Aegis Security Insurance Company v. Kingsway Financial Services, Inc.

BRIEF IN OPPOSITION re MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

M.D. Pa.November 16, 2016

IN THE UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF PENNSYLVANIA Aegis Security Insurance Company, Plaintiff, CASE NO. l:16-cv-01555-JEJV. Hon. John E. Jones, III Kingsway Financial Services, Inc., Defendant. OPPOSITION TO DEFENDANT’S MOTION TO DISMISS Aegis” orPlaintiff Aegis Security Insurance Company (hereinafter referred to as Plaintiff’) by and through its attorneys, Weber Gallagher Simpson Stapleton Fires & Newby, LLP, files this opposition in response to defendant Kingsway Financial Services, Inc. ii U (“Kingsway Financial” and “Defendanf’), motion to dismiss. WHEREFORE, Aegis respectfully requests this Court to deny Kingsway Financial’s Motion to Dismiss. Dated: November 16, 2016 Respectfully submitted. WEBER GALLAGHER SIMPSON STAPLETON FIRES & NEWBY IaJBy: Timothy W. Stalker, Esquire Ryan A. Nolan, Esquire Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 1 of 21 IN THE UNITED STATES DISTRICT COURT EOR THE MIDDLE DISTRICT OE PENNSYLVANIA Aegis Security Insurance Company 2407 Park Drive, Suite 200 Harrisburg, Pennsylvania 17110, Plaintiff, CASE NO. 1;16-CV-01555-JEJV. Kingsway Financial Services, Inc. 45 St. Clair Avenue West, Suite 400 Toronto, Ontario, M4V 1K9 Defendant. PLAINTIFF’S BRIEF IN SUPPORT OF OPPOSITION TO DEFENDANT’S MOTION TO DISMISS WEBER GALLAGHER SIMPSON STAPLETON FIRES & NEWBY, LLP Timothy W. Stalker, Esq. (PA26565) Ryan A. Nolan, Esq. (PA311229) 2000 Market Street, 13“' Floor Philadelphia, PA 19103 tstalkcr@wglaw.com rnolan@wglaw.com Counsel for Plaintiff, Aegis Security Insurance Company Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 2 of 21 TABLE OF CONTENTS TABLE OF CONTENTS 1 TABLE OF AUTHORITIES 11 ,2PLAINTIFF’S BRIEF IN OPPOSITION TO MOTION TO DISMISS 2INTRODUCTION 4PROCEDURAL HISTORY OF THE CASE 4STATEMENT OF FACTS 6STATEMENT OF QUESTIONS INVOLVED 7ARGUMENT 7I. Standard of Review The Amended Complaint Alleges a Plausible Claim for Breach of Contract 911. 11A. Addendum No. 1 12B. The 2002 Indemnity Agreement 14C. The 2008 Indemnity Agreement(s) III. The Amended Complaint Properly presents a claim for Declaratory Relief. 15 17IV. Dismissal with Prejudice is Inappropriate 18CONCLUSION 19CERTIFICATE OF WORD COUNT 20CERTIFICATE OF SERVICE I Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 3 of 21 TABLE OF AUTHORITIES 16Arsenal Coal Co v. Commonwealth. 505 Pa. 198, 477 A.2d 1333 (Pa. 1984) 8Ashcroft V. Iqbal, 555 U.S. 662, 679, 129 S.Ct. 1937, 1950 (2009).......................... Bell Atl. Corp. v. Twomblv. 550 U.S. 544, 555 (2007)....................................................... In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997)................. Connelly. 809 F.3d 780, 791 (3d. Cir. 2016)....................................................................... Corestates Bank. N.A. v. Cutillo. 723 A.2d 1053, 1058 (Pa. Super. Ct. 1999)........ Cozen O’Connor v. City of Phila. Bd. Of Ethics. 608 Pa. 570 (Pa. 2011)........................... Erickson v. Pardus. 551 U.SD. 89, 93, 127 S.Ct. 2197, 167 L. Ed. 2d 1081 (2007) Foelia y. Renal Ventures Mgmt.. LLC. 754 F.3d 153, 154, n.l (3d Cir. 2014)................... Fowler y. UPMC Shadyside. 578 F.3d 203, 213 (3d Cir. 2009).......................................... Forman y. Dayis. 371 U.S. 178, 182, 9 L.Ed.2d 222, 83 S.Ct. 227 (1962)......................... Gould Elecs V. United States. 220 F.3d 169, 178 (3d Cir. 2000)............................... 7 17 8, 14 9 16 7 8 8, 13 17 7 15Keystone Dedicated Logistics. LLC y. JOB Enterprises. Inc., 77 A.3d 1 (Pa. Super 2013) Malleus v. George. 641 F.3d 560, 563 (3d Cir. 2011).......................................................... Mayer y. Belichick. 605 F.3d 223, 229 (3d Cir. 2010)................................................. Phillips y. Cty of Allegheny. 515 F.3d 224, 234 (3d Cir. 2008)......................................... Shane y. Fauyer. 213 F.3d 113 (2000).................................................................................. Swierkiewicz y. Sorema. N.A. 534 U.S. 506, 510, 122 S.Ct. 992, 152 L. Ed. 2d 1 (2002), 7 ,9 8, 13 14, 15 17, 18 STATUTES 1542 Pa.C.S.§7541(a) II Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 4 of 21 IN THE UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF PENNSYLVANIA Aegis Security Insurance Company, Plaintiff, CASE NO. l:16-cv-01555-JEJ Hon. John E. Jones, III V. Kingsway Financial Services, Inc •9 Defendant. PLAINTIFF’S BRIEF IN OPPOSITION TO MOTION TO DISMISS Aegis Security Insurance Company (hereinafter “Aegis”) hereby opposes Kingsway Financial Services, Inc. (“Kingsway” or “Kingsway Financial”) Motion to Dismiss pursuant to Rule 12 (b)(6) of the Federal Rules of Civil Procedure as Aegis has pleaded a claim upon which relief can be granted. Aegis submits this Brief in Support of its opposition to the Motion to Dismiss. INTRODUCTION As noted in Aegis’ Amended Complaint, in 1998, Kingsway Financial, a Canadian company, approached Aegis in order to use Aegis’ licenses and authority as an admitted domestic insurance company to issue U.S. Custom Bonds until such time that Kingsway, through its insurance subsidiaries, had the legal authority to write such business. (Dkt. 30 at H 6) Kingsway proposed that Aegis front the Bond Program until such time that Kingsway’s subsidiaries had the authority to write the business in the United States. (Dkt. 30 at H 7) A fronting arrangement is quite common in the insurance-reinsurance industry. (Dkt. 30 at H 8) The Bond Program was administered by Avalon Risk Management, Inc. (“Avalon”), a wholly 2 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 5 of 21 owned subsidiary of Kingsway, pursuant to an Agency Agreement between Avalon and Aegis. (Dkt. SOatlllO). In 1998, the insurance-reinsurance program for the Bond Program was structured as follows: • Aegis - issuing carrier • Avalon - program administrator, responsible for all aspects of the program including marketing, underwriting, policy issuance and claims handling • General Re - 100% quota share reinsurance of Aegis • Kingsway Reinsurance Corporation, subsidiary of Kingsway - 100% reinsurance of General Re. In addition, Kingsway provided Aegis a “Guaranty of the Agency Agreement,” in which Kingsway Financial unconditionally guaranteed the performance of Avalon and further agreed to defend, indemnify and hold Aegis harmless under the Bond Program. Thus, either through the reinsurance agreements or the Guaranty, Kingsway and/or its subsidiaries was to bear the financial risk of this fronting arrangement, not Aegis. As noted in Aegis’ Amended Complaint, this program remained in effect until 2002, when General Re decided to no longer be the reinsurer on the Quota Share Treaty. Instead, General Re agreed to be the 100% reinsurer on the Excess of Loss Treaty (“Agreement of Reinsurance”). The Agreement of Reinsurance provided coverage in excess of a $1,000,000 retention. Therefore, to the extent there is loss less than $1,000,000, there is no coverage under the Agreement of Reinsurance provided by General Re. Lincoln General, the subsidiary of Kingsway, became the 100% reinsurer for the first $1,000,000 under the Quota Share Treaty. In 3 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 6 of 21 fact, the parties do not dispute that Lincoln General remained the quota share reinsurer through 2009. (Dkt. 30 at ^1 22-24). Dating back to 1998, Kingsway, as an integral part of the Bond Program, on behalf of itself and its affiliated companies agreed to fully indemnify and hold harmless Aegis from any losses or expenses suffered. As detailed in the Amended Complaint, Aegis has incurred loss and expense under the Bond Program and will continue to do so. Kingsway has also failed to indemnify and hold Aegis harmless for the loss and expense that Aegis has incurred to date since Lincoln General became insolvent and Kingsway became the responsible party pursuant to the As such, Kingsway has breached its contractualindemnity and hold harmless agreements obligations to Aegis, and its motion to dismiss must be denied because Aegis has a viable cause of action against Kingsway as pleaded in the Amended Complaint. PROCEDURAL HISTORY OF THE CASE Aegis filed its Complaint on May 11, 2016, in the United States District Court, Eastern District of Pennsylvania. The case was transferred by agreement on July 26, 2016 to the Middle District. On September 22, 2016, Kingsway filed a Motion to Dismiss. Aegis filed an Amended Complaint. In response, on November 2, 2016, Kingsway filed this underlying Motion to Dismiss. On October 5, 2016, STATEMENT OF FACTS While Aegis agrees with some of the facts summarized by Kingsway, Aegis strongly disagrees with critical and pertinent items that must be made apparent to this Court at the onset. Aegis and Kingsway have been participating in an ongoing business relationship beginning in 1998 and proceeding through present. As evidence of this relationship. Aegis has cited multiple Indemnity and Hold Harmless Agreements (hereinafter collectively referred to as the 4 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 7 of 21 “Agreements”) to this Court in the Amended Complaint, wherein Kingsway agreed to indemnify and hold Aegis harmless with respect to the Bond Program. In its Motion to Dismiss, Kingsway wrongfully attempts to shield itself from the obligations it voluntarily assumed under the Bond Program by arguing a strained and contorted reading of Addendum No. 1, the 2002 Indemnity Agreement and the 2008 Indemnity Agreement(s). See Exhibits I, 2, 3, 4 to the Amended Complaint. For example, under the 2002 Indemnity Agreement, Kingsway agreed to a broad indemnity and hold harmless provision. Kingsway agreed to: [F]ully exonerate, indemnify and hold harmless Aegis from and against any and all claims, actions, awards, judgements and/or settlements of any kind or nature based upon, caused by, arising out of or in connection with directly or indirectly the activities of Avalon and any claims not covered by General Reinsurance Corporation under the Such all encompassingAgreement of Reinsurance on policies issued by Avalon, indemnity as set forth, shall include, but shall not be limited to any loss, fines, assessments, liability, damage, injury, interest, expense and/or costs (including without limitation reasonable attorney’s fees) regardless of nature or extent of same. [Emphasis added] The 2008 Indemnity Agreement(s) and Addendum No. 1 have similar language and broad indemnification obligations upon Kingsway. In fact, the 2008 Indemnityimpose Agreements further expanded Kingsway’s indemnification obligations to Aegis. The claims and submitted by Aegis for payment by Kingsway fall squarely within the broad ■directly or indirectly”, “of any kind or nature”, “shall include expenses indemnification provisions, i.e. but not be limited to” of the Agreements. Finally, in an effort to mislead this Court, Kingsway misstates the language and obligations in the Agreements. In each and every one of the Agreements between Aegis and behalf of itself and its affiliated companies, agreed toKingsway, Kingsway Financial on indemnify, defend and hold Aegis harmless “from and against any and all claims, actions. 5 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 8 of 21 awards, judgments and/or settlements of any kind or nature based upon, caused by or arising out of or in connection with directly or indirectly” the activities of Avalon/General Re/and Lincoln General. While Kingsway accuses Aegis of misquoting the Agreements, which Aegis denies, a clear reading of the Agreements demonstrates Kingsway’s continued obligations related to the Bond Program, a program in which Kingsway either directly or indirectly through its subsidiary companies, received premium and service fees and which now, Kingsway wants to walk away from its clear obligations to indemnify Aegis. In summary, Aegis has clearly demonstrated a plausible claim and cause of action against Kingsway; therefore, Kingsway’s Motion to Dismiss should be denied. STATEMENT OF QUESTIONS INVOLVED Does the Amended Complaint properly allege the existence of a contract requiring Kingsway to indemnify Aegis for the amounts it expended in connection with the A&T 1. Bond and W&W Bond? Suggested Answer: Yes. Does the 2002 Indemnity Agreement obligate Kingsway to indemnify and hold harmless Aegis for its losses and expenses incurred in connection with the A&T bond and W&W 2. Bond? Suggested Answer: Yes. Does the 2008 Indemnity Agreement obligate Kingsway to indemnify Aegis for its losses and expenses incurred in connection with the A&T Bond and W&W Bond? 3. Suggested Answer: Yes Does the Amended Complaint properly state a cause of action against Kingsway?4. Suggested Answer: Yes. 6 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 9 of 21 5. Does the Amended Complaint properly allege Aegis’ entitlement to the declaratory relief it seeks? Suggested Answer: Yes. ARGUMENT Standard of ReviewI. Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” in order to “give the defendant fair notice of what the ...claim is and grounds upon which it rests.” Bell All. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Detailed factual allegations are not required. Id. at 555. The statement required by Rule 8(a)(2) must give the defendant fair notiee of what the....claim is and the grounds upon Erickson v. Pardus, 551 U.SD. 89, 93, 127 S.Ct. 2197, 167 L. Ed. 2d 1081 (2007)(quoting Twombly, 550 U.S. 555). Finally, a defendant bears the burden of establishing a Plaintiffs complaint fails to state a claim. See Gould Elecs v. United States, 220 F.3d 169, 178 (3d Cir. 2000). The inquiry at the motion to dismiss stage is broken into three parts: (1) identifying the elements of the elaim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged. Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011). Additionally, the plausibility determination is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Ashcroft V. Iqbal, 555 U.S. 662, 679, 129 S.Ct. 1937, 1950 (2009) A prima facie case is “an evidentiary standard, not a pleading requirement,” Swierkiewicz v. Sorema, N.A. 534 U.S. 506, 510, 122 S.Ct. 992, 152 L. Ed. 2d 1 (2002), and hence is “not a which it rests. 7 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 10 of 21 proper measure of whether a complaint fails to state a claim.” Fowler v. UPMC Shadyside, 578 F.3d 203, 213 (3d Cir. 2009). Further, instead of requiring a prima facie case, the post-Twombly pleading standard “simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element[s].” Phillips v. Cty of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008)(quoting Twombly 550 U.S. at 556). In the Amended Complaint, Aegis has met the foregoing standard and has established a prima facie case. Therefore, at this stage of the pleadings, without any discovery exchanged between the parties. Defendant’s motion must be denied. In applying Twombly and Iqbal in the Third Circuit, a complaint’s allegations of historical facts continue to enjoy a highly favorable standard of review at the motion to dismiss stage of proceedings. See Phillips, 515 F.3d at 231 (nothing that Twombly “leaves intact the pleading standard under which “detailed factual allegations” are not required.) As such, this Court is required to assume all factual allegations to be true, construe those truths in the light most favorable to Plaintiff, and then draw all reasonable inferences from them. Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 154, n.l (3d Cir. 2014); see also, Phillips, 515 F.3d at 231 (holding that Twombly did not “undermine the principle” that all reasonable inferences are to be drawn in favor of the Plaintiff, and reaffirming that “the facts alleged must be taken as true and a complaint may not be dismissed merely because it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on the merits.”). In Connelly, the Court found the Complaint set forth sufficient factual allegations to raise a reasonable expectation that discovery would reveal the basis for her complaint. 809 F.3d 780, 791 (3d. Cir. 2016). In Fowler, the Court found “Although the Complaint is not as rich with details as some might prefer, it need only set forth sufficient facts to support plausible claim.” 578 F.3d at 211-12. Therefore, this 8 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 11 of 21 Court must accept all factual allegations in the Amended Complaint as true, construe the pleading in the light most favorable to Aegis, and determine whether Aegis may be entitled to relief under any reasonable reading of the Amended Complaint. See Mayer v. Belichick, 605 F,3d223,229 (3d Cir. 2010). In applying the above standard to the Amended Complaint at hand, and in drawing all inferences towards Aegis, Kingsway’s motion to dismiss should be denied as Aegis properly pleaded a breach of contract claim, and is entitled to proceed with additional discovery to further develop its claims. The Amended Complaint Alleges a Plausible Claim for Breach of Contract11. To state a claim for a breach of contract, Aegis must plead the following elements: “(1) The existence of a contract, including its essential terms, (2) breach of a duty imposed by the contract, and (3) resultant damages.” Corestates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct. 1999). With respect to the first element for a breach of contract. Aegis has properly identified multiple contracts/agreements which impose liability upon Kingsway because of the nature of this on-going program. Initially, it should be noted Aegis took extra steps in its Amended Complaint to explain the fronting arrangement in the reinsurance agreement and ongoing liability assumed by Kingsway in order to familiarize the Court with the ongoing relationship between the parties. Kingsway outrageously claims Aegis has not properly identified its obligations pursuant to contract, wherein Aegis identified the multiple contracts/agreements involved here: • See Amended Complaint 1113 and Exhibit 1, Addendum No.l to Agency Agreement, effective September 24, 1998, wherein Kingsway guaranteed 9 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 12 of 21 unconditionally at all times payment of any and all indebtedness or liability, irrespective of its character on behalf of Avalon; • See Amended Complaint ^26, and Exhibit 2, the February 1, 2002 Indemnity and Hold Harmless Agreement wherein Kingsway on behalf of itself and its affiliated companies, is obligated to indemnify. Aegis and hold Aegis harmless “eaused by, arising out of or in connection with directly or indirectly the activities of Avalon and any claims not covered by General Reinsurance Corporation under the Agreement of Reinsurance on policies issued by Avalon;” • See Amended Complaint *133, 34 Exhibit 3, Indemnity and Hold Harmless Agreement, effective January 1, 2008, wherein Kingsway and its affiliated companies, agreed to fully exonerate, indemnify, and hold harmless Aegis from any and all claims in connection with directly or indirectly the activities of Lincoln or Avalon; • See Amended Complaint T133, 34 and Exhibit 4, Indemnity and Hold Harmless Agreement, effective April 1, 2008, wherein Kingsway and its affiliated companies agreed to fully exonerate, indemnify, and hold harmless Aegis from and against any and all claims....arising out of or in connection with directly or indirectly the activities of Lincoln or Avalon. Further, Aegis has demonstrated that Kingsway is in breach of all of the Agreements by Kingsway’s failure to indemnify Aegis for loss and expense incurred in the Bond Program, and result of that breach Aegis has and will continue to suffer damages.as a 10 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 13 of 21 Accordingly, Aegis has more than adequately identified the existence of contracts/agreements between Aegis and Kingsway Financial, a contracts/agreements by Kingsway Financial and resulting damages to Aegis. breach of those A. Addendum No. 1 In order to understand the fronting relationship between the parties and the magnitude of these agreements, the analysis must begin with the Addendum No. 1 signed in 1998, wherein it always understood and agreed between Aegis and Kingsway Financial that Kingsway Financial would be the ultimate backstop for the Bond Program. In 1998, through Addendum No. 1, Kingsway guaranteed “unconditionally at all times payment of any and all indebtedness or was liability, irrespective of its character, now owing or which may hereafter be owing....” Kingsway harps on the fact the Addendum does not include “Lincoln General” by name but rather includes the prior subsidiary, Avalon, in the Addendum. This is, of course, a red-herring. Addendum No 1 clearly reflects that Kingsway was the Guarantor of the program. See Exhibit 1 to Amended Furthermore, Kingsway ignores that fact that pursuant to theComplaint, signature line. Addendum No. 1 and through the General Re Retrocessional Agreement, Kingsway Financial and its subsidiaries were to retain all risk on the Bond Program, not Aegis. Accordingly, at this stage of litigation, Aegis has demonstrated a plausible obligation of Kingsway pursuant to the General Re Quota Share Treaty. Moreover, Kingsway does not deny its involvement with these various agreements. B. The 2002 Indemnity Agreement Contrary to Kingsway’s assertions, the Amended Complaint does plead and impose liability and/or indemnification obligations and/or causes of action against Kingsway through the February 1, 2002 Indemnity and Hold Harmless Agreement. 11 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 14 of 21 The February 1, 2002 Indemnity and Hold Harmless Agreement, is clear and Kingsway’s indemnification obligations are broad in scope: WHEREAS, it is the intent of Aegis that the personnel, property, assets, or resources regardless of nature, kind, or type of Aegis will not be at risk and/or expended in any manner as a result of, or in connection with this Agreement. IT IS HEREBY AGREED, Kingsway shall fully exonerate, indemnify, and hold harmless Aegis from and against any and ail claims, actions, awards, judgments, and/or settlements of any kind or nature based upon, caused by, arising out of or in connection with directly or indirectly the activities of Avalon and any claims not covered by General Reinsurance Corporation under the Agreement of Reinsurance on policies issued by Avalon. [Emphasis added] The A&T Bond and the W&W Bond claims fall within “any and all claims”, “directly or indirectly” and not covered by General Re. By way of further background, in 2002, General Re decided to no longer provide quota share reinsurance to the Bond Program, but agreed to provide excess of loss reinsurance for these for claims in excess of a $1,000,000 [pursuant to the Agreement ofcoverage Reinsurance]. It also provided the coverage on a “loss reported” basis. Kingsway Financial, through its subsidiary, Lincoln General, agreed to provide the first $1,000,000 of quota share coverage. Because both of the foregoing claims were less than $1,000,000, they are not covered by General Re under the Agreement of Reinsurance, and fall within the quota share treaty with Lincoln General and are thereby the responsibility of Kingsway to “fully exonerate, indemnify See March 14, 2016 denial letter from General Re relating to W&Wand hold harmless Aegis. claim attached herewith as Exhibit “A”. Kingsway cannot deny the broad ramifications of the clear language in the 2002 Under the broad language of the 2002 IndemnityIndemnity Agreement, noted above. Agreement, the intent of the parties was for Kingsway to hold Aegis harmless for any activities 12 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 15 of 21 involving the Bond Program not covered by General Re under the Agreement of Reinsurance. At issue now and as outlined in detail in the Amended Complaint are two (2) bond claims directly related to the Bond Program and fully within the scope of the 2002 Indemnity Agreement. Aegis has properly identified the relevant contracts. See Amended Complaint ^13, 26, 33, and 34, as well as Exhibits 1, 2, 3, and 4. Aegis has properly shown Kingsway’s breach of their duties, and has shown damages. See Amended Complaint T| 34, 35, 50, 51, 57 & 58. Therefore, the pleadings are sufficient for a denial of a Motion to Dismiss. Moreover, contrary to Kingsway’s assertions in its Motion to Dismiss, the Amended Complaint demonstrates that Kingsway has adequate notice as to: t (1) The Bonds at issue {See Amended Complaint f52, 58); (2) The Agreements involved (See Amended Complaint 13, 26, 33, and 34, as well as Exhibits 1, 2, 3 and 4); (3) A breach of the Agreements (See Amended Complaint ^44, 54, and 60); and (4) Damages sought (See Amended Complaint f 50, 51, 57 & 58). In summary, Kingsway has been supplied adequate facts to support a plausible claim. Fowler, 578 F.3d at 211-12. Finally, at this stage of the litigation. Aegis has sufficiently pled factual allegations to raise a reasonable expectation that discovery would reveal the basis for the Amended Complaint. Connelly, 809 F.3d 780, 791 (3d. Cir. 2016). Furthermore, at the pleading stage, all inference must be provided in favor of Aegis, and Aegis has set forth facts which support a plausible action. Phillips, 515 F.3d at 231. 13 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 16 of 21 C. The 2008 Indemnity Agreement(s) For the sake of brevity, Aegis incorporates its foregoing arguments as if fully set forth below. Moreover, Aegis disagrees with Kingsway’s interpretation of the language of the 2008 Indemnity Agreement(s) as applying only to future claims. The April 1, 2008 Indemnity Agreement specifically states: WHEREAS, it is the intent of Aegis that the personnel, property, assets, or resources regardless of nature, kind, or type of Aegis will not be at risk and/or expended in any manner as a result of, or in connection with this Agreement. IT IS HEREBY AGREED Kingsway shall fully exonerate, indemnify, and hold harmless Aegis from and against any and all claims, actions, awards, judgments, and/or settlements of any kind based upon, caused by, arising out of or in connection with directly or indirectly the activities of Lincoln or Avalon, including without limitation Lincoln’s obligations as reinsurer under reinsurance agreements AEOl, AE02 and AE03 and any claims on policies covered under reinsurance agreements AEOl, AE02 and AE03. [Emphasis added] Based upon the clear language of the 2008 Indemnity Agreement(s), Aegis is entitled to indemnification. Moreover, discovery will cleaiiy indicate to the Court, the January 1, 2008 and April 1, 2008 Indemnity and Hold Harmless Agreements did not nullify the prior agreements between the parties but rather expanded Kingsway’s obligations with regard to Aegis. It has always been the intent of the parties that Kingsway would indemnify and hold harmless Aegis for any losses or expenses incurred by Aegis as a result of the bonds fronted by Aegis, regardless of any underlying reinsurance agreements. Whereas here, Lincoln General has been liquidated; Kingsway cannot avoid its obligations under the Agreements. In a contract dispute, a Court may consider extrinsic evidence to determine the intent of the parties. Keystone Dedicated Logistics, LLC v. JGB Enterprises, Inc., 77 A.3d 1 (Pa. Super 14 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 17 of 21 2013). Aegis will fully produce extrinsic evidence demonstrating the intent of the parties. While Kingsway may not agree with Aegis’ allegations, it is implausible to find that Kingsway has not been supplied sufficient factual pleadings to prepare its defense, and that Aegis has failed to demonstrate a plausible action. Additionally, at this pleading stage, all that is required is that Aegis must provide “enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element[s].” Phillips v. Cty of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008)(quoting Twombly 550 U.S. at 556). Aegis has done so in its Amended Complaint. Lastly, Aegis at no time in its Amended Complaint misquotes or misleads this Court. Again while Kingsway may not appreciate the facts. Aegis’ direct quotes of the Agreements cannot be said to be misleading. The Amended Complaint Properly presents a claim for Declaratory Relief.III. For reasons explained more fully above, Kingsway has indemnity obligations pursuant to the multiple cited Agreements. Moreover, pursuant to the Agreements, including but not limited to the 2008 Indemnity Agreement(s), Kingsway agreed to fully exonerate, indemnify and hold harmless Aegis from any and all claims directly or indirectly arising from Lincoln General or Avalon. Importantly, the 2008 Indemnity Agreements(s) stipulated that the indemnity obligation included, but would not be limited to, Lincoln General’s obligations under certain reinsurance agreements denoted in that document. Lincoln General was placed into liquidation on November 5, 2015. Kingsway has failed to meet its duties and obligations to indemnify and hold Aegis harmless to Aegis’ detriment. The purpose of the Declaratory Judgment Act is to “settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other relations, and is to be liberally 42 Pa. C.S. §7541 (a). In this instance. Aegis has presented aconstrued and administered. 15 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 18 of 21 direct, substantial, and present action against Kingsway based on uncertainty from the Agreements at hand. As such, this matter is ripe for declaratory relief. Furthermore, this Court has broad discretion in hearing a declaratory judgment relief and may determine issues even when the injury may not yet have occurred due to uncertainty with the law or Agreements. See Cozen O ’Connor v. City of Phila. Bd. Of Ethics, 608 Pa. 570 (Pa. 2011) (law firm has standing to test validity of Ethics Act provision in advance of undertaking potentially prohibited activity); See also Arsenal Coal Co v. Commonwealth, 505 Pa. 198, 477 A.2d 1333 (Pa. 1984) (pre- enforcement review of regulations is appropriate where lengthy process of addressing regulations’ validity in enforcement action would result in ongoing uncertainty in industry and potential operational penalties). Due to the magnitude of the Bond Program, and the eighteen (18) year relationship between the parties. Aegis has standing to have the contracts properly interpreted to evaluate its current and future risks. Pursuant to language of Addendum No. 1, the 2002 Indemnity and Hold Harmless Agreement, the January 1, 2008 Indemnity and Hold Harmless Agreement, and the April 1, 2008 Indemnity and Hold Harmless Agreement, Kingsway agreed to fully exonerate, indemnify and hold harmless Aegis from any and all claims arising out of or in connection with directly or indirectly the activities of Lincoln and/or Avalon. Therefore, Aegis is entitled to a finding that Kingsway has liabilities for any current claims and any future, now unknown claims, which are directly or indirectly related to Lincoln and/or Avalon pursuant to the Bond Program. Additionally, Kingsway misstates General Re’s role and obligations in an effort to walk away from its duties and obligations under the Agreements. The language of the Agreements requires Kingsway to indemnify and hold harmless for any claims not covered by General Re. These claims are not covered by General Re. Future claims in the Bond Program may not be 16 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 19 of 21 covered. Accordingly Aegis seeks a declaration from this Court that Kingsway has an obligation to indemnify and hold Aegis harmless for any future claims not covered by General Re under the Bond Program, Finally, in addition to the foregoing, the January 1, 2008 Indemnity Agreement and April 1, 2008 Indemnity Agreements were an expansion upon Kingsway’s prior indemnity and hold harmless obligations. In addition to the current claims paid and pending. Aegis anticipates receiving additional claims in the future. As such, this issue is ripe for adjudication to have this Court declare the rights, duties and obligations of the parties under the Addendum No. 1 Indemnity Agreement, February 1, 2002 Indemnity Agreement, January 1, 2008 Indemnity Agreement and April 1, 2008 Indemnity Agreement. Dismissal with Prejudice Is InappropriateIV. Kingsway relies upon Shane v. Fauver, 213 F.3d 113 (2000) as an alleged basis for claiming this Amended Complaint should be dismissed with prejudice. Initially it should be noted that our Supreme Court has instructed that although “the grant or denial of an opportunity to amend is within the discretion of the District Court,...outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion, it is merely an abuse of that discretion and inconsistent with the spirit of Federal Rules. Forman v. Davis, 371 U.S. 178, 182, 9 L.Ed.2d 222, 83 S.Ct. 227 (1962). There are a limited amount of circumstances warranting a denial of leave to amend which are “undue delay, bad faith, dilatory motive, prejudice, and futility.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997). As is clear from the contracts cited above, the parties had ongoing relationships dating back to 1998, and there is no “undue delay, bad faith, dilatory motive, prejudice, or futility” warranting an Order granting Kingsway’s Motion with Prejudice, Additionally, the 17 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 20 of 21 Court in Shane v. Fauver ultimately remanded the case for the District Court to reevaluate under the very limited circumstances where a dismissal with prejudice without leave to amend is appropriate. Furthermore, Shane v. Fauver has been relied upon for the principle that in the event that a complaint fails to state a claim, unless amendment would be futile, the District Court must give a plaintiff the opportunity to amend her Complaint. See Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d. 2008) (citing Shane v. Fauver). CONCLUSION For these reasons discussed above. Aegis has pleaded viable causes of action against Kingsway Financial. As such, Aegis respectfully requests this Court to deny Kingsway’s Motion to Dismiss. In the alternative, Aegis requests that if this Court is inclined to grant Kingsway’s Motion it be done without prejudice and allow Aegis time to file an Amended Complaint. Respectfully submitted. WEBER GALLAGHER SIMPSON STAPLETON FIRES & NEWBY O'By: Timothy W. Stalker, Esquire Ryan A. Nolan, Esquire Dated: November 16, 2016 18 Case 1:16-cv-01555-JEJ Document 34 Filed 11/16/16 Page 21 of 21 //EXHIBIT "A Case 1:16-cv-01555-JEJ Document 34-1 Filed 11/16/16 Page 1 of 3 March 14,2016 Mr. Nathan Hunter K2 Insurance Services, LLC 514 Via DeLa Valle Suite 302 Solana Beach, CA 92075 Dear Nathan: Avalon Risk Management - US Customs Anti-Dumping Bonds Surety: Aegis Security Insurance Company Principal/Importer: W&W Interneitional, Inc. Bond Effecti ve Date: 5/26/03 Surety XOL Treaty: #8533 - Exhibit A Surety Q/S Treaty: #8533 - Exhibit B Re: 5/25/04 We are in receipt of your March 2, 2016 e-mail, requesting General Reinsurance’s formal coverage position regarding the W&W International claim. The posted reserve date is critical for this claim as that would be the loss discovered date as referred to under Surety Excess Treaty # 8533 (“Agreement”), (see attached) Please refer to Article VIl - (d) of the Definitions section of the Agreement that states: “This term shall mean the date when the Company has incurred a loss of Can $500,000 or more for Canadian Bonds for any one Principal or US $500,000 or more Ihr Arrowhead, National Surety Specialists, Inc., and US Custom Bonds for any one Principal through the establishment of reserves, payments, assumption of guarantee of liabilities to prevent a default, or a combination thereof The discovery date shall determine the Agreement Year to which the loss is assigned and such assigned year will not be changed regardless of any fluctuation in the amount of the incurred loss.” Based upon the information received in your recent e-mail, it appears the losses discovered date, as defined under the Agreement would not be met, as the loss incurred is $50,000 and did not meet the criteria of 50% of the retention necessary for the trigger of coverage. The Agreement was effective from January 1,2003 through December 31, 2003. Endorsement No. 1 of the Agreement states: Case 1:16-cv-01555-JEJ Document 34-1 Filed 11/16/16 Page 2 of 3 It is mutually agreed that, effective January 1, 2004, this Agreement is hereby terminated. The Reinsurers shall not be liable for Losses discovered on or after such date. The Surety XOL Treaty covers Custom Bonds claims in excess of $1,000,000 each Principal. Please refer to Article V (e) that states; The Reinsurers shall pay to the Company, with respect to the US Custom Bonds written by Lincoln which arc produced and underwritten by Avalon Risk Management, Inc., 69% of the amount of Net Loss in excess of the Company Relerition of US $L000,0()() Each Principal, but not exceeding the Each Principal Limit of 69% of US $9,000,000 Each Principal. The Reinsurers' total liability for all Principals for all Losses Discovered during each .Agreement Year shall not exceed 69% of US $15,000,000. Since the losses for the W&W International bond did not exceed US$1,000,000 for the Principal, W&W International, there would be no coverage applicable under the excess of loss treaty. The quota share treaty #8533 - Agreement B was in effect from 1/1/98 to 12/31/02 and provided coverage to Aegis for certain bonds underwritten by Avalon Risk Management. However, a release agreement was signed and agreed to by both parties that this agreement was terminated 1/1/02 (see attached). The W&W International bond was effective from 5/26/03 to 5/25/04 and therefore would not be covered under the quota share treaty. At this time, General Reinsurance must respectfolly disclaim any obligation for payment of this claim under the Agreement. This declination-ol-coverage letter and the specific grounds on which it is presently based, as set forth above, does not constitute a waiver by General Reinsurance of its rights otherwise afforded it under the Agreement or applicable law. General Reinsurance expressly reserves its rights to deny coverage on any other basis which may later come to its attention. Sincerely, Alice 1. Zelikson cc; James D. McMahon Case 1:16-cv-01555-JEJ Document 34-1 Filed 11/16/16 Page 3 of 3 IN THE UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF PENNSYLVANIA Aegis Security Insurance Company, Plaintiff, CASE NO. l:16-cv-01555-JEJV. Kingsway Financial Services, Inc. Defendant. tPROPOSEDt ORDER WHEREAS the Motion of Defendant, Kingsway Financial Services, Inc., to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, and Aegis Security Insurance Company’s opposition thereto, it is hereby Ordered and Agreed that Kingsway’s Motion is DENIED. IN THE ALTERNATIVE, Kingsway’s Motion is GRANTED, and the COMPLAINT is dismissed WITHOUT prejudice, and Aegis has 20 days to fde an Amended Complaint. DONE ,2016.day ofAND ORDERED in Harrisburg, Pennsylvania this DISTRICT COURT JUDGE 21 Case 1:16-cv-01555-JEJ Document 34-2 Filed 11/16/16 Page 1 of 1