Michael F. Schmidt Wins Summary Judgment Defeating A Claim By Trustee In Bankruptcy For Insurance Coverage For The Debtor In The U. S. Bankruptcy Court

In Re Romeo Montessori School Association, Inc., debtor, Stuart A. Gold, Trustee, plaintiff v Consolidated Insurance Company, defendant, U. S. Bankruptcy Court for the Eastern District of Michigan Southern Division. The plaintiff in this adversary proceeding is the Chapter 7 Bankruptcy Trustee who filed the proceeding seeking a declaratory judgment that Consolidated Insurance Company was required to provide coverage to the debtor for certain claims asserted against the Chapter 7 debtor, Romeo Montessori School Association. We represented Consolidated Insurance Company and after discovery filed a motion for summary judgment on the basis that coverage was excluded by the contractual liability exclusion contained in the policy. The underlying claims were claims by parents of students who had prepaid tuition in excess of $175,000 and filed proofs of claim when Romeo Montessori School filed a voluntary petition for bankruptcy and failed to provide the educational services contracted for the 2009—2010 school year. The Trustee argued first that Consolidated had waived the contractual liability exclusion by failing to raise it in its initial denial letter. We argued that coverage could not be created by waiver and estoppel, that none of the limited exceptions to this rule applied, and that the contractual liability exclusion had been raised in the answer and affirmative defenses filed over a year ago. The court agreed with our argument. The Trustee argued next that the claims were not articulated as claims for breach of contract. The court agreed with our argument in reviewing each of the 48 claims that each of the claims was based on a breach of contract although not described specifically as a breach of contract claim. The Trustee argued next that there were possible other theories of recovery such as conversion, breach of fiduciary duty or a quasi contractual theory such as unjust enrichment. The court agreed with our argument that the substance of the claims was breach of contract which was excluded by the policy, that there was no proof of any other theory of liability and that if an exclusion applies coverage is lost. The court granted summary judgment finding that there was no issue of fact and that there was no coverage owed by Consolidated Insurance Company under the policy.