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Alexander Manufacturing, Inc. v. Illinois Union Insurance Co.

March 25, 2009

ALEXANDER MANUFACTURING, INC. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST, PLAINTIFF-APPELLANT,
v.
ILLINOIS UNION INSURANCE CO., DEFENDANT-APPELLEE.



Appeal from the United States District Court for the District of Oregon Paul J. Papak, Magistrate Judge, Presiding. D.C. No. CV-06-00735-PK.

The opinion of the court was delivered by: Graber, Circuit Judge

FOR PUBLICATION

OPINION

Argued and Submitted March 4, 2009 -- Portland, Oregon

Before: Susan P. Graber, Raymond C. Fisher, and Milan D. Smith, Jr., Circuit Judges.

OPINION

Plaintiff Alexander Manufacturing, Inc. Employee Stock Ownership Plan and Trust, the sole shareholder of Alexander Manufacturing, Inc. ("AMI"), sued Defendant Illinois Union Insurance Company, seeking to recover under an insurance policy that Defendant had issued to AMI. Plaintiff was the assignee of post-loss claims under the policy. The district court held that, under Oregon law, the insurance policy's anti-assignment clause prevented post-loss assignment of the claims to Plaintiff. We read the policy and Oregon law differently and, accordingly, reverse.

FACTUAL AND PROCEDURAL HISTORY

Plaintiff is an employee stock ownership plan, a pension plan defined by 29 U.S.C. § 1002(2)(A) of the Employee Retirement Income Security Act of 1974 ("ERISA"), which was organized in Oregon effective in 1998. Plaintiff was the sole shareholder of AMI.

Plaintiff filed an action against three of its former fiduciaries, William Klutho, Daniel Spofford, and Donald Thoreson, alleging breach of fiduciary duty under ERISA. These same individuals were also former directors and officers of AMI. Plaintiff also brought a derivative action against them, alleging that they had breached certain duties owed as directors and officers of AMI.

AMI had previously purchased an insurance policy from Defendant, covering the period from January 1, 2003, to January 1, 2004. Under the insurance policy, AMI had "Directors & Officers and Company" coverage with a limit of $1 million. AMI also had fiduciary liability coverage with an additional limit of $1 million. The policy contained an anti-assignment clause, which stated that "[a]ssignment of interest under this Policy shall not bind Insurer unless their consent is endorsed hereon."

Plaintiff resolved the claims against Klutho, Spofford, and Thoreson through a settlement agreement for $1.3 million. The settlement agreement contained the following clause:

Klutho, Spofford and Thoreson hereby each assign to [Plaintiff] any and all claims and/or causes of action each may possess against [Defendant] relating to, but not by means of limitation any and all rights or obligations relating to policy number BMI20004728. It is not the intent of the parties through this assignment to extinguish any claims which Klutho, Spofford and Thoreson may have against the insurance company, and this assignment therefore, does not release Klutho, Spofford and Thoreson from the liability, nor should it be construed in any way [to] affect any obligation of indemnity on the part of the insurance company.

The individuals paid $10,000 each and then assigned their rights under Defendant's insurance policy to Plaintiff. Plaintiff agreed not to execute the remainder of the judgment against the individuals and to bring the claim against Defendant instead. Defendant consented neither to ...


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