CEC Entertainment Inc. says Travelers can't opt out of coverage dispute

By Mia Sims | Jan 2, 2017

DALLAS – A suit filed by filed by owner of Chuck E. Cheese franchises CEC Entertainment Inc. in August 2016 progressed to federal court on Nov. 18, with CEC Entertainment Inc. claiming that Travelers Casualty and Surety Co. of America could not opt out of a coverage dispute.

DALLAS – A suit filed by filed by owner of Chuck E. Cheese franchises CEC Entertainment Inc. in August 2016 progressed to federal court on Nov. 18, with CEC Entertainment Inc. claiming that Travelers Casualty and Surety Co. of America could not opt out of a coverage dispute.

 

The suit claimed that Travelers evaded its role under a liability policy to pay for CEC’s defense of a shareholder suit. CEC alleged that Travelers was to provide coverage from February 2014 to February 2020 after Travelers issued a director, officers and organization liability policy to CEC. CEC claimed it was subject to a $10 million limit for all claims.

 

CEC explained in court that a director, officers and organization liability provides coverage for securities claims against the company alleging wrongful acts.

 

“The appraisal lawsuit alleged a valuation by CEC of its stock and a $54 per share price prior to a merger, which the appraisal plaintiffs maintained was unfair or artificially low,” CEC said. “CEC’s valuation – or adoption or acceptance as fair – of the $54 price per share constitutes an ‘act.’ The appraisal plaintiffs filed their lawsuit to establish that the valuation or acceptance of the $54 per share price was an 'error,' asking a court to determine the shares’ fair value.”

 

According to court documents, Travelers argued against the notion, saying CEC was improperly reading allegations into the appraisal action. Travelers asked for the court to decline coverage of CEC in a shareholder suit stemming from CEC’S merger with an Apollo Global Management LLC affiliate.

 

Travelers argued that no coverage exists in this situation because the shareholders didn’t assert that the company engaged in any misconduct.

 

"CEC’s attempt to re-characterize the appraisal action as alleging a wrongful act is inconsistent with the factual allegations in the pleading and with applicable law and constitutes nothing more than an imagined factual scenario and unwarranted deduction," Travelers' attorneys wrote.

 

Furthermore, Travelers said that the policy with CEC only covered pre-merger conduct. It continued saying that it contains multiple provisions barring coverage for any wrongful acts on or after the date of a merger. The appraisal is connected to the merger, making it impossible to involve pre-merger conduct.

 

Travelers’ attorney wrote that the event that created the appraisal could not have occurred prior to the merger.

 

But CEC said Nov. 18 that its merger with the Apollo Global Management LLC affiliate at least potentially alleged a wrongful act under its policy, which the policy defines to include both “acts” and “error.”

 

It rejected Travelers’ notions saying that the valuations took place before the merger, noting that the prices for CEC’S shares were determined beforehand.

 

The defendant, Travelers Casualty and Surety Co. of America, is being represented by J. Price Collins and Ashley F. Gilmore of Wilson Elser Moskowitz Edelman & Dicker LLP. The plaintiff, CEC Entertainment Inc., is represented by Amy Elizabeth Stewart and Katherine Hendler Fayne of Amy Stewart PC of Dallas.

 

The suit is CEC Entertainment Inc. v. Travelers Casualty and Surety Co. of America, suit number 3:16-cv-02493, in the U.S. District Court for the Northern District of Texas, Dallas Division.

Want to get notified whenever we write about U.S. District Court for the Northern District of Texas Dallas Division ?

Sign-up Next time we write about U.S. District Court for the Northern District of Texas Dallas Division, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

U.S. District Court for the Northern District of Texas Dallas Division

More News

The Record Network