ESOP Participant Loses Fiduciary Breach Claim Against Beazley

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By Carmen Castro-Pagan

Aug. 17 — A participant in an employee stock ownership plan can’t continue with his claims against Beazley Insurance Co. for allegedly breaching its fiduciary duties by mishandling the defense and indemnification of two plan fiduciaries, the U.S. District Court for the Southern District of Mississippi ruled ( Sealey v. Beazley Ins. Co. , 2016 BL 265229, S.D. Miss., No. 3:15-cv-00768-DPJ-FKB, 8/16/16 ).

The ruling is the latest installment in a long-litigated action that involved the Department of Labor and resulted in a $6.5 million judgment against Bruister & Associates Inc.'s owner for causing the ESOP to purchase his company stock at an inflated price. Judge Daniel P. Jordan III granted Aug. 16 Beazley’s motion to dismiss, holding that the participant was barred from pursuing claims the fiduciaries released when they signed a settlement agreement with the insurance company in a previous action.

After being sued by the DOL and participants for certain illegal transactions involving the company’s ESOP, Bruister & Associates, the plan and other fiduciaries sued Beazley for denying them insurance coverage. The parties ended the dispute by entering into a confidential settlement agreement and release, which had been disputed in at least two subsequent cases.

Earlier this year, in a parallel case, Jordan dismissed the participant’s claims that Beazley violated the Employee Retirement Income Security Act by entering into a settlement agreement that affected the collection of the $6.5 million judgment.

Fiduciaries’ Assignments of Claims

Vincent Sealey, the successful ESOP participant in the previous action, obtained assignments of claims from two fiduciaries insured by Beazley and Axis Insurance Co. He then sued the companies, challenging how Beazley handled the fiduciaries’ defense and indemnity obligations in the actions involving the DOL and the participants.

In ruling for Beazley, the court rejected Sealey’s argument that the release didn’t include the claims he was asserting in this case.

It also rejected Sealey’s argument that his claims accrued after the agreement was executed and thus weren’t released by the agreement. In doing so, the court said that Sealey’s claims involved Beazley’s failure to provide coverage under the policy and those claims were “obviously disputed” in the previous action and “explicitly released” in the agreement.

The settlement agreement showed an intent to release future claims relating to Beazley’s duties under the policy, the court said. The agreement reflects it was “fairly and honestly negotiated and understandingly entered into” and, as such, the fiduciaries released the claims Sealey was trying to assert, the court said.

Yezbak Law Offices, Keller Rohrback LLP and Watson Norris, PLLC represented Sealey. Comey & Rigby PC and Phelps Dunbar LLP represented Beazley.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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