Travelers Complaint Against Mericle

7/31/2019 Travelers Complaint Against Mericle

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

TRAVELERS PROPERTYCASUALTY COMPANY OFAMERICA, FORMERLY KNOWN ASTHE TRAVELERS INDEMNITYCOMPANY OF ILLINOIS,

Plaintiff,

v.

ROBERT K. MERICLE and MERICLECONSTRUCTION, INC.,

Defendants.

Civil Action No.

COMPLAINT FOR

DECLARATORY RELIEF

COMPLAINT FOR DECLARATORY RELIEF

Plaintiff, Travelers Property Casualty Company of America, formerly

known as The Travelers Indemnity Company of Illinois (hereinafter Travelers),

by and through its undersigned counsel, files this Complaint for Declaratory Relief

Case 3:09-cv-01747-ARC Document 1 Filed 09/09/09 Page 1 of 31


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against Defendants Robert K. Mericle and Mericle Construction, Inc. (collectively,

Mericle), and in support thereof avers as follows:

NATURE OF THE ACTION

1. This is an action for a declaratory judgment in which Travelers seeks

a declaration that it has no duty to defend or indemnify Mericle with respect to

claims against Mericle in certain actions pending before this Court (defined below

as, the Underlying Actions) under certain commercial primary and excess

liability policies issued by Travelers (defined below as, the Travelers Policies).

2. Travelers seeks a declaration that it has no duty to defend or

indemnify Mericle with respect to the claims against Mericle in the Underlying

Actions based on the allegations set forth in the complaints in the Underlying

Actions.

THE PARTIES

3. Plaintiff Travelers Property Casualty Company of America, formerly

known as The Travelers Indemnity Company of Illinois, is a corporation organized

under the laws of Connecticut, with its principal place of business at One Tower

Square, Hartford, Connecticut 06183, and is authorized by the Commonwealth of

Pennsylvania to issue policies of insurance in Pennsylvania. Plaintiff is a citizen of

the State of Connecticut.

4. Defendant Robert K. Mericle is an adult individual who is a citizen of

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the Commonwealth of Pennsylvania, residing in Luzerne County, Pennsylvania.

5. Defendant Mericle Construction, Inc. is a citizen of the

Commonwealth of Pennsylvania. Mericle Construction, Inc. is a Pennsylvania

close corporation with a principal place of business located in Wilkes-Barre,

Luzerne County, Pennsylvania.

JURISDICTION AND VENUE

6. This is an action for declaratory judgment pursuant to 28 U.S.C.

2201 and 2202.

7. This Court has jurisdiction pursuant to 28 U.S.C. 1332(a) as

Plaintiff and Defendants are of diverse citizenship, and the amount in controversy

exceeds $75,000.

8. Venue is proper in this judicial district pursuant to 28 U.S.C. 1391,

because all of the events giving rise to the claim occurred in this judicial district.

THE UNDERLYING CLAIMS

9. In February 2009, three suits were filed against Mericle, among other

defendants, in the United States District Court for the Middle District of

Pennsylvania, captioned as follows:

(a) H.T., through and with her next friend and mother, L.T., et .al. onbehalf of themselves and all others similarly situated, vs. Mark A.

Ciavarella, Jr., et al., Civil Action No. 09 cv-357 (H.T. Lawsuit);

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(b) B.W., a minor, by Florence Wallace v. Robert J. Powell, et al., CivilAction No. 09-cv-0286 (Wallace Lawsuit);

(c) William Conway, et al.,v. Michael T. Conahan, et al., Civil ActionNo. 09-cv-00291 (Conway Lawsuit).

10. In April 2009, a fourth suit, Samantha Humanik v. Mark A.

Ciavarella, Jr., et al., 3:09-cv-00630 (Humanik Lawsuit), was filed in the same

court against Mericle, among others.

11. All four suits were consolidated for discovery and administratively

assigned to the docket number for the Wallace Lawsuit. A Master Complaint For

Class Actions (the Master Class Complaint) was filed on June 25, 2009 on

behalf of the putative class claimants (including the putative classes from the H.T.

and Conway Lawsuits), and a separate Individual Plaintiffs Master Long Form

Complaint (the Master Individual Complaint) was filed on June 25, 2009 on

behalf of individual plaintiffs (including the claimants in the Wallace and Humanik

Lawsuits). Copies of the Master Class Complaint and the Master Individual

Complaint are attached hereto respectively as Exhibits 1 and 2. The

aforementioned lawsuits are referenced collectively hereto as the Underlying

Actions.1

1 On August 27, 2009, the plaintiffs in the Underlying Actions filed motions

for leave to amend both the Master Class Complaint and the Master IndividualComplaint. The proposed amended complaints have not yet been accepted forfiling and, therefore, are not the operative complaints in the Underlying Actions.

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12. The Master Class Complaint and the Master Individual Complaint

allege that defendants Mark A. Ciavarella, Jr. (Ciavarella) and Michael T.

Conahan (Conahan), former Judges of the Court of Common Pleas of Luzerne

County, and the other named defendants engaged in a criminal scheme to violate

the constitutional rights of the Plaintiffs. As part of that criminal scheme, it is

alleged that the Defendants (including Mericle) attempted to conceal $2.6 million

in payments to Ciavarella and Conahan, which constituted financial kickbacks

from Mericle and others with regard to the construction of two juvenile detention

facilities, including the PA Childcare LLC (PACC) and Western PA Childcare

LLC (WPACC) detention facilities. The PACC and WPACC facilities were

constructed by Mericle and owned and operated by Defendants Robert J. Powell

(Powell) and Gregory Zappala (Zapella).

13. Plaintiffs in the Underlying Actions include minors, and parents of

minors, who appeared before Judge Ciavarella in 2003 through 2008 and who were

adjudicated delinquent and placed into the PACC, WPACC and other detention

facilities. Plaintiffs allege that as part of the implementation of the scheme,

Ciavarella, in concert with other defendants, routinely deprived children of their

constitutional rights to appear before an impartial tribunal, to be represented by

counsel, to be protected against self-incrimination and to ensure through a detailed

colloquy with the Court a knowing, intelligent and voluntary waiver of trial rights

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before pleading guilty. Plaintiffs claim that this kids for cash scheme is one of

the largest and most serious violations of children's rights in the history of the

American legal system. Master Class Complaint at 1.

14. The factual allegations in the Master Class Complaint and Master

Individual Complaint are similar in many respects and include the following:

a. Plaintiffs allege that an unlawful conspiracy began in 2000

when Ciavarella, Powell and Mericle worked together to identify land

for construction of a new juvenile detention facility. Master Class Complaint at

649; Master Individual Complaint at 39.

b. Powell and Zappala doing business as PACC acquired land

and entered into an agreement with Mericle to build a juvenile detention facility.

Master Class Complaint at 650; Master Individual Complaint at 40.

c. On January 29, 2002, Conahan, acting in his administrative

capacity as President Judge, executed a secret Placement Guarantee Agreement

under which the Luzerne County Court of Common Pleas agreed to pay PACC an

annual sum of $1,314,000 to house juvenile offenders. Master Class Complaint at


d. Conahan thereafter allegedly took official action to remove

funding from and cause the closing of the old juvenile detention facility in Luzerne

County (the River Street facility) in order to ensure that youth in Luzerne County

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would be detained at the detention facility being built by Mericle and [PACC].

Master Class Complaint at 655; see Master Individual Complaint at 66.

e. In or around January of 2003, the defendants in the Underlying

Actions (including Mericle) allegedly agreed that Powell and Mericle would pay

$997,600 to Conahan and Ciavarella for their roles in facilitating the construction

of PACCs juvenile detention facility. Master Class Complaint at 656; Master

Individual Complaint at 43.

f. This claimed $997,600 payment by Powell and Mericle

allegedly was concealed through a series of financial transactions, including a

written Registration and Commission Agreement allegedly prepared by Mericle

and backdated to February 19, 2002, which purported to be an agreement for

Mericle to pay a brokers fee of $997,600 to Powell. Master Class Complaint at


g. Mericle is alleged to have made several wire transfers to

accounts under the control of Powell and others, which are claimed to be secret

payments to Conahan and Ciavarella. Conahan and Ciavarella allegedly then made

a number of materially false filings to conceal the payments and failed to disclose

their conflict of interest and financial relationship with Powell, Mericle and the

other defendants. See Master Class Complaint at 703-707; Master Individual

Complaint at 45-50.

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h. The PACC detention facility was completed in February 2003,

at which time Ciavarella allegedly began ordering juveniles to that facility. Master

Class Complaint at 666; Master Individual Complaint at 55.

i. Plaintiffs allege that due to the success of the PACC, Powell

and Zappala again contracted with Mericle to build a second juvenile detention

facility in Butler County the WPACC facility. Master Class Complaint at 659;

Master Individual Complaint at 51.

j. Upon the completion of the WPACC facility in July 2005,

Conahan and Ciavarella allegedly were financially rewarded with another secret

payment, this time in the amount of $1 million, from Powell and Defendant

Pinnacle Group. Master Class Complaint at 659-660, 708-709; Master

Individual Complaint at 51-52.

k. Powell, Zappala, and Mericle built an addition to the PACC

facility, which was completed in February 2006. Master Class Complaint at 661;

Master Individual Complaint at 53.

l. At that time, Powell and Mericle allegedly made yet another

secret payment, this time totaling $150,000, to Conahan and Ciavarella. Master

Class Complaint at 661, 710-711; Master Individual Complaint at 53-54.

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m. Plaintiffs contend that the defendants, including Mericle, all

had a financial interest in placing juveniles in the PACC and WPACC facilities.

See Master Class Complaint at 669-670.

n. It is alleged that as soon as the PACC facility opened in

February 2003 and continuing until May 23, 2008 (when Ciavarella ceased hearing

juvenile cases), Ciavarella took steps to ensure that youth were routinely placed in

detention, even in situations where detention was plainly inappropriate. Master

Class Complaint at 673; see Master Individual Complaint at 67.

o. Plaintiffs specifically plead that these steps were taken as part

of the conspiracy with all other defendants, including Mericle. Id.

p. Detailing the manner in which Ciavarellas actions allegedly

deprived Plaintiffs of their due process rights, Plaintiffs state that [t]hese gross

violations of the youth plaintiffs' rights were part and parcel of the defendants'

scheme to ensure that youth were adjudicated delinquent and placed in detention,

in furtherance of their scheme to line their own pockets through financial payments

or kickbacks from other defendants. Master Class Complaint at 686.

15. In connection with the above scheme, Plaintiffs have asserted three

types of claims against Mericle: (1) claims for conspiracy to violate plaintiffs

constitutional rights (42 U.S.C. 1983); (2) claims under the Racketeer Influenced

and Corrupt Organizations Act 18 U.S.C. 1961, et seq.(RICO) for engaging in

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a pattern of racketeering activity, including predicate acts indictable under 18

U.S.C. 1341 (mail fraud) and 1343 (wire fraud); and (3) in the Master

Individual Complaint only, a common law claim for Civil Conspiracy.

16. Specifically, Plaintiffs assert the following causes of action against

Mericle in the Master Class Complaint:

a. Count II Conspiracy to Violate Plaintiffs Right to an

Impartial Tribunal as Guaranteed by the Fifth, Sixth, and Fourteenth Amendments

to the United States Constitution (42 U.S.C. 1983);

b. Count IV Conspiracy to Deprive Youth of their Right to

Counsel and/or to a Knowing, Intelligent and Voluntary Guilty Plea in Violation of

the Fifth, Sixth, and Fourteenth Amendments to the United States Constitution (42

U.S.C. 1983);

c. Count V Civil RICO (8 U.S.C. 1962(c));

d. Count VI Civil RICO (18 U.S.C. 1962(b)); and

e. Count VII Civil RICO (18 U.S.C. 1962(d)).

17. In the Master Class Complaint, Plaintiffs bring their claims on behalf

of themselves and the classes of persons allegedly similarly situated as defined in

the Master Class Complaint. Class A, which is divided into Subclass A1 and

Subclass A2, consists of all children who were adjudicated delinquent or referred

to placement by Ciavarella between 2003 and May 2008, whose adjudications have

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18. The following causes of action are asserted against Mericle in the

Master Individual Complaint:

a. Count I Violation of RICO, 18 U.S.C. 1961, et seq.;

b. Count II For Conspiracy to Violate RICO;

c. Count III Deprivation of Substantive and Procedural Due

Process Rights Pursuant to the Civil Rights Act of 1871 42 U.S.C. 1983;

d. Count IV Deprivation of Rights Pursuant to the Civil Rights

Act of 1871, 42 U.S.C. 1983;

e. Count V Deprivation of Substantive Due Process Rights

Pursuant to the Civil Rights Act of 1871, 42 U.S.C. 1983; and

f. Count VIII Civil Conspiracy.

19. Although the Master Class Complaint includes a claim for Wrongful

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Imprisonment (State Tort) against certain defendants (Count IX), and the Master

Individual Complaint includes claims for False Imprisonment against certain

defendants (Count IX and X), no such claims have been pleaded against Mericle.

20. In connection with these claims, plaintiffs seek to recover from

Mericle and the other defendants damages, including compensatory damages in

excess of $150,000, punitive and treble damages, prejudgment interest, costs of

suit and attorneys fees, disgorgement and restitution of moneys obtained by

defendants as a result of their alleged conspiracy to violate plaintiffs constitutional

rights, and such other and further relief as the court deems just and proper.

THE TRAVELERS POLICIES

21. The Travelers Indemnity Company of Illinois issued the following

primary commercial insurance policies to Mericle Development Corp. as the first

named insured:

POLICY NUMBER POLICY PERIOD

Y-630-366L7646-TIL-00 January 1, 2000 to January 1, 2001




22. Travelers Property Casualty Company of America issued the

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following primary commercial insurance policies to Mericle Development Corp. as

the first named insured:








23. The above described Travelers primary policies are referred to herein

as the Primary Policies.

24. The Travelers Indemnity Company of Illinois issued the following

commercial excess liability (umbrella) policies to Mericle Development Corp. as

the first named insured:


YSM-CUP-366L7622-TIL-00 January 1, 2000 to January 1, 2001




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25. Travelers Property Casualty Company of America issued the

following commercial excess liability (umbrella) policies to Mericle Development

Corp. as the first named insured:








26. The above described excess liability (umbrella) policies are referenced

herein as the Excess Policies. The Primary Policies and the Excess Policies are

incorporated by reference herein and collectively referenced herein as the

Travelers Policies.

27. Mericle seeks coverage as a named insured under the Travelers

Policies.

Coverage A Under The Travelers Primary Policies

28. The Primary Policies contain the following Insuring Agreement

language in Coverage A:

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SECTION I COVERAGES

COVERAGE A BODILY INJURY AND PROPERTY

DAMAGE LIABILITY

1. Insuring Agreement.

a. We will pay those sums that the insured becomeslegally obligated to pay as damages because ofbodily injury or property damage to which thisinsurance applies. We will have the right and dutyto defend the insured against any suit seekingthose damages. However, we will have no duty todefend the insured against any suit seekingdamages for bodily injury or property damage

to which this insurance does not apply . . . .

b. This insurance applies to bodily injury andproperty damage only if:

(1) The bodily injury or property damage iscaused by an occurrence that takes placein the coverage territory; and

(2) The bodily injury or property damage

occurs during the policy period. . . .

* * *

29. The definition of bodily injury in the Primary Policies changes over

time. The Primary Policy covering the policy period January 1, 2000 to January 1,

2001, defines bodily injury as follows:

Bodily injury means bodily injury, mental anguish, sicknessor disease sustained by a person, including death resulting fromany of these at any time.

30. In the remaining Primary Policies (covering the periods January 1,

2001 to January 1, 2010), bodily injury is defined as follows:

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Bodily injury means bodily injury, mental anguish, mentalinjury, shock, fright, disability, humiliation, sickness or diseasesustained by a person, including death resulting from any ofthese at any time.

31. Property damage is defined in the Primary Policies as follows:

a. Physical injury to tangible property, including allresulting loss of use of that property. All such loss of useshall be deemed to occur at the time of the physicalinjury that caused it; or

b. Loss of use of tangible property that is not physicallyinjured. All such loss of use shall be deemed to occur at

the time of the occurrence that caused it.

32. Occurrence is defined in the Primary Policies as: an accident,

including continuous or repeated exposure to substantially the same general

harmful conditions.

33. The Primary Policies also contain various exclusions to the coverages

described above in Coverage A.

34. The Primary Policies covering the period January 1, 2000 to

January 1, 2001, state that this insurance does not apply to:

a. Expected or Intended Injury or Damage

Bodily injury or property damage expected orintended from the standpoint of the insured. Thisexclusion does not apply to bodily injury resultingfrom the use of reasonable force to protect persons orproperty.

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35. The remaining Primary Policies (covering the policy periods

January 1, 2001 to January 1, 2010), state that this insurance does not apply to:

a. Expected or Intended Injury or Damage

Bodily injury or property damage expected orintended from the standpoint of the insured. Thisexclusion does not apply to bodily injury or propertydamage resulting from the use of reasonable force toprotect persons or property.

36. The Primary Policies covering the periods from January 1, 2005 to

January 1, 2010, state that this insurance does not apply to:

o. Personal And Advertising Injury

Bodily injury arising out of personal injury . . . .

Coverage B Under The Travelers Primary Policies

37. The Primary Policy covering the policy period January 1, 2000 to

2001 contain the following Insuring Agreement in Coverage B, Personal Injury

and Advertising Liability:

SECTION I COVERAGES

COVERAGE B. PERSONAL AND ADVERTISING

INJURY LIABILITY

1. Insuring Agreement.

a. We will pay those sums that the insured becomeslegally obligated to pay as damages because ofpersonal injury or advertising injury to which

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this insurance applies. We will have the right andduty to defend the insured against any suitseeking those damages. However, we will have noduty to defend the insured against any suitseeking damages for personal injury oradvertising injury to which this insurance doesnot apply. . . .

b. This insurance applies to:

(1) Personal injury caused by an offensearising out of your business, excludingadvertising, publishing, broadcasting ortelecasting done by or for you . . .

but only if the offense was committed in thecoverage territory during the policy period.

38. Personal injury is defined as follows:

Personal injury means injury, other than bodily injury,arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, orinvasion of the right of private occupancy of a room,dwelling or premises that a person occupies by or onbehalf of its owner, landlord or lessor . . . .

* * *

39. The Primary Policies covering the policy periods January 1, 2001 to

January 1, 2010 include a Web Xtend-Liability endorsement that contains the

same Coverage B provisions as set forth above and adds coverage for web site

injury, as defined in the applicable policies.

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January 1, 2010, contain an exclusion that provides that this insurance does not

apply to:

a. Knowing Violation of Rights of Another

Personal injury . . . caused by or at the direction of theinsured with knowledge that the act would violate the rights ofanother and would inflict personal injury. . . .


January 1, 2010, also contain an exclusion that provides that this insurance does

not apply to:

d. Criminal Acts

Personal injury . . . arising out of a criminal act committedby or with the consent of the insured.


January 1, 2005, contain a similar exclusion that provides that this insurance does

not apply to personal injury:

(3) Arising out of the willful violation of a penal statute orordinance committed by or with the consent of theinsured.

The Travelers Excess Policies

43. The Insuring Agreement in the Excess Policies covering the policy

periods January 1, 2000 to January 1, 2005, provides:

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SECTION I COVERAGES

COVERAGE A. BODILY INJURY AND PROPERTY

DAMAGE LIABILITY and COVERAGE B. PERSONAL

INJURY LIABILITY

1. INSURING AGREEMENT.

a. We will pay on behalf of the insured the ultimatenet loss in excess of the applicable underlyinglimit which the insured becomes legally obligatedto pay as damages because of bodily injury,property damage, personal injury oradvertising injury to which this insuranceapplies. This insurance applies only to:

(1) Bodily injury or property damage:

(a) Occurring during the policy period;and

(b) Caused by an occurrence; and

(2) Personal injury or advertising injurycaused by an offense committed during

the policy period.

* * * *

This insurance applies anywhere in the world.

44. The Insuring Agreement in the Excess Policies covering the period

January 1, 2001 to January 1, 2005, contains an Amendment of Insurance

Agreement Known Injury Or Damage endorsement that modifies the insuring

agreement language [o]nly as respects COVERAGE A. BODILY INJURY AND

PROPERTY DAMAGE LIABILITY as follows:

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a. We will pay on behalf of the insured the ultimatenet loss in excess of the applicable underlyinglimit which the insured becomes legally obligated

to pay as damages because of bodily injury orproperty damage to which this insurance applies.This insurance applies to bodily injury orproperty damage only if:

(1) The bodily injury or property damage iscaused by an occurrence that takes placeanywhere in the world;

(2) The bodily injury or property damage

occurs during the policy period;

(3) Prior to the policy period, no insured listedunder Paragraph 1. ofSECTION II WhoIs An Insured and no employee authorizedby you to give or receive notice of anoccurrence or claim, knew that the bodilyinjury or property damage had occurred,in whole or in part. If such a listed insuredor authorized employee knew, prior to thepolicy period, that the bodily injury orproperty damage occurred, then anycontinuation, change or resumption of suchbodily injury or property damage duringor after the policy period will be deemed tohave been known prior to the policy period.

45. The Insuring Agreement in the Excess Policies covering the periods

January 1, 2005 through January 1, 2010, provides:


a. We will pay on behalf of the insured the ultimatenet loss in excess of the applicable underlyinglimit which the insured becomes legally obligated

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to pay as damages because of bodily injury,property damage, personal injury oradvertising injury to which this insuranceapplies.

This insurance applies to bodily injury orproperty damage only if:

(i) The bodily injury or property damage iscaused by an occurrence that takes placeanywhere in the world;

(ii) The bodily injury or property damageoccurs during the policy period;

(iii) Prior to the policy period, no insured listedunder Paragraph 1. ofSECTION II WhoIs An Insured and no employee authorizedby you to give or receive notice of anoccurrence or claim, knew that the bodilyinjury or property damage had occurred,in whole or in part. If such a listed insuredor authorized employee knew, prior to thepolicy period, that the bodily injury orproperty damage occurred, then anycontinuation, change or resumption of suchbodily injury or property damage duringor after the policy period will be deemed tohave been known prior to the policy period.

This insurance applies to personal injuryor advertising injury caused by anoffense committed during the policyperiod, anywhere in the world.

46. All of the Excess Policies define Bodily injury as follows:

Bodily injury means bodily injury, shock, fright, mentalinjury, disability, mental anguish, humiliation, sickness ordisease sustained by a person, including death resulting fromany of these at any time.

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47. Property damage is defined in the Excess Policies covering the

policy periods January 1, 2000 to January 1, 2005, as follows:

Property damage means physical injury to tangible property,including all resulting loss of use of that property.

48. Property damage is defined in the Excess Policies covering the

policy periods January 1, 2005 to January 1, 2010, as follows:

a. Physical injury to tangible property, including allresulting loss of use of that property. All such loss of useshall be deemed to occur at the time of the physical

injury that caused it; or

b. Loss of use of tangible property that is not physicallyinjured. All such loss of use shall be deemed to occur atthe time of the occurrence that caused it...

49. All of the Excess Policies define Occurrence as follows:

Occurrence means an accident, including continuous orrepeated exposure to substantially the same general harmful

conditions.

50. Personal injury is defined, in part, in the Excess Policies covering

the policy periods January 1, 2000 to January 1, 2005, as follows:




c. Wrongful entry into, or eviction of a person from a room,dwelling or premises that the person occupies...

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51. Personal injury is defined, in part, in the Excess Policies covering

the policy periods January 1, 2005 to January 1, 2010, as follows:




c. The wrongful eviction from, wrongful entry into, orinvasion of the right of private occupancy of a room,dwelling or premises that a person occupies by or onbehalf of its owner, landlord or lessor . . . .

52. All of the Excess Policies define ultimate net loss as follows:

Ultimate net loss means the sum actually paid or payable dueto a claim for which the insured is liable either by a settlementto which the insured is liable either by settlement to which weagreed or a final judgment. Such sum will include properadjustments for recoveries and salvage.

53. All of the Excess Policies define underlying insurance as follows:

Underlying insurance means the policies listed in theSchedule of Underlying Insurance and includes:

a. Any renewal or replacement of such policies; and

b. Any other insurance applicable to the insured.

54. The Excess Policies covering the policy periods January 1, 2002 to

January 1, 2010 also contain an Excess Personal, Advertising and Web Site Injury

Liability endorsement which provides as follows:

Only as respect the insurance provided by this endorsement,none of the insuring agreements, terms, definitions or

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exclusions of the policy to which this endorsement is attachedapply, except for SECTION IV CONDITIONS.

SECTION I - INSURING AGREEMENT

1. We will pay on behalf of the insured those sums, inexcess of the amounts payable under the terms of anyPersonal Advertising and Web Site Injury LiabilityInsurance included in the underlying insurance, that theinsured becomes legally obligated to pay as damagesbecause of

a. Personal injury and advertising injury and,b. Web site injury . . .provided that the Personal, Advertising and Web SiteInjury Liability Insurance applies or would apply exceptfor the exhaustion of its underlying personal, advertisingor web site injury liability limit.

2. The amount we will pay is limited as described inSECTION III LIMITS OF INSURANCE in thisendorsement.

3. This insurance is subject to the same insuringagreements, terms, definitions, exclusions and conditionsas any Personal, Advertising and Web Site InjuryLiability Insurance included in the underlyinginsurance, except for the provisions of this endorsement.

* * *

55. Additionally, this Endorsement modifies the definitions of personal

injury and underlying insurance as follows:

2. Personal injury has the same meaning as defined in anyPersonal, Advertising and Web Site Injury Liabilityinsurance included in the underlying insurance ofpolicies listed in the Schedule of Underlying Insuranceon the policy to which this endorsement is attached.

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* * *

4. Underlying insurance means the policy(ies) listed inthe Schedule of Underlying Insurance on the policy towhich this endorsement is attached, and includes any

renewal or replacement of such policy(ies).

56. All of the exclusions discussed above with respect to the Primary

Policies are also found in the corresponding Excess Policies for the same policy

period.

Claim For Coverage

57. On or about April 28, 2009, Mericle made a claim upon Travelers for

defense and indemnity with respect to the claims against Mericle in the Underlying

Actions.

58. On September 3, 2009, Travelers advised Mericle that based on the

allegations in the Underlying Actions and the terms, conditions, exclusions and

other policy provisions of the Travelers Policies, Travelers has no duty to defend

or indemnify Mericle with respect to the claims against Mericle in the Underlying

Actions. Travelers denied Mericles request for coverage and reserved its rights

with respect to any additional defenses to coverage or reasons for disclaiming

coverage.

59. Upon information and belief, Mericle disagrees with Travelers

coverage determination.

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COUNT I

REQUEST FOR DECLARATORY RELIEF

60. Paragraphs 1 through 59 are incorporated herein by reference as

though fully set forth at length herein.

61. Travelers is entitled to a declaration that there is no coverage

obligation under the Travelers Policies to defend or indemnify Mericle with respect

to the claims against Mericle in the Underlying Actions for the following reasons:

a. With respect to claims under Coverage A, the Underlying

Actions, do not seek damages because of bodily injury or property damage

caused by an occurrence, as defined in the Travelers Policies.

b. With respect to claims under Coverage B, the Underlying

Actions, do not seek damages because of personal injury or advertising injury

caused by an offense arising out of Mericles business.

c. With respect to claims under Coverage A, the claims in the

Underlying Actions are excluded by the Expected or Intended Injury or Damage

exclusion.

d. With respect to claims under Coverage A (for the periods from

January 1, 2005 to January 1, 2010), such claims are excluded by the Personal

Injury, Advertising Injury and Web Site Injury exclusion.

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e. With respect to claims under Coverage B (for the periods from

January 1, 2005 to January 1, 2010), such claims are excluded by the Knowing

Violation of Rights of Another exclusion.

f. With respect to claims under Coverage B (for the periods from

January 1, 2000 to January 1, 2005), such claims are excluded by the willful

violation of a penal statute or ordinance exclusion.

g. With respect to claims under Coverage B (for the periods from

January 1, 2005 to January 1, 2010), such claims are excluded by the Criminal

Acts exclusion.

h. Coverage is barred or limited under the Travelers Policies to the

extent the applicable policies bar or limit coverage after injury, loss, damage or an

occurrence becomes known to an insured.

i. To require Travelers to provide insurance coverage under the

Travelers Policies for claims for damages arising from the intentional and criminal

conduct as alleged in the Underlying Actions would be contrary to, and prohibited

by, the public policy of the Commonwealth of Pennsylvania. Insurance coverage

for such alleged criminal conduct should not be permitted as a matter of public

policy.

j. Punitive or treble damages are not covered under any of the

Travelers Policies.

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k. Any award against Mericle directing disgorgement and

restitution of monies obtained as a result of the alleged conduct would not

constitute a sum that Mericle is legally obligated to pay as damages because of

bodily injury, property damage, personal injury, or advertising injury, to

which the insurance provided by the Travelers Policies applies.

l. With respect to claims under Coverage A (for the periods

January 1, 2000 to January 1, 2001 and January 1, 2009 to January 1, 2010), the

Underlying Actions do not allege that any bodily injury occurred during these

policy periods.

m. Coverage is barred or limited under the Travelers Policies by

operation of the known loss doctrine.

n. Mericle is not entitled to coverage under the Travelers Policies

to the extent Mericle has breached any conditions precedent to insurance coverage,

including Mericles obligation to provide notice as required by the Travelers

Policies.

o. The Travelers Policies do not provide coverage for any defense

costs or expenses incurred by Mericle prior to Mericles notice to Travelers of the

Underlying Actions.

p. Mericle is not entitled to coverage under the Travelers Policies

to the extent the claims against Mericle in the Underlying Actions are not

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otherwise covered under the terms, conditions, exclusions or other provisions of

the Travelers Policies.

q. Mericle is not entitled to coverage under the Travelers Policies

to the extent any claimed bodily injury or property damage did not occur

during a Travelers Policy period.

r. Mericle is not entitled to coverage under the Travelers Policies

to the extent any claimed personal injury or advertising injury was not caused

by an offense committed during a Travelers Policy period.

s. Mericle is not entitled to coverage under the Travelers Policies

to the extent Mericle cannot meet its burden of establishing an entitlement to

insurance coverage for the Underlying Actions.

62. An actual controversy exists between the parties regarding whether

there is coverage under the Travelers policies for the Underlying Actions.

63. The controversy is of sufficient immediacy to justify the issuance of

declaratory relief by this Court.

64. Travelers reasons for asserting that there is no coverage under the

Travelers Policies are based on the allegations set forth in the Underlying Actions

and the language of the Travelers Policies. Travelers reserves its right to raise any

additional defenses to coverage or reasons for disclaiming coverage.

65. Based on the foregoing, Travelers is entitled to a judicial declaration

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Documents

Travelers Complaint Against Mericle