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PHILADELPHIA -- Federal Insurance Co. is not responsible for paying a minimum of $2 million in damages resulting from a 2009 class-action settlement agreement between Uni-Marts LLC and a group of gas station operators, ruled a federal judge on Friday. Judge William Nealon of the Middle District of Pennsylvania also ruled that fraudulent behavior from Uni-Marts triggered the insurance policy exclusions, reported Law360.com.
The group of plaintiffs, which included more than 50 gas station operators in Pennsylvania, Maryland, New York and Delaware, originally sued Uni-Marts in 2007, alleging that the company had lied about the true costs associated with operating its gas stations in order to persuade them to purchase locations in 2004 and 2005. They also argued that the company breached sale agreements by overcharging for gasoline.
Following the settlement for $2 million two years later, Uni-Marts argued that Federal Insurance should pay, as the damages arose from Uni-Marts' pre-contractual behavior, according to the report. The company was insured under a directors and officers liability policy that excluded coverage of claims of claims "based upon, arising from, or in consequence of" liability under a contract, reported the news outlet.
"The heart of the damages sought ring of breach of contract damages and the injuries undoubtedly flow from the contractual relationship between the parties," stated Nealon. "The injuries suffered by the class plaintiffs would not have occurred had there been no contracts and no breach thereof."
In his ruling, Nealon noted that Uni-Marts' fraud fraud in the inducement and negligent misrepresentation claims would not exist in the absence of the contracts and their subsequent breach.
"Requiring Federal [Insurance] to cover this loss, which in essence is derived from a business agreement gone bad, would be greatly expanding the coverage of the D&O policy beyond that which is called for by its plain language," Nealon said.
According to court filings, in addition to the agreed settlement amount, Uni-Marts is liable for paying attorney fees and other costs. The company filed for bankruptcy in 2009, forcing a stay of the Federal Insurance case that was lifted this year and allowed to move forward after bankruptcy trustee KDW Restructuring and Liquidation Services was in place.