii) with respect to any Employee of an Organization,
                         committed or attempted or allegedly committed or
                         attempted by such Employee in his or her capacity as
                         such, but solely with respect to any: (a) Securities Claim;
                         or (b) other Claim so long as such Claim is also
                         maintained against an Executive of an Organization; or

                         (iii) with respect to any Outside Entity Executive,
                         committed or attempted or allegedly committed or
                         attempted by such Outside Entity Executive in his or her
                         capacity as such or any matter claimed against such
                         Outside Entity Executive by reason of his or her status as
                         such;

                 (2) with respect to an Organization, any actual or alleged breach
                 of duty, neglect, error, statement, misstatement, misleading
                 statement, omission or act committed or attempted or allegedly
                 committed or attempted by such Organization, but solely in
                 regard to a Securities Claim.

                 (3) with respect to a Controlling Person, any actual or alleged
                 breach of duty, neglect, error, statement, misstatement,
                 misleading statement, omission or act committed or attempted or
                 allegedly committed or attempted by the Controlling Person in
                 his, her or its capacity as such or any matter claimed against such
                 Controlling Person solely by reason of his, her or its status as
                 such, but solely in regard to a Securities Claim.32

     E. THE COMPLAINT HERE

         In Hertz’s single-count complaint, it insists AAIC breached the excess policy

32
     Id. § 2(dd) (bold in original).

                                             -10-
by refusing to reimburse Hertz “for that portion of the defense fees and costs which

were incurred and paid in defending Hertz and its directors and officers against, and

otherwise responding to, the SEC [Matter] up to their policy’s respective limits.”33

Hertz says that the SEC Matter constitutes a Securities Claim against Hertz for a

Wrongful Act and a Claim against Insured Persons for a Wrongful Act.34

     F. THE MOTIONS

         Initially, AAIC moved to dismiss the Complaint on the grounds of res judicata

and collateral estoppel.35 In the alternative, AAIC suggested the Complaint should

be stayed pending the outcome of the New York interpleader action.36 The Court

denied the motion to dismiss, finding the Complaint was well-pled and the collateral

estoppel and res judicata issues required a more complete record.37

         Now, Hertz asks for summary judgment on AAIC’s Third and Fourth

Affirmative Defenses (#3 and #4), by asking the Court to find: (1) “the SEC Matter

constitutes a Securities Claim against Hertz for a Wrongful Act”; and (2) “the SEC

Matter constitutes a Claim against Insured Persons for a Wrongful Act.”38



33
     Compl. ¶¶ 62-70.
34
     Id. ¶ 67.
35
    Defendant Altera Insurance Company’s Motion to Dismiss (“AAIC’s Mot. to Dismiss”) at
2-4 (D.I. 15).
36
     Id. at 15-16.
37
     D.I. 40 (Aug. 29, 2022 Oral Arg. Tr. and Ruling on AAIC’s Mot. to Dismiss) at 39-44.
38
     Hertz’s Mot. for Partial Summ. J. at 2.

                                               -11-
        In opposition, AAIC asks for summary judgment on the entire Complaint,

asserting (1) the SEC Matter constitutes neither a Securities Claim against Hertz, nor

a Claim against Insured Persons, (2) proper notice was not given, (3) collateral

estoppel and res judicata apply to bar this subsequent action, and (4) the policy has

not been exhausted.39

        Earlier, the Court heard oral argument on the dueling motions for summary

judgment. Following the hearing, the Court requested supplemental briefing on the

issues of (1) choice of law and (2) exhaustion.40 That supplemental briefing having

been completed,41 the motions are now ripe for decision. As an initial matter, neither

the purported conflicts of law identified by the parties nor the issue of exhaustion

necessitate the Court’s further engagement in a choice of law analysis or resolution

of the exhaustion question.

                            III. PARTIES CONTENTIONS

     A. HERTZ’S MOTION FOR PARTIAL SUMMARY JUDGMENT

        Hertz says the SEC Matter is a Securities Claim against it because the June

11, 2014 SEC Letter constituted a demand for non-monetary relief and the latter SEC



39
     AAIC’s Mot. for Summ. J. at 3-6.
40
     D.I. 101.
41
    Defendant’s Opening Supplemental Brief (D.I. 105); Opening Supplemental Brief in Support
of Plaintiff’s Motion For Partial Summary Judgment (D.I. 106); Reply in Support of Plaintiff’s
Opening Supplemental Brief in Support Of Plaintiff’s Motion For Partial Summary Judgment (D.I.
117); Defendant’s Supplemental Response Brief (D.I. 118).

                                            -12-
Order constituted an administrative or regulatory proceeding.42 Hertz says the SEC

Matter is also a Claim against Insured Persons for those same reasons.43

     B. AAIC’S CROSS-MOTION FOR SUMMARY JUDGMENT

        In AAIC’s view: (1) the SEC Matter constitutes neither a Securities Claim

against Hertz, nor a Claim against Insured Persons; (2) Hertz failed to provide AAIC

with proper notice; (3) collateral estoppel and res judicata apply to bar this

subsequent action; and, (4) the underlying insurance has not been exhausted.44

                               IV. STANDARD OF REVIEW

        Summary judgment is warranted upon a showing “that there is no genuine

issue as to any material fact and that the moving party is entitled to judgment as a

matter of law.”45 Where cross-motions for summary judgment are filed on a

particular issue and neither party argues the existence of a genuine issue of material

fact thereon, “the Court shall deem the motions to be the equivalent of a stipulation

for decision on the merits based on the record submitted with the motions.”46 So

“upon cross motions for summary judgment [on that issue], this Court will grant




42
     Hertz’s Mot. for Partial Summ. J. at 13-26.
43
     Id. at 26-34.
44
     AAIC’s Mot. for Summ. J. at 19-51.
45
     Del. Super. Ct. Civ. R. 56(c).
46
     Del. Super. Ct. Civ. R. 56(h).

                                               -13-
summary judgment to one of the moving parties.”47 And on that issue, “the questions

before this Court are questions of law not of fact, and the parties by filing cross

motions for summary judgment have in effect stipulated that the issue[] raised by

the motions [is] ripe for a decision on the merits.”48

           There, on the issue raised, the burden is on the moving party to demonstrate

its prayer for summary judgment is supported by undisputed facts or an otherwise

adequate factual record to support a legal judgment.49 “If the motion is properly

supported, then the burden shifts to the non-moving party to demonstrate that there

are material issues of fact for resolution by the ultimate fact-finder.”50

           The Court may grant a motion for summary judgment when: “(1) the record

establishes that, viewing the facts in the light most favorable to the nonmoving party,

there is no genuine issue of material fact, and (2) in light of the relevant law and

those facts, the moving party is legally entitled to judgment.”51 The Court cannot

grant a motion for summary judgment “[i]f . . . the record reveals that material facts


47
   Health Corp. v. Clarendon Nat. Ins. Co, 

, at *11 (Del. Super. Ct. July 15,
2009).
48
     

49
    See CNH Indus. Am. LLC v. Am. Cas. Co. of Reading, 

, at *1 (Del. Super.
Ct. June 8, 2015).
50
     

51
    Haft v. Haft, 

 (Del. Ch. 1995) (citing Burkhart v. Davies, 

 (Del. 1991)); see also Brooke v. Elihu-Evans, 

, at *2 (Del. 1996) (“If the
Court finds that no genuine issues of material fact exist, and the moving party has demonstrated
his entitlement to judgment as a matter of law, then summary judgment is appropriate.”).

                                             -14-
are in dispute, or if the factual record has not been developed thoroughly enough to

allow the Court to apply the law to the factual record . . . .”52 But, at bottom, a claim

“should be disposed of by summary judgment whenever an issue of law is involved

and a trial is unnecessary.”53

                                      V. DISCUSSION

     A. COLLATERAL ESTOPPEL BARS THE RELITIGATION OF WHETHER
        THE SEC MATTER CONSTITUTES A SECURITIES CLAIM AGAINST
        HERTZ FOR A WRONGFUL ACT.

        AAIC says Hertz’s claims are barred by res judicata and collateral estoppel

because the New York federal court already interpreted the Primary Policy.54 Hertz

says neither doctrine applies.55

        In examining whether collateral estoppel or res judicata apply, the Court

applies the law from the initial forum, which is New York.56



52
     CNH Indus. Am. LLC, 

, at *1.
53
    Jeffries v. Kent Cty. Vocational Tech. Sch. Dist. Bd. of Educ., 

 (Del. Super.
Ct. 1999).
54
     AAIC’s Mot. for Summ. J. at 47-50.
55
    Plaintiff’s Brief in Opposition to Defendant’s Cross-Motion for Summary Judgment and Reply
in Support of Plaintiff’s Motion for Summary Judgment (“Hertz’s Answering Br.”) at 43-47 (D.I.
72).
56
    Asbestos Workers Local 42Pension Fund v. Bammann, 

, at *16, *16 n.129
(Del. Ch. May 21, 2015) (applying New York law when considering the elements of collateral
estoppel—even though the initial forum was in a New York federal court—because “New York
recognizes that its law of collateral estoppel has ‘no discernible difference’ from federal law”
(quoting Carroll v. McKinnell, 

, at *2 (N.Y. Sup. Ct. Mar. 17, 2008))), aff’d sub
nom. Asbestos Workers Loc. 42 Pension Fund v. Bammann, 

 (Del. 2016); Hertz
Global Hldgs., Inc., 530 F.Supp.3d at 453.

                                              -15-
           1. Collateral Estoppel Applies.

           “Collateral estoppel precludes a party from relitigating in a subsequent action

or proceeding an issue raised in a prior action or proceeding and decided against that

party or those in privity.”57 The underlying theory is the avoidance of relitigating “a

decided issue” and the possibility that relitigation could result in “an inconsistent

result.”58 For collateral estoppel to apply, (1) “[t]here must be an identity of [the]

issue which has necessarily been decided in the prior action and is decisive in the

present action,” and (2) “there must have been a full and fair opportunity to contest

the decision now said to be controlling.”59 The party seeking to invoke collateral

estoppel:

           must demonstrate that the decisive issue was necessarily decided in the
           prior action against a party, or one in privity with a party. The party to
           be precluded from relitigating the issue bears the burden of
           demonstrating the absence of a full and fair opportunity to contest the
           prior determination.60

           AAIC has demonstrated that the issue of whether the SEC Matter was covered

under the Primary Policy was decided by the New York federal court in the prior

action.61


57
     Buechel v. Bain, 

 (N.Y. 2001) (citation omitted).
58
     

59
     

60
     

61
   AAIC’s Mot. for Summ. J. at 47-50; Reply Brief in Support of Defendant’s Cross-Motion for
Summary Judgment (“AAIC’s Reply Br.”) at 26-29 (D.I. 78).

                                              -16-
         Hertz counters that collateral estoppel is inapplicable because: (1) the issues

decided by the New York federal court were pure questions of law; (2) the Primary

Policy and the AAIC Policy are different; (3) the issue of exhaustion was not a fact

when the New York federal action was decided; and, (4) the New York federal court

found that the SEC Matter was not a “Claim against Insured Persons” as an

“alternative holding.”62

         First, Hertz argues that the bar of collateral estoppel does not apply to a “pure

question of law,” which it says the interpretation of an insurance contract is.63 Hertz

is correct that collateral estoppel does not apply to pure questions of law under New

York law,64 but the interpretation of an insurance contract is not a pure question of

law.65

         The source of the pure question of law doctrine is American Home Assurance

Co. v. International Insurance Co., where the New York Court of Appeals explained


62
     Hertz’s Answering Br. at 44-47.
63
     Id. at 44 (citations omitted).
64
   Am. Home Assurance Co. v. Int’l Ins. Co., 

 (N.Y. 1997) (“At the outset, the
Court concluded that the salient question of the need for a prejudice showing was a purely legal
one as to which the collateral estoppel bar is inapplicable.” (citation omitted)).
65
    

 (explaining that the question of “whether an excess carrier must make a showing of actual
prejudice when it seeks to avoid its coverage obligations because of late notice” is a “pure question
of law.”). While New York state and federal courts have said “[t]he interpretation of insurance
contracts is purely a question of law for the courts,” those statements were made in the context of
the standard of review on summary judgment. See, e.g., Regional Logistics Gp, LLC v. West Am.
Ins. Co., 

, at *6 (W.D.N.Y. Mar. 28, 2023) (stating “[t]he interpretation of
insurance contracts is purely a question of law for the courts” for the proposition that contract
interpretation can be decided on summary judgment).

                                                -17-
that the question of “whether an excess carrier must make a showing of actual

prejudice when it seeks to avoid its coverage obligations because of late notice” is a

“pure question of law.”66

        Hertz cites to Plymouth Venture Partners, II, L.P. v. GTR Source, LLC67 in

support of its proposition that any judicial exercise involving interpretation of an

insurance contract is a pure question of law.68 But in Plymouth Venture Partners,

the United States Court of Appeals for the Second Circuit dealt with the question of

whether a judgment debtor suffers legally cognizable damages when a judgment

creditor causes a debtor’s funds to be levied on.69 In other words, the court in

Plymouth ruled on a question of law independent of any facts.70 The interpretation

of the insurance contract here, on the other hand, involves the application of rules of

contract interpretation to particular terms and facts—e.g., whether the specific SEC

Order here initiates an investigation or administrative proceeding.71 So it is not a



66
     Am. Home Assurance Co., 

.
67
     

 (2d Cir. 2021), certified question answered, 

 (N.Y. 2021).
68
     Hertz’s Answering Br. at 44.
69
    Plymouth Venture Partners II, L.P., 988 F.3d at 642 (reversing the district court’s application
of issue preclusion in Simon v. GTR Source, LLC, 

 (S.D.N.Y. Dec. 26, 2019),
because the issue decided in GTR Source, LLC v. FutureNet Grp., Inc., 

 (N.Y.
Sup. Ct. 2018) was a “pure question of law”).
70
   Id; see also Simon v. Cap. Merchant Servs., LLC, 

, at *10 (S.D.N.Y. Feb. 10,
2020) (“This holding answers a question of law, independent of any particular set of facts.”).
71
    See Hertz Global Hldgs., Inc., 530 F.Supp.3d at 454-55 (applying rules of contract
interpretation to these facts).

                                               -18-
pure question of law and collateral estoppel may indeed apply.

        Second, the AAIC Policy is a follow-form policy to the Primary Policy.72 And

the terms analyzed and decided by the New York federal court are identical to the

terms the Court would need to analyze here. Such re-examination of exact terms is

what—at its core—collateral estoppel seeks to avoid.73

        Third, Hertz says that because it now argues exhaustion, which it couldn’t

raise in the New York federal action, collateral estoppel doesn’t apply.74 Hertz cites

to the New York Supreme Court’s 1933 decision in City of New York v. Coney Island

Fire Department75 for that proposition.76 But Coney Island Fire Dept. is of no help;

exhaustion has no bearing on the outcome if Hertz’s claims do not constitute covered

claims. Accordingly, Hertz’s assertion that exhaustion wasn’t available doesn’t

prohibit the application of collateral estoppel.

        Fourth, Hertz argues that, because the New York federal court only found in

the alternative no coverage for the Claims against Insured Persons, collateral

estoppel cannot apply at all.77 AAIC responds that preclusion can still apply to




72
     See, e.g., AAIC Policy § Declarations (“Excess Follow Form Policy”).
73
     See Buechel, 

 (citation omitted).
74
     Hertz’s Answering Br. at 46.
75
     

 (N.Y. Sup. Ct. 1939).
76
     Hertz’s Answering Br. at 46.
77
     Id. at 46-47 (emphasis added); see Hertz Global Hldgs., Inc., 530 F.Supp.3d at 459.

                                               -19-
alternative holdings if they are “not open to any serious dispute.”78

        Hertz’s primary basis for making its “alternative holding” argument is

Tydings v. Greenfield, Stein & Senior, LLP.79 In Tydings, the New York Court of

Appeals stated that where a trial court gives two grounds for its decision but on

appeal only one of the grounds is discussed, the other ground does not enjoy any

preclusive effect.80 But the application of Tydings only affects the Claim against

Insured Persons, not the Securities Claim against the Insured. That is because lack

of coverage was only an alternative holding for the Claim against Insured Persons.81

        Accordingly, collateral estoppel precludes the re-determination regarding the

Securities Claim against Hertz.

        2. Res Judicata Does Not Apply.

        Concerning res judicata, the doctrine “bars future litigation between the same

parties, or those in privity with the parties, of a cause of action arising out of the

same transaction or series of transactions as a cause of action that was either raised

or could have been raised in a prior proceeding.”82

        AAIC was not a party to the New York litigation so AAIC and the primary


78
   AAIC’s Reply Br. at 28 (quoting Tydings v. Greenfield, Stein & Senior, LLP, 

 (N.Y. 2008)).
79
     

; Hertz’s Answering Br. at 46.
80
     Tydings v. Greenfield, Stein & Senior, LLP, 

.
81
     Hertz Global Hldgs., Inc., 530 F.Supp.3d at 459.
82
     Edward Joy Co. v. Hudacs, 

 (N.Y. App. Div. 1993) (citations omitted).

                                              -20-
and first excess insurers must be in privity for res judicata to apply. “To establish

privity with respect to either res judicata or collateral estoppel, ‘the connection

between the parties must be such that the interests of the nonparty can be said to

have been represented in the prior proceeding.’”83

       Hertz says AAIC didn’t carry its burden to show that AAIC was in privity

with the primary and first excess insurers.84 Moreover, it argues that an excess

insurer is not naturally in privity with a primary insurer by virtue of a follow-form

policy.85 The New York courts have not spoken directly on this issue.

       At this point, the Court cannot conclude that AAIC was in privity with the

primary and first excess insurers. Because any doubt as to whether res judicata

applies is to be resolved against its application,86 res judicata won’t be applied here.

       So, res judicata does not preclude Hertz’s action. To summarize, collateral

estoppel precludes relitigation of whether the Securities Claim against Hertz is

covered, but not relitigation of the Claim against Insured Persons; and res judicata

does not apply to either issue.


83
    Bravo v. Altas Cap. Grp., LLC, 

 (N.Y. App. Div. 2021) (quoting Green
v. Santa Fe Indus., Inc., 

 (N.Y. 1987)).
84
    Hertz’s Answering Br. at 43 (“Alterra failed to carry its burden as to the application of res
judicata because it failed to offer any argument for why all the elements of that doctrine are met.”).
85
    Id. at 43-44; Stryker Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 

(6th Cir. 2012) (finding excess insurer not in privity with primary insurer simply because the
excess policy was follow-form).
86
    Buechel, 

 (“Doubts should be resolved against imposing preclusion to ensure
that the party to be bound can be considered to have had a full and fair opportunity to litigate.”).

                                                -21-
     B. THE SEC MATTER IS NOT A CLAIM AGAINST INSURED PERSONS.

           To Hertz, the SEC Matter constitutes a Claim against Insured Persons.

Specifically, Hertz insists the SEC Letter constituted a Claim against Insured

Persons because “[t]he SEC Letter states that the SEC was ‘conducting an inquiry .

. . to determine whether there have been any violations of the federal securities laws,’

without specifying whether it is Hertz, as a corporate entity, or Hertz’s directors,

officers and employees, who were being investigated.”87 Additionally, Hertz says

that “[t]he SEC Letter also asked for the identification of ‘all persons, including

name and title (former and current) at Hertz, with knowledge of the information’

requested.”88

           Hertz wants the Court to read the generalized letter addressed to Hertz as a

claim against unnamed and unreferred-to individuals because it was implicit that

they were being investigated. Yet that’s not so under a four-corner read of the letter.

No matter, says Hertz, because “[w]hile this was [only] implicit in the SEC Letter,

the SEC Order expressly targets Hertz executives and employees.”89 But such post-

hoc examination doesn’t rescue Hertz. The target of the SEC Letter was Hertz. And




87
     Hertz’s Mot. for Partial Summ. J. at 29 (quoting Ex. D (“SEC Letter”) at 1).
88
     

89
     Hertz’s Answering Br. at 38.

                                               -22-
the only command the SEC gave in that letter was to Hertz.90

         While Hertz admits that individuals weren’t then expressly identified, it says

that “the mere potential of Insured Persons being subject to the SEC Letter is

sufficient to establish coverage.”91 It turns to two cases, neither of which help.

         In Syracuse University v. National Union Fire Insurance Company of

Pittsburgh, P.A.,92 the New York Supreme Court rejected the contention that

Syracuse University needed to be named as a target of an investigation for coverage

to arise.93 The Court found, instead, that coverage arose when there were “facts or

allegations bringing the claim even potentially within the protection that was

purchased.”94 But there, the duty arose when multiple subpoenas were issued for

documents relating to Syracuse University’s former associate basketball coach who

was being investigated for sexual abuse while running the University’s basketball

program.95 Coverage was triggered because “any liability of the plaintiff was

necessarily dependent on the predicate liability of [the coach] inasmuch as [the

coach] was an employee of plaintiff, a relationship that implicates issues regarding


90
   SEC Letter at 2 (“In this letter, I refer to such documents and data as ‘Evidence.’ You have a
duty to reasonably preserve and retain such Evidence.” (bold in original)).
91
    Hertz’s Mot. for Partial Summ. J. at 30; see also Hertz’s Answering Br. at 36 (“all Hertz need
establish is that the SEC was potentially investigating its directors and officers”).
92
     

 (N.Y. Sup. Ct. Mar. 7, 2013).
93
     Id. at *3 (citation omitted).
94
     Id. (citation omitted).
95
     Id. at *1-2.

                                              -23-
responsibility, including potential, vicarious, supervisory or derivative liability for

[the coach]’s actions.”96

            In National Stock Exchange v. Federal Insurance Company,97 the United

States District Court for the Northern District of Illinois found that an SEC Letter

constituted a claim against insured persons.98 That finding was based on the SEC

letter’s express identification of the target to include both the company itself and

also “present and former officers and directors.”99

            Unlike in Syracuse, Hertz—not its employees, directors, or officers—was

named, and no subpoenas were issued. And unlike in National Stock Exchange, the

SEC Letter did not define Hertz beyond its corporate identity. Instead, the SEC

Letter informed Hertz directly that it was “conducting an inquiry” into “whether

there have been any violations of the federal securities laws.”100 And it asked Hertz

to provide “a chronology addressing the accounting issues” and also to “identify all

persons, including name and title (former and current) at Hertz, with knowledge of

the information provided in the chronology.”101 These facts indicate that the SEC

Letter was addressed to Hertz and Hertz alone. As such, this SEC Letter does not

96
      Id. at *4.
97
      

 (N.D. Ill. Mar. 30, 2007).
98
      Id. at *4.
99
      Id.
100
      SEC Letter at 1.
101
      Id.

                                             -24-
constitute a Claim Against Insured Persons.

          Because the SEC Letter does not constitute a Claim against Insured Persons,

the SEC Investigation Order must constitute a Claim against Insured Persons for

there to be coverage. For similar reasons, though, the SEC Order argument fails as

well.

         The SEC Order directs that “a private investigation be made” and provides

the SEC with authority to “administer oaths and affirmations, subpoena witnesses,

compel their attendance, take evidence, and require the production of any books,

papers, correspondence, memoranda, or other records deemed relevant or material

to the inquiry.”102 But mere potentiality of an investigation or claim targeting an

Insured Person fails to establish an actual Claim against an Insured Person.

Tellingly, there is nothing in the record evidencing that the SEC ever served any

subpoena or other written request for documents or information on any Insured

Person.

         Accordingly, Hertz has not alleged a covered Claim against Insured Persons

for a Wrongful Act.

      C. THE SEC MATTER IS NOT COVERED AS A DEFENSE COST UNDER THE
         RAMIREZ AND ANSFIELD CLAIMS.
         In response to AAIC’s motion for summary judgment, Hertz asserts, in the



102
      Hertz’s Mot. for Partial Summ. J., Ex. E (“SEC Order”) at 5.

                                                -25-
alternative to its Securities Claim against Hertz and Claim against Insured Persons

arguments, that the defense costs of the SEC Matter should be covered because there

were “significant amounts of . . . work done in connection with the SEC proceeding

[that] was equally reasonable and necessary to the defense of the Ramirez and

Ansfield Claims.”103 Because the defense costs incurred in the SEC Matter were

also used or closely related to the Ramirez and Ansfield claims, Hertz says summary

judgment is not warranted.104 AAIC counters that defense costs for the SEC Matter

cannot be covered because it is not a Securities Claim against Hertz or a Claim

against Insured Persons.105

         Defense costs, as defined by the Primary Policy, are “reasonable fees . . .

resulting solely from the investigation, adjustment, defense and/or appeal of a Claim

against an Insured . . . .”106 So for the defense costs incurred during the SEC Matter



103
      Hertz’s Answering Br. at 48.
104
    Id. (“questions of fact regarding whether the $27.2 million in defense costs are nevertheless
covered Loss in connection with the Ramirez and Ansfield Claims preclude entry of judgment in
Alterra’s favor”).
105
      AAIC’s Reply Br. at 18-21.
106
      Primary Policy § 2(e) (emphasis added).
         ”Defense Costs” means reasonable fees (including but not limited to legal fees and
         experts’ fees), costs and expenses consented to by the Insurer such consent not to
         be unreasonably withheld, provided the Insureds have complied with Clause 8 of
         this policy (including premiums for any appeal bond, attachment bond or similar
         bond arising out of a covered judgment, but without any obligation to apply for or
         furnish any such bond) resulting solely from the investigation, adjustment, defense
         and/or appeal of a Claim against an Insured, but excluding any compensation of
         any Insured Person or any Employee of an Organization.

                                                -26-
to be covered, those costs must have resulted solely from “the investigation,

adjustment, defense and/or appeal” of the Ramirez or Ansfield claims. Hertz does

not argue the costs resulted solely from that investigation nor does the record

reasonably support any such conclusion.

      Accordingly, Hertz’s last-ditch defense costs argument does not stave off

summary judgment for AAIC.

                              IV. CONCLUSION

      For the reasons stated above, AAIC’s Motion for Summary Judgment is

GRANTED and Hertz’s Motion for Partial Summary Judgment is DENIED.

      IT IS SO ORDERED.

                                                 _______________________
                                                 Paul R. Wallace, Judge




                                      -27-