A mechanical contractor company’s legal dispute with its former chief financial officer is not covered by its Hartford Insurance Group Inc. unit’s employment practices liability insurance, a federal appeals court said Tuesday, affirming a lower court’s ruling.
Catonsville, Maryland-based Madison Mechanical OS Corp., a holding company, and Madison Mechanical Inc., its operating company, had five shareholders including Robert Buczkowski, who served as the operating company’s chief financial officer, according to the decision by the Fourth U.S. Circuit Court of Appeals at Richmond, Virginia, i Madison Mechanical Inc. et al. al. v. Twin City Fire Insurance Co . and Robert Buczkowski.
Hartford unit Twin City Fire Insurance Co. issued a policy on “improper acts in employment procedures”; to the holding and operating companies in 2015, according to the ruling.
A few months later, the holding company’s majority shareholder and sole director told Buczkowski that the four other shareholders were creating a new entity without him.
In November 2015, an attorney representing Buczkowski sent a letter to the holding company’s four other shareholders and a fifth investor in the new company, stating that the new company’s purpose was to divert the holding company’s business and customer base and could lead to a cause. action for breach of fiduciary duty, among other things.
Mr. Buczkowski was fired from his job shortly thereafter. The remaining old shareholders in the holding company argued that this triggered a provision requiring Mr Buczkowski to sell back his shares for “the lower” of two figures based on the company’s current book value, which they said was negative, meaning he was had to hand over their shares. shares for nothing.
Mr. Buczkowski sued the holding company, its four original shareholders and the new company’s fifth member in state court. The lawsuit was settled two years later for $725,000.
While the lawsuit was still pending, the defendants in that case filed suit against Twin City, alleging that they had breached their contractual obligations by refusing to defend and indemnify them in the litigation.
The U.S. District Court in Baltimore ruled in favor of the insurer and was affirmed by a three-judge panel of the Court of Appeals.
An employment action claim under the policy issued to the company includes any action involving wrongful termination, termination or termination of employment, the ruling said.
“The document Buczkowski sent to the plaintiffs sought to remedy shareholder-related claims, including oppression of a minority shareholder and breach of fiduciary duty,” the lower court filing said.
“There are policies that cover this type of claim, but the policy before us is not one of them,” it said.
Attorneys in the case did not respond to a request for comment.