1017-00004 · Entities. Aurelius Global Media Group · Insurance

letter-pemberton-aldrich-coverage-denial-response.docx DOCUMENT Finance & Banking

85 / 150 ← → ✕

Contract analysis Extract to table

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

Telephone: (213) 555-7800 Facsimile: (213) 555-7801 www.calderwoodharkness.com

Bernard Crawford Direct Dial: (213) 555-7844 bcrawford@calderwoodharkness.com

February 1, 2024

VIA EMAIL AND CERTIFIED MAIL

Claims Department Pemberton Mutual Assurance Co. 3400 Asylum Avenue Hartford, CT 06105

C&H Matter No. 1017-00004

Re: Denial of Coverage for Aldrich Executive Dispute — Response and Reservation of Client's Rights

Policy No.: PMA-EPL-2022-00837 Named Insured: Aurelius Media Americas Inc. Claim: Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087

Dear Sir or Madam:

I write on behalf of our client, Aurelius Media Americas Inc. ("AMA"), the named insured under Employment Practices Liability Policy No. PMA-EPL-2022-00837 (the "Policy"), issued by Pemberton Mutual Assurance Co. ("Pemberton"), effective July 1, 2022 through June 30, 2023, carrying a $5,000,000 self-insured retention and a $15,000,000 aggregate limit of liability. This letter is in response to Pemberton's Reservation of Rights letter dated December 22, 2022 (the "ROR Letter"), in which Pemberton denied coverage for the executive dispute captioned Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087, Superior Court of the State of California, County of Los Angeles — Central District, assigned to the Honorable Catherine Villanueva, Department 52 (the "Aldrich Matter").

I write in my capacity as a partner at Calderwood & Harkness LLP, outside counsel to AMA in connection with both the underlying Aldrich Matter and the coverage issues arising from Pemberton's denial. This correspondence is designated as C&H Matter No. 1017-00004.

As set forth in detail below, AMA disputes each of the grounds Pemberton cited for its denial of coverage, believes the denial was unwarranted under the plain terms of the Policy and applicable law, and reserves all rights to seek reimbursement for the defense costs and settlement payments AMA was compelled to bear as a consequence of Pemberton's refusal to provide the coverage to which AMA was entitled.

I. Status of the Aldrich Matter — Resolution Summary

At the outset, we wish to inform Pemberton that the Aldrich Matter has now been fully resolved. We provide this summary for the record.

Gavin Aldrich, AMA's former Senior Vice President of Original Content & Executive Producer, filed his complaint on December 9, 2022 (the "Aldrich Complaint"), asserting the following causes of action against AMA:

1. Wrongful termination in violation of public policy;

2. Breach of contract, contesting AMA's "for cause" termination of Mr. Aldrich's employment under Section 7.2(b) of his Employment Agreement dated September 5, 2017, as amended August 1, 2020 (the "Employment Agreement");

3. Breach of the implied covenant of good faith and fair dealing;

4. Declaratory relief regarding the enforceability of post-employment restrictive covenant provisions contained in the Employment Agreement, including an eighteen (18)-month non-competition clause and twenty-four (24)-month non-solicitation clauses; and

5. Violation of California Labor Code Section 2802 (failure to reimburse necessary business expenses).

In response, AMA filed a Cross-Complaint on January 20, 2023 (the "Cross-Complaint"), asserting affirmative claims against Mr. Aldrich for:

1. Breach of the Employment Agreement, specifically the confidentiality provisions set forth in Section 9.4 thereof;

2. Misappropriation of trade secrets under the California Uniform Trade Secrets Act, California Civil Code Section 3426 et seq.;

3. Breach of fiduciary duty; and

4. Conversion.

The Cross-Complaint was predicated upon Mr. Aldrich's unauthorized transmission of proprietary show format bibles, pilot sizzle reels, and revenue models to his personal email account and to Halcyon Creek Productions LLC ("Halcyon Creek"), a California-based competitor of AMA operating in the unscripted and reality television space. These transmissions occurred during the period from approximately July 2021 through September 2022, while Mr. Aldrich remained employed by AMA, and formed the factual basis for AMA's decision to terminate Mr. Aldrich's employment for cause under Section 7.2(b) of the Employment Agreement.

Mr. Aldrich's aggregate demand in the litigation was $4,150,000, comprised of the following components:

The matter was resolved through a confidential settlement agreement executed on January 19, 2024 (the "Settlement Agreement"), following a full-day mediation conducted on December 8, 2023 before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc. Pursuant to the Settlement Agreement, a Stipulation for Dismissal with Prejudice was filed with the Court on January 26, 2024, and a Request for Dismissal (Judicial Council Form CIV-110) was entered on January 29, 2024. The Aldrich Matter is now fully concluded, and all claims and cross-claims have been dismissed with prejudice.

Critically, AMA self-funded the entire cost of the defense and settlement of the Aldrich Matter. The settlement payment and all defense costs were borne exclusively by AMA, as Pemberton had denied coverage under the Policy. As detailed in Section IV below, the total out-of-pocket cost to AMA attributable to the Aldrich Matter was approximately $2,778,100.

II. Pemberton's Stated Grounds for Denial

In the ROR Letter dated December 22, 2022, Pemberton set forth three purported grounds for denying coverage for the Aldrich Matter. We restate each of those grounds below, together with our characterization of the positions Pemberton took, before addressing each in turn in Section III.

A. Insured v. Insured Exclusion (Policy § IV.C)

Pemberton stated in the ROR Letter that the Insured v. Insured Exclusion set forth in Section IV.C of the Policy may apply to the Aldrich Matter, to the extent that AMA asserted cross-claims against Mr. Aldrich in his capacity as a former officer of the company. Pemberton characterized AMA's affirmative cross-claims against Mr. Aldrich — including breach of contract, trade secret misappropriation, breach of fiduciary duty, and conversion — as "offensive litigation by the insured" that fell outside the scope of "defense" coverage under the Policy. Pemberton reasoned that because Mr. Aldrich had served as a Senior Vice President and officer of AMA, and because AMA was itself asserting claims against him, the exclusion operated to bar coverage for the dispute.

B. Offensive Litigation / Affirmative Claims

Relatedly, Pemberton stated in the ROR Letter that AMA's Cross-Complaint constituted affirmative action by AMA that fell outside the scope of the Policy. Pemberton drew a distinction between defense costs — which it characterized as costs incurred to defend against claims brought by a third party — and offensive litigation expenses — which it characterized as costs incurred to prosecute claims asserted by the insured. Pemberton took the position that because AMA filed the Cross-Complaint asserting affirmative claims against Mr. Aldrich, the costs associated with the prosecution of those claims did not constitute "defense" costs within the meaning of the Policy and were therefore not covered.

C. Scope of "Employment Practices"

Finally, Pemberton argued that certain of the claims at issue in the Aldrich Matter — specifically, the restrictive covenant and trade secret claims — related to AMA's "proprietary business interests" rather than to "Employment Practices" as that term is defined under the Policy. Pemberton took the position that the Aldrich Matter, when considered as a whole, concerned contractual business protections and the misappropriation of proprietary assets, rather than the types of employment practices contemplated by the Policy. On this basis, Pemberton concluded that the Aldrich Matter fell outside the Policy's coverage.

As we explain in detail below, each of these grounds is without merit.

III. AMA's Response — Challenging Each Ground for Denial

AMA respectfully but firmly disputes each of the three grounds cited by Pemberton in the ROR Letter. For the reasons set forth below, AMA believes that Pemberton's denial of coverage was unwarranted and inconsistent with the plain terms of the Policy, the factual record of the Aldrich Matter, and applicable law.

A. The Insured v. Insured Exclusion Is Inapplicable

Pemberton's reliance on the Insured v. Insured Exclusion set forth in Section IV.C of the Policy is misplaced for multiple independent reasons.

First, Mr. Aldrich was a former officer of AMA at the time the claims were filed. AMA terminated Mr. Aldrich's employment effective October 14, 2022. His complaint was not filed until December 9, 2022 — nearly two months after his termination. At the time Mr. Aldrich initiated litigation against AMA, he was no longer an employee, officer, or insured of AMA. He occupied no position within the company and held no continuing relationship with AMA other than as an adverse party in a dispute. The Insured v. Insured Exclusion, by its express terms, applies to claims "brought by or on behalf of an Insured." Mr. Aldrich was no longer an insured at the time he commenced the Aldrich Matter, and accordingly the exclusion does not apply.

Second, even if Mr. Aldrich's former status as an officer were relevant, the animating purpose of the Insured v. Insured Exclusion does not support its application here. The Insured v. Insured Exclusion was designed to prevent collusive suits between current insureds — that is, to prevent situations in which an insured company and an insured individual conspire to manufacture a claim in order to extract insurance proceeds. See, e.g., Level 3 Commc'ns, Inc. v. Fed. Ins. Co., 168 F.3d 956, 958 (7th Cir. 1999) (Posner, J.) (explaining that the purpose of the exclusion is "to prevent the insured from manufacturing coverage"). No such collusion risk exists here. Mr. Aldrich was a true adversary of AMA. He was terminated for cause. He filed suit challenging his termination. AMA and Mr. Aldrich were genuinely adverse parties engaged in arm's-length litigation. Application of the Insured v. Insured Exclusion to this dispute would extend the exclusion far beyond its intended scope and would produce an absurd result — effectively barring coverage for any employment practices claim brought by a former officer, which would eviscerate the Policy's coverage for the most common category of executive employment disputes.

Third, AMA's Cross-Complaint was filed on January 20, 2023, in direct response to the Aldrich Complaint. The cross-claims were inherently defensive in nature. They were necessary to establish and substantiate the "for cause" basis for Mr. Aldrich's termination under Section 7.2(b) of the Employment Agreement — the very issue that Mr. Aldrich placed squarely at the center of the litigation through his breach of contract claim. Without the Cross-Complaint, AMA would have been unable to develop the full factual record necessary to demonstrate that Mr. Aldrich had engaged in conduct warranting termination for cause, including the unauthorized transmission of proprietary materials to a competitor. The cross-claims were part and parcel of AMA's overall defense posture. To characterize them as "offensive litigation" is to misunderstand the strategic and legal necessity of those claims within the context of the broader dispute.

Fourth, AMA's cross-claims for breach of the confidentiality provisions of Section 9.4 of the Employment Agreement, trade secret misappropriation, and breach of fiduciary duty were inextricably linked to the factual and legal basis for Mr. Aldrich's termination. The same conduct that gave rise to the cross-claims — Mr. Aldrich's unauthorized transmission of proprietary show format bibles, pilot sizzle reels, and revenue models to Halcyon Creek and to his personal email account — was the same conduct that formed the basis for AMA's determination that termination for cause was appropriate under Section 7.2(b). If AMA had not asserted these claims, it would have been constrained in its ability to present the full picture of Mr. Aldrich's misconduct and, consequently, in its ability to defend the "for cause" designation that Mr. Aldrich was seeking to overturn.

Fifth, multiple courts have held that the Insured v. Insured Exclusion does not apply to claims brought by a former officer or employee who has become a genuine adversary of the insured entity. Courts have consistently recognized that the exclusion was not designed to bar coverage for legitimate disputes with former insiders, and that compulsory or defensive cross-claims should not be treated as "offensive litigation" triggering the exclusion. See, e.g., Sphinx Int'l, Inc. v. Nat'l Union Fire Ins. Co., 412 F.3d 1224, 1230 (11th Cir. 2005); Biltmore Assocs., LLC v. Twin City Fire Ins. Co., 572 F.3d 663, 670 (9th Cir. 2009). Pemberton's contrary interpretation finds no support in the caselaw.

For all of these reasons, the Insured v. Insured Exclusion does not apply to the Aldrich Matter and cannot serve as a basis for Pemberton's denial of coverage.

B. AMA's Cross-Claims Were Defensive in Nature

Pemberton's characterization of AMA's Cross-Complaint as "offensive litigation" falling outside the scope of the Policy's coverage is factually and legally incorrect.

AMA's cross-claims were filed in response to the Aldrich Complaint, not as an independent offensive action. The Cross-Complaint was filed on January 20, 2023, approximately six weeks after Mr. Aldrich initiated the litigation. AMA did not seek out this dispute; it responded to it. The claims asserted in the Cross-Complaint were compulsory in nature. Under California Code of Civil Procedure Section 426.30(a), a party is required to assert any related cause of action that arises out of the same transaction, occurrence, or series of transactions or occurrences as the claims asserted in the complaint. AMA's cross-claims arose from the same transaction or occurrence as Mr. Aldrich's claims — namely, the employment relationship between AMA and Mr. Aldrich, the terms of the Employment Agreement, and the termination of Mr. Aldrich's employment. Had AMA failed to assert these cross-claims, they would have been waived under the compulsory cross-complaint statute. Pemberton's position would effectively penalize AMA for complying with its procedural obligations under California law.

The factual basis for the Cross-Complaint was identical to the factual basis underlying AMA's "for cause" termination decision. Mr. Aldrich's unauthorized transmission of confidential materials to Halcyon Creek Productions LLC and to his personal email account constituted the precise conduct that AMA relied upon in determining that termination for cause was warranted under Section 7.2(b) of the Employment Agreement. The cross-claims and the defense of the breach of contract claim were two sides of the same coin. To separate them and declare one "defensive" and the other "offensive" is to draw a distinction that has no basis in the reality of the litigation.

Furthermore, characterizing these cross-claims as "offensive litigation" fundamentally misapprehends the defensive purpose they served. Without asserting the cross-claims, AMA could not have established the full factual record necessary to defend Mr. Aldrich's breach of contract claim. Mr. Aldrich sought to overturn the "for cause" designation and recover $970,000 in severance, a pro-rata bonus of $168,750, and RSU acceleration valued at approximately $332,200 — a total of approximately $1,470,950 in direct contractual benefits alone. AMA's ability to demonstrate the seriousness and scope of Mr. Aldrich's misconduct — through the cross-claims for trade secret misappropriation, breach of confidentiality, breach of fiduciary duty, and conversion — was essential to AMA's defense against these demands. Without the cross-claims, AMA would have been left to defend the "for cause" termination with one hand tied behind its back, unable to present the full scope of the conduct that justified its employment decision.

The cross-claims were integral to AMA's defense strategy and served to create legitimate settlement leverage. This leverage ultimately contributed to a resolution at $2,350,000 — significantly below Mr. Aldrich's aggregate demand of $4,150,000, representing a reduction of approximately 43%. The cross-claims were not a sideshow; they were a central and indispensable component of AMA's defense of the Aldrich Matter.

C. The Aldrich Dispute Falls squarely Within "Employment Practices"

Pemberton's contention that the Aldrich Matter falls outside the scope of "Employment Practices" as defined under the Policy is unsupported by the facts of the dispute, the terms of the Policy, and applicable legal authority.

The Aldrich dispute arose directly and exclusively from the employment relationship between AMA and Mr. Aldrich. Every claim asserted by Mr. Aldrich, and every cross-claim asserted by AMA, finds its origin in the Employment Agreement, the employment relationship, and the termination of that relationship. Specifically:

• The Employment Agreement, dated September 5, 2017, as amended August 1, 2020, governed every aspect of the dispute. Section 7.2(b) set forth the "for cause" termination provisions that Mr. Aldrich challenged. The severance obligations (24 months' base salary at $485,000 per year, totaling $970,000) were defined by the Employment Agreement. The restrictive covenant provisions (Sections 9.1 through 9.4) — including the non-competition clause, non-solicitation clauses, and confidentiality obligations — were embedded in the Employment Agreement. The alleged breaches of the confidentiality obligations under Section 9.4 that formed the basis for the Cross-Complaint were breaches of an employment agreement obligation.

• Mr. Aldrich's claims included wrongful termination in violation of public policy, breach of contract (challenging the for cause designation), breach of the implied covenant of good faith and fair dealing, and violation of California Labor Code Section 2802 (expense reimbursement). Each of these claims is a quintessential "Employment Practices" claim. Wrongful termination claims are the paradigmatic employment practices liability. Breach of an employment agreement is, by definition, an employment practices dispute. Breach of the implied covenant in the employment context is an employment practices claim. And violation of the Labor Code expense reimbursement statute is a statutory employment practices claim. There can be no serious argument that these claims fall outside the Policy's coverage.

• Mr. Aldrich's claim for declaratory relief regarding the enforceability of the restrictive covenant provisions — specifically, the non-competition clause under California Business and Professions Code Section 16600 and the non-solicitation clauses — is inherently an employment practices dispute. The enforceability of post-employment restrictions is a question that arises exclusively in the employment context. It concerns the rights and obligations of an employer and employee under an employment agreement and post-employment covenants. It is not a "proprietary business interests" matter divorced from employment practices; it is an employment practices matter that happens to involve proprietary business interests.

• AMA's cross-claims for breach of the confidentiality provisions of Section 9.4 and trade secret misappropriation arose from conduct that occurred during and in direct connection with Mr. Aldrich's employment. The unauthorized transmissions took place between approximately July 2021 and September 2022 — a period during which Mr. Aldrich was employed by AMA as Senior Vice President of Original Content & Executive Producer. The obligations that Mr. Aldrich allegedly breached were obligations imposed by the Employment Agreement and by the fiduciary duties inherent in his senior executive role. The conduct at issue was employee misconduct during the course of employment. There is no more quintessential employment practices matter than an employer's response to an employee's breach of duties owed under an employment agreement.

Pemberton's attempt to recharacterize the Aldrich Matter as a dispute concerning AMA's "proprietary business interests" rather than "Employment Practices" fails because it confuses the subject matter of the disputed information with the nature of the dispute. The fact that the disputed information constitutes proprietary business assets — show format bibles, pilot sizzle reels, and revenue models — does not transform the dispute from an employment practices matter into something else. The relevant inquiry is not what type of information was at issue, but rather: (1) the source of the obligations that were allegedly breached, (2) the nature of the claims asserted, and (3) the context in which the misconduct occurred.

On each of these dimensions, the answer unambiguously points to "Employment Practices":

1. The source of the obligations was the Employment Agreement — a contract governing the employment relationship between AMA and Mr. Aldrich.

2. The nature of the claims included wrongful termination, breach of employment agreement, severance disputes, post-employment covenant enforceability, and employee expense reimbursement — all classic employment practices claims.

3. The context of the misconduct was employee conduct during the course of employment — an employee's breach of confidentiality obligations owed to his employer under an employment agreement.

Pemberton's interpretation, if accepted, would create an artificial and unsupportable distinction that would effectively exclude coverage for any employment dispute in which the employee's misconduct involved confidential information or trade secrets. Such a result would be perverse. Employment agreements routinely contain confidentiality provisions. Senior executives routinely have access to proprietary information. Disputes arising from the breach of confidentiality obligations by employees are among the most common types of employment disputes. If Pemberton's interpretation were correct, then the EPL Policy would provide no coverage for an entire category of employment disputes — a result that would undermine the fundamental purpose of the Policy and render coverage illusory for a broad and foreseeable class of claims. AMA did not purchase a $15,000,000 EPL policy with the understanding that coverage would be denied the moment an employment dispute touches upon confidential business information.

For all of these reasons, the Aldrich Matter falls squarely within "Employment Practices" as defined under the Policy, and Pemberton's third ground for denial is without merit.

IV. Financial Impact of Pemberton's Coverage Denial

As a direct consequence of Pemberton's denial of coverage, AMA was compelled to self-fund the entire cost of the defense and resolution of the Aldrich Matter. The financial burden borne by AMA is summarized as follows:

Defense Costs. Calderwood & Harkness LLP was engaged by AMA on approximately November 1, 2022 to represent AMA in connection with the Aldrich Matter and related employment litigation matters. During the course of the engagement (November 1, 2022 through February 15, 2024), Calderwood & Harkness incurred total fees and expenses of $3,279,700 across all matters within the engagement. The Aldrich-specific budget phase (Phase 9) incurred approximately $428,100 in fees and expenses attributable specifically to the defense and prosecution of the Aldrich Matter, including document review, depositions, written discovery, mediation preparation, and settlement negotiations.

Settlement Payment. Pursuant to the Settlement Agreement executed on January 19, 2024, AMA agreed to pay Mr. Aldrich a confidential lump-sum settlement payment of $2,350,000, payable within twenty-one (21) days of execution of the Settlement Agreement.

RSU Acceleration. As an additional component of the settlement, 10,200 restricted stock units ("RSUs") of the 15,300 unvested RSUs held by Mr. Aldrich at the time of his termination were accelerated and vested as part of the settlement. The remaining 5,100 unvested RSUs were forfeited by Mr. Aldrich. The value of the accelerated RSUs was incorporated into the overall settlement economics.

Total AMA Out-of-Pocket. In the aggregate, AMA's total out-of-pocket expenditure attributable to the Aldrich Matter — encompassing both defense costs and the settlement payment — was approximately $2,778,100. This figure does not include the value of the accelerated RSUs, internal management time and resources devoted to the litigation, or opportunity costs.

These costs would have been covered, in whole or in part, under the Policy absent Pemberton's denial. The self-insured retention under the Policy is $5,000,000, and the total AMA out-of-pocket for the Aldrich Matter ($2,778,100) falls within the retention. However, the Aldrich Matter was one of multiple employment practices claims against AMA during the Policy period, and the aggregate of AMA's employment practices defense costs and settlements during the Policy period exceeded the $5,000,000 retention. Accordingly, had Pemberton acknowledged coverage for the Aldrich Matter, a portion of the costs attributable to the Aldrich Matter would have been applied toward the retention and a portion would have been subject to indemnification by Pemberton above the retention, resulting in a direct financial benefit to AMA that was lost as a consequence of Pemberton's denial.

V. Contrast with Pemberton's Treatment of the Class Action

The inconsistency of Pemberton's position is highlighted by its treatment of the separate class action matter arising during the same Policy period.

For the class action captioned Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214, Superior Court of the State of California, County of Los Angeles (the "Fuentes Class Action"), Pemberton acknowledged coverage (subject to its reservation of rights) on December 22, 2022 — the same date on which it issued the ROR Letter denying coverage for the Aldrich Matter. Pemberton subsequently consented to the class settlement in Fuentes and authorized a contribution of $9,250,000 toward the $14,750,000 Gross Settlement Amount approved by the Court.

Pemberton's willingness to cover the Fuentes Class Action — which involved wage-and-hour claims arising from the employment relationship, including meal period violations and wage statement violations — while simultaneously denying coverage for the Aldrich Matter — which also arose from the employment relationship — is inconsistent and unjustified. Both matters involve claims arising from the employer-employee relationship. Both matters involve allegations of employer misconduct in connection with the terms and conditions of employment. Both matters fall within the scope of "Employment Practices" as that term is used in the Policy.

If anything, the Aldrich Matter presents a stronger case for EPL coverage than the Fuentes Class Action. Mr. Aldrich's claims — wrongful termination in violation of public policy, breach of an employment agreement, breach of the implied covenant of good faith and fair dealing, and disputes over severance, compensation, and post-employment restrictive covenants — are paradigmatic employment practices claims that lie at the very core of EPL coverage. The wage-and-hour claims in Fuentes, while certainly employment-related, are often the subject of separate wage-and-hour liability policies. That Pemberton recognized coverage for the class action but denied it for the Aldrich Matter underscores the arbitrariness of Pemberton's position and reinforces AMA's contention that the denial was unwarranted.

VI. Reservation of Rights

AMA expressly reserves all rights, claims, and defenses under the Policy with respect to the Aldrich Matter, including but not limited to the following:

(a) AMA reserves the right to seek reimbursement from Pemberton for defense costs incurred in connection with the Aldrich Matter, in the approximate amount of $428,100;

(b) AMA reserves the right to seek reimbursement from Pemberton for the settlement payment of $2,350,000 made to Mr. Aldrich pursuant to the Settlement Agreement;

(c) AMA reserves the right to seek recovery from Pemberton for any other costs, expenses, or damages attributable to Pemberton's wrongful denial of coverage, including but not limited to consequential damages, interest, and attorneys' fees incurred in connection with coverage disputes;

(d) AMA reserves the right to assert claims against Pemberton for breach of the duty to defend, breach of the duty to indemnify, and breach of the implied covenant of good faith and fair dealing (bad faith denial of coverage) under the Policy and applicable law;

(e) AMA preserves its right to commence coverage litigation or arbitration proceedings against Pemberton in the future if circumstances warrant, including but not limited to an action for declaratory relief regarding the scope of coverage under the Policy; and

(f) AMA does not waive any claims, rights, or defenses by this letter, by its self-funding of the Aldrich defense and settlement, or by its decision not to pursue coverage litigation at this time.

This letter does not constitute, and shall not be construed as, a waiver of any claim under the Policy. AMA's reservation of rights encompasses all claims that may exist or arise under the Policy, under California Insurance Code Sections 790.03 and 790.09, or under any other applicable statute, regulation, or common law doctrine, including but not limited to claims for breach of the duty to defend, breach of the duty to indemnify, bad faith denial of coverage, and unfair claims settlement practices.

VII. AMA's Current Position — No Coverage Litigation at This Time

While AMA firmly believes that Pemberton's denial of coverage was unwarranted for the reasons set forth above, AMA does not intend to pursue coverage litigation against Pemberton at this time.

This decision is a practical business decision driven by considerations of cost, timing, and litigation risk. The cost of coverage litigation would be significant, the timeline would be protracted, and the outcome, while AMA believes it would be favorable, carries inherent uncertainty. AMA has weighed these factors against the amount at issue and has concluded that the most prudent course of action at this time is to preserve its rights while declining to initiate coverage litigation.

AMA wishes to make clear, however, that its decision not to pursue coverage litigation at this time is not an acknowledgment that Pemberton's denial was justified. To the contrary, AMA maintains that the denial was without merit on each of the three grounds cited by Pemberton, for the reasons set forth in Section III above. AMA expressly preserves all rights to pursue coverage claims against Pemberton in the future, within the applicable limitations period, should circumstances warrant such action.

Closing

We respectfully request that Pemberton acknowledge receipt of this letter and confirm its position with respect to the Aldrich Matter for the record. We further invite Pemberton to reconsider its coverage denial in light of the analysis set forth herein. AMA remains open to a constructive dialogue regarding the coverage issues presented by the Aldrich Matter and would welcome the opportunity to discuss these issues with Pemberton's claims professionals at their convenience.

Should Pemberton wish to discuss any aspect of this letter or the underlying matter, please do not hesitate to contact me directly at (213) 555-7844 or at bcrawford@calderwoodharkness.com.

Thank you for your attention to this matter. We look forward to Pemberton's response.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner

cc (via email):

Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc. (gtanaka@aureliusmedia.com)

Philippa Cartwright, General Counsel, Aurelius Global Media Group (pcartwright@aureliusmedia.com)

Samuel Okonkwo, Managing Director, Kestrel Risk Advisors Ltd. (sokonkwo@kestrelrisk.co.uk), One Broadgate, London EC2M 2QS, United Kingdom

Renata Vasquez, Partner, Calderwood & Harkness LLP (rvasquez@calderwoodharkness.com)

Component	Amount
Severance (24 months' base salary at $485,000/year)	$970,000
Pro-rata bonus	$168,750
RSU acceleration (approximately 15,300 unvested units)	$332,200
Emotional distress damages	$500,000
Lost future compensation	$1,200,000
Attorneys' fees	$750,000
Expense reimbursement (Cal. Lab. Code § 2802)	$28,400
Punitive damages (placeholder)	$200,000
Total	$4,149,350

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
Telephone: (213) 555-7800 Facsimile: (213) 555-7801 www.calderwoodharkness.com
Bernard Crawford Direct Dial: (213) 555-7844 bcrawford@calderwoodharkness.com
February 1, 2024
VIA EMAIL AND CERTIFIED MAIL
Claims Department Pemberton Mutual Assurance Co. 3400 Asylum Avenue Hartford, CT 06105
C&H Matter No. 1017-00004
Re: Denial of Coverage for Aldrich Executive Dispute — Response and Reservation of Client's Rights
Policy No.: PMA-EPL-2022-00837 Named Insured: Aurelius Media Americas Inc. Claim: Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087
Dear Sir or Madam:
I write on behalf of our client, Aurelius Media Americas Inc. ("AMA"), the named insured under Employment Practices Liability Policy No. PMA-EPL-2022-00837 (the "Policy"), issued by Pemberton Mutual Assurance Co. ("Pemberton"), effective July 1, 2022 through June 30, 2023, carrying a $5,000,000 self-insured retention and a $15,000,000 aggregate limit of liability. This letter is in response to Pemberton's Reservation of Rights letter dated December 22, 2022 (the "ROR Letter"), in which Pemberton denied coverage for the executive dispute captioned Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087, Superior Court of the State of California, County of Los Angeles — Central District, assigned to the Honorable Catherine Villanueva, Department 52 (the "Aldrich Matter").
I write in my capacity as a partner at Calderwood & Harkness LLP, outside counsel to AMA in connection with both the underlying Aldrich Matter and the coverage issues arising from Pemberton's denial. This correspondence is designated as C&H Matter No. 1017-00004.
As set forth in detail below, AMA disputes each of the grounds Pemberton cited for its denial of coverage, believes the denial was unwarranted under the plain terms of the Policy and applicable law, and reserves all rights to seek reimbursement for the defense costs and settlement payments AMA was compelled to bear as a consequence of Pemberton's refusal to provide the coverage to which AMA was entitled.
I. Status of the Aldrich Matter — Resolution Summary
At the outset, we wish to inform Pemberton that the Aldrich Matter has now been fully resolved. We provide this summary for the record.
Gavin Aldrich, AMA's former Senior Vice President of Original Content & Executive Producer, filed his complaint on December 9, 2022 (the "Aldrich Complaint"), asserting the following causes of action against AMA:
1. Wrongful termination in violation of public policy;
2. Breach of contract, contesting AMA's "for cause" termination of Mr. Aldrich's employment under Section 7.2(b) of his Employment Agreement dated September 5, 2017, as amended August 1, 2020 (the "Employment Agreement");
3. Breach of the implied covenant of good faith and fair dealing;
4. Declaratory relief regarding the enforceability of post-employment restrictive covenant provisions contained in the Employment Agreement, including an eighteen (18)-month non-competition clause and twenty-four (24)-month non-solicitation clauses; and
5. Violation of California Labor Code Section 2802 (failure to reimburse necessary business expenses).
In response, AMA filed a Cross-Complaint on January 20, 2023 (the "Cross-Complaint"), asserting affirmative claims against Mr. Aldrich for:
1. Breach of the Employment Agreement, specifically the confidentiality provisions set forth in Section 9.4 thereof;
2. Misappropriation of trade secrets under the California Uniform Trade Secrets Act, California Civil Code Section 3426 et seq.;
3. Breach of fiduciary duty; and
4. Conversion.
The Cross-Complaint was predicated upon Mr. Aldrich's unauthorized transmission of proprietary show format bibles, pilot sizzle reels, and revenue models to his personal email account and to Halcyon Creek Productions LLC ("Halcyon Creek"), a California-based competitor of AMA operating in the unscripted and reality television space. These transmissions occurred during the period from approximately July 2021 through September 2022, while Mr. Aldrich remained employed by AMA, and formed the factual basis for AMA's decision to terminate Mr. Aldrich's employment for cause under Section 7.2(b) of the Employment Agreement.
Mr. Aldrich's aggregate demand in the litigation was $4,150,000, comprised of the following components:
The matter was resolved through a confidential settlement agreement executed on January 19, 2024 (the "Settlement Agreement"), following a full-day mediation conducted on December 8, 2023 before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc. Pursuant to the Settlement Agreement, a Stipulation for Dismissal with Prejudice was filed with the Court on January 26, 2024, and a Request for Dismissal (Judicial Council Form CIV-110) was entered on January 29, 2024. The Aldrich Matter is now fully concluded, and all claims and cross-claims have been dismissed with prejudice.
Critically, AMA self-funded the entire cost of the defense and settlement of the Aldrich Matter. The settlement payment and all defense costs were borne exclusively by AMA, as Pemberton had denied coverage under the Policy. As detailed in Section IV below, the total out-of-pocket cost to AMA attributable to the Aldrich Matter was approximately $2,778,100.
II. Pemberton's Stated Grounds for Denial
In the ROR Letter dated December 22, 2022, Pemberton set forth three purported grounds for denying coverage for the Aldrich Matter. We restate each of those grounds below, together with our characterization of the positions Pemberton took, before addressing each in turn in Section III.
A. Insured v. Insured Exclusion (Policy § IV.C)
Pemberton stated in the ROR Letter that the Insured v. Insured Exclusion set forth in Section IV.C of the Policy may apply to the Aldrich Matter, to the extent that AMA asserted cross-claims against Mr. Aldrich in his capacity as a former officer of the company. Pemberton characterized AMA's affirmative cross-claims against Mr. Aldrich — including breach of contract, trade secret misappropriation, breach of fiduciary duty, and conversion — as "offensive litigation by the insured" that fell outside the scope of "defense" coverage under the Policy. Pemberton reasoned that because Mr. Aldrich had served as a Senior Vice President and officer of AMA, and because AMA was itself asserting claims against him, the exclusion operated to bar coverage for the dispute.
B. Offensive Litigation / Affirmative Claims
Relatedly, Pemberton stated in the ROR Letter that AMA's Cross-Complaint constituted affirmative action by AMA that fell outside the scope of the Policy. Pemberton drew a distinction between defense costs — which it characterized as costs incurred to defend against claims brought by a third party — and offensive litigation expenses — which it characterized as costs incurred to prosecute claims asserted by the insured. Pemberton took the position that because AMA filed the Cross-Complaint asserting affirmative claims against Mr. Aldrich, the costs associated with the prosecution of those claims did not constitute "defense" costs within the meaning of the Policy and were therefore not covered.
C. Scope of "Employment Practices"
Finally, Pemberton argued that certain of the claims at issue in the Aldrich Matter — specifically, the restrictive covenant and trade secret claims — related to AMA's "proprietary business interests" rather than to "Employment Practices" as that term is defined under the Policy. Pemberton took the position that the Aldrich Matter, when considered as a whole, concerned contractual business protections and the misappropriation of proprietary assets, rather than the types of employment practices contemplated by the Policy. On this basis, Pemberton concluded that the Aldrich Matter fell outside the Policy's coverage.
As we explain in detail below, each of these grounds is without merit.
III. AMA's Response — Challenging Each Ground for Denial
AMA respectfully but firmly disputes each of the three grounds cited by Pemberton in the ROR Letter. For the reasons set forth below, AMA believes that Pemberton's denial of coverage was unwarranted and inconsistent with the plain terms of the Policy, the factual record of the Aldrich Matter, and applicable law.
A. The Insured v. Insured Exclusion Is Inapplicable
Pemberton's reliance on the Insured v. Insured Exclusion set forth in Section IV.C of the Policy is misplaced for multiple independent reasons.
First, Mr. Aldrich was a former officer of AMA at the time the claims were filed. AMA terminated Mr. Aldrich's employment effective October 14, 2022. His complaint was not filed until December 9, 2022 — nearly two months after his termination. At the time Mr. Aldrich initiated litigation against AMA, he was no longer an employee, officer, or insured of AMA. He occupied no position within the company and held no continuing relationship with AMA other than as an adverse party in a dispute. The Insured v. Insured Exclusion, by its express terms, applies to claims "brought by or on behalf of an Insured." Mr. Aldrich was no longer an insured at the time he commenced the Aldrich Matter, and accordingly the exclusion does not apply.
Second, even if Mr. Aldrich's former status as an officer were relevant, the animating purpose of the Insured v. Insured Exclusion does not support its application here. The Insured v. Insured Exclusion was designed to prevent collusive suits between current insureds — that is, to prevent situations in which an insured company and an insured individual conspire to manufacture a claim in order to extract insurance proceeds. See, e.g., Level 3 Commc'ns, Inc. v. Fed. Ins. Co., 168 F.3d 956, 958 (7th Cir. 1999) (Posner, J.) (explaining that the purpose of the exclusion is "to prevent the insured from manufacturing coverage"). No such collusion risk exists here. Mr. Aldrich was a true adversary of AMA. He was terminated for cause. He filed suit challenging his termination. AMA and Mr. Aldrich were genuinely adverse parties engaged in arm's-length litigation. Application of the Insured v. Insured Exclusion to this dispute would extend the exclusion far beyond its intended scope and would produce an absurd result — effectively barring coverage for any employment practices claim brought by a former officer, which would eviscerate the Policy's coverage for the most common category of executive employment disputes.
Third, AMA's Cross-Complaint was filed on January 20, 2023, in direct response to the Aldrich Complaint. The cross-claims were inherently defensive in nature. They were necessary to establish and substantiate the "for cause" basis for Mr. Aldrich's termination under Section 7.2(b) of the Employment Agreement — the very issue that Mr. Aldrich placed squarely at the center of the litigation through his breach of contract claim. Without the Cross-Complaint, AMA would have been unable to develop the full factual record necessary to demonstrate that Mr. Aldrich had engaged in conduct warranting termination for cause, including the unauthorized transmission of proprietary materials to a competitor. The cross-claims were part and parcel of AMA's overall defense posture. To characterize them as "offensive litigation" is to misunderstand the strategic and legal necessity of those claims within the context of the broader dispute.
Fourth, AMA's cross-claims for breach of the confidentiality provisions of Section 9.4 of the Employment Agreement, trade secret misappropriation, and breach of fiduciary duty were inextricably linked to the factual and legal basis for Mr. Aldrich's termination. The same conduct that gave rise to the cross-claims — Mr. Aldrich's unauthorized transmission of proprietary show format bibles, pilot sizzle reels, and revenue models to Halcyon Creek and to his personal email account — was the same conduct that formed the basis for AMA's determination that termination for cause was appropriate under Section 7.2(b). If AMA had not asserted these claims, it would have been constrained in its ability to present the full picture of Mr. Aldrich's misconduct and, consequently, in its ability to defend the "for cause" designation that Mr. Aldrich was seeking to overturn.
Fifth, multiple courts have held that the Insured v. Insured Exclusion does not apply to claims brought by a former officer or employee who has become a genuine adversary of the insured entity. Courts have consistently recognized that the exclusion was not designed to bar coverage for legitimate disputes with former insiders, and that compulsory or defensive cross-claims should not be treated as "offensive litigation" triggering the exclusion. See, e.g., Sphinx Int'l, Inc. v. Nat'l Union Fire Ins. Co., 412 F.3d 1224, 1230 (11th Cir. 2005); Biltmore Assocs., LLC v. Twin City Fire Ins. Co., 572 F.3d 663, 670 (9th Cir. 2009). Pemberton's contrary interpretation finds no support in the caselaw.
For all of these reasons, the Insured v. Insured Exclusion does not apply to the Aldrich Matter and cannot serve as a basis for Pemberton's denial of coverage.
B. AMA's Cross-Claims Were Defensive in Nature
Pemberton's characterization of AMA's Cross-Complaint as "offensive litigation" falling outside the scope of the Policy's coverage is factually and legally incorrect.
AMA's cross-claims were filed in response to the Aldrich Complaint, not as an independent offensive action. The Cross-Complaint was filed on January 20, 2023, approximately six weeks after Mr. Aldrich initiated the litigation. AMA did not seek out this dispute; it responded to it. The claims asserted in the Cross-Complaint were compulsory in nature. Under California Code of Civil Procedure Section 426.30(a), a party is required to assert any related cause of action that arises out of the same transaction, occurrence, or series of transactions or occurrences as the claims asserted in the complaint. AMA's cross-claims arose from the same transaction or occurrence as Mr. Aldrich's claims — namely, the employment relationship between AMA and Mr. Aldrich, the terms of the Employment Agreement, and the termination of Mr. Aldrich's employment. Had AMA failed to assert these cross-claims, they would have been waived under the compulsory cross-complaint statute. Pemberton's position would effectively penalize AMA for complying with its procedural obligations under California law.
The factual basis for the Cross-Complaint was identical to the factual basis underlying AMA's "for cause" termination decision. Mr. Aldrich's unauthorized transmission of confidential materials to Halcyon Creek Productions LLC and to his personal email account constituted the precise conduct that AMA relied upon in determining that termination for cause was warranted under Section 7.2(b) of the Employment Agreement. The cross-claims and the defense of the breach of contract claim were two sides of the same coin. To separate them and declare one "defensive" and the other "offensive" is to draw a distinction that has no basis in the reality of the litigation.
Furthermore, characterizing these cross-claims as "offensive litigation" fundamentally misapprehends the defensive purpose they served. Without asserting the cross-claims, AMA could not have established the full factual record necessary to defend Mr. Aldrich's breach of contract claim. Mr. Aldrich sought to overturn the "for cause" designation and recover $970,000 in severance, a pro-rata bonus of $168,750, and RSU acceleration valued at approximately $332,200 — a total of approximately $1,470,950 in direct contractual benefits alone. AMA's ability to demonstrate the seriousness and scope of Mr. Aldrich's misconduct — through the cross-claims for trade secret misappropriation, breach of confidentiality, breach of fiduciary duty, and conversion — was essential to AMA's defense against these demands. Without the cross-claims, AMA would have been left to defend the "for cause" termination with one hand tied behind its back, unable to present the full scope of the conduct that justified its employment decision.
The cross-claims were integral to AMA's defense strategy and served to create legitimate settlement leverage. This leverage ultimately contributed to a resolution at $2,350,000 — significantly below Mr. Aldrich's aggregate demand of $4,150,000, representing a reduction of approximately 43%. The cross-claims were not a sideshow; they were a central and indispensable component of AMA's defense of the Aldrich Matter.
C. The Aldrich Dispute Falls squarely Within "Employment Practices"
Pemberton's contention that the Aldrich Matter falls outside the scope of "Employment Practices" as defined under the Policy is unsupported by the facts of the dispute, the terms of the Policy, and applicable legal authority.
The Aldrich dispute arose directly and exclusively from the employment relationship between AMA and Mr. Aldrich. Every claim asserted by Mr. Aldrich, and every cross-claim asserted by AMA, finds its origin in the Employment Agreement, the employment relationship, and the termination of that relationship. Specifically:
• The Employment Agreement, dated September 5, 2017, as amended August 1, 2020, governed every aspect of the dispute. Section 7.2(b) set forth the "for cause" termination provisions that Mr. Aldrich challenged. The severance obligations (24 months' base salary at $485,000 per year, totaling $970,000) were defined by the Employment Agreement. The restrictive covenant provisions (Sections 9.1 through 9.4) — including the non-competition clause, non-solicitation clauses, and confidentiality obligations — were embedded in the Employment Agreement. The alleged breaches of the confidentiality obligations under Section 9.4 that formed the basis for the Cross-Complaint were breaches of an employment agreement obligation.
• Mr. Aldrich's claims included wrongful termination in violation of public policy, breach of contract (challenging the for cause designation), breach of the implied covenant of good faith and fair dealing, and violation of California Labor Code Section 2802 (expense reimbursement). Each of these claims is a quintessential "Employment Practices" claim. Wrongful termination claims are the paradigmatic employment practices liability. Breach of an employment agreement is, by definition, an employment practices dispute. Breach of the implied covenant in the employment context is an employment practices claim. And violation of the Labor Code expense reimbursement statute is a statutory employment practices claim. There can be no serious argument that these claims fall outside the Policy's coverage.
• Mr. Aldrich's claim for declaratory relief regarding the enforceability of the restrictive covenant provisions — specifically, the non-competition clause under California Business and Professions Code Section 16600 and the non-solicitation clauses — is inherently an employment practices dispute. The enforceability of post-employment restrictions is a question that arises exclusively in the employment context. It concerns the rights and obligations of an employer and employee under an employment agreement and post-employment covenants. It is not a "proprietary business interests" matter divorced from employment practices; it is an employment practices matter that happens to involve proprietary business interests.
• AMA's cross-claims for breach of the confidentiality provisions of Section 9.4 and trade secret misappropriation arose from conduct that occurred during and in direct connection with Mr. Aldrich's employment. The unauthorized transmissions took place between approximately July 2021 and September 2022 — a period during which Mr. Aldrich was employed by AMA as Senior Vice President of Original Content & Executive Producer. The obligations that Mr. Aldrich allegedly breached were obligations imposed by the Employment Agreement and by the fiduciary duties inherent in his senior executive role. The conduct at issue was employee misconduct during the course of employment. There is no more quintessential employment practices matter than an employer's response to an employee's breach of duties owed under an employment agreement.
Pemberton's attempt to recharacterize the Aldrich Matter as a dispute concerning AMA's "proprietary business interests" rather than "Employment Practices" fails because it confuses the subject matter of the disputed information with the nature of the dispute. The fact that the disputed information constitutes proprietary business assets — show format bibles, pilot sizzle reels, and revenue models — does not transform the dispute from an employment practices matter into something else. The relevant inquiry is not what type of information was at issue, but rather: (1) the source of the obligations that were allegedly breached, (2) the nature of the claims asserted, and (3) the context in which the misconduct occurred.
On each of these dimensions, the answer unambiguously points to "Employment Practices":
1. The source of the obligations was the Employment Agreement — a contract governing the employment relationship between AMA and Mr. Aldrich.
2. The nature of the claims included wrongful termination, breach of employment agreement, severance disputes, post-employment covenant enforceability, and employee expense reimbursement — all classic employment practices claims.
3. The context of the misconduct was employee conduct during the course of employment — an employee's breach of confidentiality obligations owed to his employer under an employment agreement.
Pemberton's interpretation, if accepted, would create an artificial and unsupportable distinction that would effectively exclude coverage for any employment dispute in which the employee's misconduct involved confidential information or trade secrets. Such a result would be perverse. Employment agreements routinely contain confidentiality provisions. Senior executives routinely have access to proprietary information. Disputes arising from the breach of confidentiality obligations by employees are among the most common types of employment disputes. If Pemberton's interpretation were correct, then the EPL Policy would provide no coverage for an entire category of employment disputes — a result that would undermine the fundamental purpose of the Policy and render coverage illusory for a broad and foreseeable class of claims. AMA did not purchase a $15,000,000 EPL policy with the understanding that coverage would be denied the moment an employment dispute touches upon confidential business information.
For all of these reasons, the Aldrich Matter falls squarely within "Employment Practices" as defined under the Policy, and Pemberton's third ground for denial is without merit.
IV. Financial Impact of Pemberton's Coverage Denial
As a direct consequence of Pemberton's denial of coverage, AMA was compelled to self-fund the entire cost of the defense and resolution of the Aldrich Matter. The financial burden borne by AMA is summarized as follows:
Defense Costs. Calderwood & Harkness LLP was engaged by AMA on approximately November 1, 2022 to represent AMA in connection with the Aldrich Matter and related employment litigation matters. During the course of the engagement (November 1, 2022 through February 15, 2024), Calderwood & Harkness incurred total fees and expenses of $3,279,700 across all matters within the engagement. The Aldrich-specific budget phase (Phase 9) incurred approximately $428,100 in fees and expenses attributable specifically to the defense and prosecution of the Aldrich Matter, including document review, depositions, written discovery, mediation preparation, and settlement negotiations.
Settlement Payment. Pursuant to the Settlement Agreement executed on January 19, 2024, AMA agreed to pay Mr. Aldrich a confidential lump-sum settlement payment of $2,350,000, payable within twenty-one (21) days of execution of the Settlement Agreement.
RSU Acceleration. As an additional component of the settlement, 10,200 restricted stock units ("RSUs") of the 15,300 unvested RSUs held by Mr. Aldrich at the time of his termination were accelerated and vested as part of the settlement. The remaining 5,100 unvested RSUs were forfeited by Mr. Aldrich. The value of the accelerated RSUs was incorporated into the overall settlement economics.
Total AMA Out-of-Pocket. In the aggregate, AMA's total out-of-pocket expenditure attributable to the Aldrich Matter — encompassing both defense costs and the settlement payment — was approximately $2,778,100. This figure does not include the value of the accelerated RSUs, internal management time and resources devoted to the litigation, or opportunity costs.
These costs would have been covered, in whole or in part, under the Policy absent Pemberton's denial. The self-insured retention under the Policy is $5,000,000, and the total AMA out-of-pocket for the Aldrich Matter ($2,778,100) falls within the retention. However, the Aldrich Matter was one of multiple employment practices claims against AMA during the Policy period, and the aggregate of AMA's employment practices defense costs and settlements during the Policy period exceeded the $5,000,000 retention. Accordingly, had Pemberton acknowledged coverage for the Aldrich Matter, a portion of the costs attributable to the Aldrich Matter would have been applied toward the retention and a portion would have been subject to indemnification by Pemberton above the retention, resulting in a direct financial benefit to AMA that was lost as a consequence of Pemberton's denial.
V. Contrast with Pemberton's Treatment of the Class Action
The inconsistency of Pemberton's position is highlighted by its treatment of the separate class action matter arising during the same Policy period.
For the class action captioned Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214, Superior Court of the State of California, County of Los Angeles (the "Fuentes Class Action"), Pemberton acknowledged coverage (subject to its reservation of rights) on December 22, 2022 — the same date on which it issued the ROR Letter denying coverage for the Aldrich Matter. Pemberton subsequently consented to the class settlement in Fuentes and authorized a contribution of $9,250,000 toward the $14,750,000 Gross Settlement Amount approved by the Court.
Pemberton's willingness to cover the Fuentes Class Action — which involved wage-and-hour claims arising from the employment relationship, including meal period violations and wage statement violations — while simultaneously denying coverage for the Aldrich Matter — which also arose from the employment relationship — is inconsistent and unjustified. Both matters involve claims arising from the employer-employee relationship. Both matters involve allegations of employer misconduct in connection with the terms and conditions of employment. Both matters fall within the scope of "Employment Practices" as that term is used in the Policy.
If anything, the Aldrich Matter presents a stronger case for EPL coverage than the Fuentes Class Action. Mr. Aldrich's claims — wrongful termination in violation of public policy, breach of an employment agreement, breach of the implied covenant of good faith and fair dealing, and disputes over severance, compensation, and post-employment restrictive covenants — are paradigmatic employment practices claims that lie at the very core of EPL coverage. The wage-and-hour claims in Fuentes, while certainly employment-related, are often the subject of separate wage-and-hour liability policies. That Pemberton recognized coverage for the class action but denied it for the Aldrich Matter underscores the arbitrariness of Pemberton's position and reinforces AMA's contention that the denial was unwarranted.
VI. Reservation of Rights
AMA expressly reserves all rights, claims, and defenses under the Policy with respect to the Aldrich Matter, including but not limited to the following:
(a) AMA reserves the right to seek reimbursement from Pemberton for defense costs incurred in connection with the Aldrich Matter, in the approximate amount of $428,100;
(b) AMA reserves the right to seek reimbursement from Pemberton for the settlement payment of $2,350,000 made to Mr. Aldrich pursuant to the Settlement Agreement;
(c) AMA reserves the right to seek recovery from Pemberton for any other costs, expenses, or damages attributable to Pemberton's wrongful denial of coverage, including but not limited to consequential damages, interest, and attorneys' fees incurred in connection with coverage disputes;
(d) AMA reserves the right to assert claims against Pemberton for breach of the duty to defend, breach of the duty to indemnify, and breach of the implied covenant of good faith and fair dealing (bad faith denial of coverage) under the Policy and applicable law;
(e) AMA preserves its right to commence coverage litigation or arbitration proceedings against Pemberton in the future if circumstances warrant, including but not limited to an action for declaratory relief regarding the scope of coverage under the Policy; and
(f) AMA does not waive any claims, rights, or defenses by this letter, by its self-funding of the Aldrich defense and settlement, or by its decision not to pursue coverage litigation at this time.
This letter does not constitute, and shall not be construed as, a waiver of any claim under the Policy. AMA's reservation of rights encompasses all claims that may exist or arise under the Policy, under California Insurance Code Sections 790.03 and 790.09, or under any other applicable statute, regulation, or common law doctrine, including but not limited to claims for breach of the duty to defend, breach of the duty to indemnify, bad faith denial of coverage, and unfair claims settlement practices.
VII. AMA's Current Position — No Coverage Litigation at This Time
While AMA firmly believes that Pemberton's denial of coverage was unwarranted for the reasons set forth above, AMA does not intend to pursue coverage litigation against Pemberton at this time.
This decision is a practical business decision driven by considerations of cost, timing, and litigation risk. The cost of coverage litigation would be significant, the timeline would be protracted, and the outcome, while AMA believes it would be favorable, carries inherent uncertainty. AMA has weighed these factors against the amount at issue and has concluded that the most prudent course of action at this time is to preserve its rights while declining to initiate coverage litigation.
AMA wishes to make clear, however, that its decision not to pursue coverage litigation at this time is not an acknowledgment that Pemberton's denial was justified. To the contrary, AMA maintains that the denial was without merit on each of the three grounds cited by Pemberton, for the reasons set forth in Section III above. AMA expressly preserves all rights to pursue coverage claims against Pemberton in the future, within the applicable limitations period, should circumstances warrant such action.
Closing
We respectfully request that Pemberton acknowledge receipt of this letter and confirm its position with respect to the Aldrich Matter for the record. We further invite Pemberton to reconsider its coverage denial in light of the analysis set forth herein. AMA remains open to a constructive dialogue regarding the coverage issues presented by the Aldrich Matter and would welcome the opportunity to discuss these issues with Pemberton's claims professionals at their convenience.
Should Pemberton wish to discuss any aspect of this letter or the underlying matter, please do not hesitate to contact me directly at (213) 555-7844 or at bcrawford@calderwoodharkness.com.
Thank you for your attention to this matter. We look forward to Pemberton's response.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner
cc (via email):
Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc. (gtanaka@aureliusmedia.com)
Philippa Cartwright, General Counsel, Aurelius Global Media Group (pcartwright@aureliusmedia.com)
Samuel Okonkwo, Managing Director, Kestrel Risk Advisors Ltd. (sokonkwo@kestrelrisk.co.uk), One Broadgate, London EC2M 2QS, United Kingdom
Renata Vasquez, Partner, Calderwood & Harkness LLP (rvasquez@calderwoodharkness.com)
Component | Amount
Severance (24 months' base salary at $485,000/year) | $970,000
Pro-rata bonus | $168,750
RSU acceleration (approximately 15,300 unvested units) | $332,200
Emotional distress damages | $500,000
Lost future compensation | $1,200,000
Attorneys' fees | $750,000
Expense reimbursement (Cal. Lab. Code § 2802) | $28,400
Punitive damages (placeholder) | $200,000
Total | $4,149,350

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

VIA EMAIL AND CERTIFIED MAIL

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts