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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. EVERGREEN ENERGY INC.; C-LOCK TECHNOLOGY, INC.; AND THOMAS H. STONER, JR., Plaintiffs, v. ACE AMERICAN INSURANCE COMPANY, Defendant.

COMPLAINT AND JURY DEMAND

Plaintiffs Evergreen Energy Inc. (Evergreen), C-Lock Technology, Inc. (C-Lock) and Thomas H. Stoner, Jr. (Stoner) (collectively, the Insureds), by their attorneys, Sherman & Howard L.L.C., for their Complaint against Defendant ACE American Insurance Company (ACE), allege as follows. I. 1. PARTIES

Plaintiff Evergreen is a Delaware corporation, with its primary place of business

in Denver, Colorado. 2. Plaintiff C-Lock is a Delaware corporation, with its primary place of business in

Denver, Colorado.

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3.

Plaintiff Stoner serves as the Chief Executive Officer of Evergreen, but he will

resign that position effective July 1, 2011. He will remain a member of the Evergreen Board of Directors. Stoner is a resident of the State of Colorado. 4. Defendant ACE is a Pennsylvania insurance company with its principal place of

business in Philadelphia, Pennsylvania. II. 5. JURISDICTION AND VENUE

This Court has jurisdiction pursuant to 28 U.S.C. 1332 because there is

complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000. 6. Venue is proper in this Court because the claims relate to torts committed in

Denver, Colorado, and arise from a contract to be performed in Denver. III. 7. FACTUAL BACKGROUND

Evergreen is in the business of creating and selling proprietary green technologies

that produce significantly cleaner coal and measure all forms of carbon emissions. Evergreen and its subsidiaries measure, manage, mitigate and monetize the operational impacts of energy production and management. 8. Evergreen purchased a Management Protection Policy, policy no. DON

G21656355 007 (the Policy) from ACE to insure it, its subsidiaries, and it officers and directors against claims and lawsuits arising out of its business. Evergreen purchased a series of renewal policies from ACE, and Evergreen paid substantial premiums to ACE over the course of several years for previous and current policies. ACE has accepted and retained all of those premiums, including the premium for the current Policy. 2

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9.

The Policy is a reimbursement policy, and states that ACE will not provide a

defense of the claims until the Insureds have met certain retention limits. 10. Vincent Cook and James Bitonti, two former employees of C-Lock, an Evergreen

subsidiary, filed suit against Evergreen and C-Lock in the District Court, City and County of Denver, Colorado, alleging that they were entitled to receive shares of C-Lock as part of a Restricted Stock Plan (the Plan) with C-Lock, approved by Evergreens Board of Directors. Upon Cook and Bitonti leaving C-Lock, C-Lock had the option to purchase those shares at fair market value. 11. As originally pled, Cook and Bitonti alleged that C-Lock eventually elected to

purchase their shares when they left the company, but that C-Lock/Evergreen refused to pay them fair market value for their shares, as C-Lock/Evergreen were obligated to do under a commitment in the Plan to appraise the shares value in good faith. C-Lock and Evergreen denied each of the allegations. 12. Cook and Bitonti alleged a single cause of action in their complaint for

declaratory judgment and asked the Court to determine the relative rights and obligations of Evergreen, C-Lock, Cook and Bitonti under the stock award agreements. 13. On December 13, 2010, the Denver District Court granted a motion to amend the

Cook/Bitonti pleading. In their Amended Complaint, Cook and Bitonti alleged for the first time claims arising out of their status as minority shareholders of C-Lock. Further, they named as a defendant, Stoner, as well as certain members of Evergreens Board of Directors. Specifically, Cook and Bitonti alleged that in the course of purchasing their C-Lock shares, Evergreen, as C-

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Locks majority shareholder, breached fiduciary duties owed Cook and Bitonti, as minority shareholders. 14. On December 16, 2010, Evergreen provided notice of the claim to ACE on behalf

of all insureds under the Policy, including Evergreen, C-Lock and Stoner. Included within the Notice were copies of the original Complaint, Amended Complaint and other relevant exhibits and pleadings. 15. On January 4, 2011, ACE acknowledged receipt of the tender and that the claim

had been assigned to ACE employee Steven Selzer. ACE further stated, Once Steven completes his initial review of the correspondence he will contact you to discuss these matters directly. Neither Selzer nor any other ACE employee or agent ever contacted Evergreen, CLock or Stoner to discuss ACEs review or to make any inquiry. 16. Trial of the Cook/Bitonti claims was set to begin in Denver District Court on

April 18, 2011, as ACE knew. After a delay of nearly four months, on Friday, April 8, 2011, ACE communicated substantively for the first time with the Insureds related to the Cook/Bitonti claims. 17. In its April 8, 2011 correspondence, ACE concluded, for the first time, that there

was no coverage for Evergreen or C-Lock because the Cook/Bitonti claims were not Securities Claims, as defined in the Policy. ACE reasoned that because Cook and Bitonti were directors and/or officers of the Company, that part of the Securities Claim definition that purportedly excluded from its definition the claims of directors and officers must apply. Cook and Bitonti were not officers or directors of Evergreen and C-Lock at the time of their claims, as ACE knew.

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18.

ACE further concluded that an Insured vs. Insured exclusion in the Policy

precluded coverage for all Insureds, even though it knew, or should have known, that exceptions to the exclusion existed in its own Policy. One exception stated that current and former employees would be excepted from the Insured vs. Insured exclusion when they brought claims against Insured Persons who themselves were officers and directors of the Company. Stoner was an officer and director of Evergreen at the time of Cooks and Bitontis claims. ACE failed to address the exception to the exclusion in its April 8, 2011 denial of coverage. 19. In its April 8, 2011 correspondence, ACE interpreted the Policy solely in its own

favor, rendered ambiguities in the Policy to its own benefit, and placed its own interests above those of its Insureds. The Policy provides coverage to the Insureds for the losses claimed. ACEs coverage analysis represented a cursory and belated attempt to justify its dilatory treatment of the claim and constituted an effort to detract from its failure to plan for and participate in the Cook/Bitonti trial in any manner. 20. Given ACEs failure to communicate with the Insureds regarding the claim, and

given the plain language of the Policy and its grants of coverage, the Insureds prepared for the Cook/Bitonti trial with the reasonable belief that they were covered under the Policy. Not until ACEs April 8, 2011 correspondence, some 10 days prior to trial, did the Insureds have reason to believe that ACE was taking the position that the Cook/Bitonti claims were uncovered. 21. Given ACEs failure to disclose its coverage opinion until the eve of trial, ACEs

Insureds had no opportunity to consider their litigation options and strategies on the understanding that ACE would not cover the claims. ACEs actions and inaction prevented its

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Insureds from settling the Cook/Bitonti claims and otherwise devising strategies and tactics that would be appropriate in situations where there is no insurance coverage. 22. At the close of the April 2011 trial, the Denver District Court provided oral

rulings finding, inter alia, that Evergreen, C-Lock and Stoner were jointly and severally liable to Cook and Bitonti in an amount that equals approximately $2 million, with interest. Specifically, the Court concluded that Evergreen and Stoner had breached fiduciary duties owed Cook and Bitonti as minority shareholders of C-Lock. The Court further concluded C-Lock had breached its contractual duty to value the Cook and Bitonti stock awards in good faith. 23. ACEs actions and inaction related to the Insureds claims exposed the Insureds to

liability far in excess of that they would have faced had ACE timely communicated its coverage opinions and made reasonable and appropriate inquiries. 24. Since the Denver District Court issued its findings of fact and conclusions of law,

the Insureds have made repeated demands for coverage to ACE and requested its participation in the resolution of the claims against them. ACE has refused to reverse its coverage position. Further, ACE has refused to explain and justify its failure to provide a timely coverage opinion and reasonably communicate with its Insureds in response to their claims. 25. Furthermore, the Insureds have requested that ACE pay its defense costs as a Loss

under the Policy. The Insureds have satisfied all conditions precedent set forth in the Policy as it relates to ACEs obligation to provide a defense. ACE, however, has refused to reimburse or otherwise compensate the Insureds for their defense costs. 26. The Insureds requested that ACE waive any requirement that may obligate the

Insureds and ACE to participate in alternative dispute resolution (ADR) procedures set forth in 6

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the Policy prior to filing a lawsuit. ACE has not responded to the Insureds requests or otherwise communicated with the Insureds concerning any ADR procedures in the Policy, including whether completion of such procedures is a condition precedent to any lawsuit. To the extent ACE attempts to rely on any ADR procedures in the Policy as a condition precedent to a lawsuit, ACEs inaction has waived any ADR requirement. Given the immediate need to resolve the current dispute with ACE, and ACEs failure to respond to the Insureds inquiries, the Insureds have filed this lawsuit. IV. CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF BREACH OF CONTRACT 27. full herein. 28. The Policy is a contract that ACE entered into with the Insureds to pay claims The Insureds incorporate each of the allegations described above as if set forth in

tendered by the Insureds. 29. 30. ACE has failed and refused to pay claims covered under the Policy. The Insureds have performed their part of the contract by paying ACE substantial

premiums on a timely basis that ACE has accepted and retained. 31. 32. of contract. The Insureds have otherwise met all conditions precedent under the Policy. The Insureds have been damaged and continue to be damaged by ACEs breach

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SECOND CLAIM FOR RELIEF COMMON LAW BAD FAITH BREACH OF INSURANCE CONTRACT 33. full herein. 34. The Insureds have been injured and suffered damage. The Policy contains an The Insureds incorporate each of the allegations described above as if set forth in

implied covenant of good faith and fair dealing under which ACE agreed to treat the Insureds fairly, honestly and in good faith, to faithfully perform its duties under the Policy, and to do nothing to impair, interfere with, hinder, or potentially injure the Insureds right to receive the benefits of the Policy. 35. ACE has acted unreasonably, in a dishonest manner that is not in good faith or

fair, and has failed to perform its duties faithfully under the Policy by, among other things, unreasonably delaying the provision of its coverage decision, refusing to acknowledge coverage under the Policy, forcing the Insureds to file this lawsuit to collect full payment, interpreting ambiguities in the Policy in its own favor, relying on equivocal case law to advance its own position and placing its own interests above those of its Insureds. 36. ACE knew that its conduct and actions were unreasonable and/or recklessly

disregarded the fact that its conduct and actions were unreasonable. 37. ACEs unreasonable conduct and/or actions were the causes of the Insureds

injuries, damages and losses. The injuries resulting from ACEs bad faith breaches of its Policy are attended by circumstances of malicious and willful and wanton conduct. The Insureds reserve the right to seek an award of exemplary damages against ACE by amending the pleading at the appropriate time. 8

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THIRD CLAIM FOR RELIEF VIOLATION OF C.R.S. 10-3-1115 AND -1116 38. full herein. 39. ACE has unreasonably delayed and denied payment of claims for benefits under The Insureds incorporate each of the allegations described above as if set forth in

the Policy as described above. 40. 41. The Insureds are first party claimants as defined in C.R.S. 10-3-1115. The Insureds have been damaged by ACEs unreasonable delay and denial of

payment of claims for benefits under the Policy in violation of C.R.S. 10-3-1115. 42. The Insureds hereby bring an action to recover their reasonable attorneys fees

and two times the covered benefit as set forth in C.R.S. 10-3-1116. 43. ACEs unreasonable conduct and/or actions were the causes of the Insureds

injuries, damages and losses. The injuries resulting from ACEs bad faith breaches of its Policy are attended by circumstances of malicious and willful and wanton conduct. The Insureds reserve the right to seek an award of exemplary damages against ACE by amending the pleading at the appropriate time.

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FOURTH CLAIM FOR RELIEF DECLARATORY JUDGMENT 44. full herein. 45. This claim is brought pursuant to 28 U.S.C. 2201 et seq., relating to Declaratory The Insureds incorporate each of the allegations described above as if set forth in

Judgments, and Fed. R. Civ. P. 57 to determine and declare the rights, obligations and status of the parties under the Policy. 46. There are current and ongoing disputes between the Insureds and ACE concerning

the validity and effect of the Policy and whether and how much ACE has to pay the Insureds under the Policy in indemnity and defense costs. Such disputes also include issues of notice of the claims the Insureds provided under the Policy, and whether the Policy provides grounds for ACE to deny the Insureds claims given allegations of late notice. Further, ACE contends that it did not act in bad faith when it delayed provision of a coverage opinion and only communicated regarding coverage ten days prior to trial, when the Insureds were incapable of responding adequately to ACEs coverage position. 47. The Insureds are entitled to the Courts determination and declaration that the

Policy is valid and enforceable, that the Policy requires ACE to pay the Insureds pursuant to the terms and conditions of the Policy, that ACE has not acted reasonably and in conformance with its duties of good faith and fair dealing toward the Insureds and that the Insureds are entitled to such additional relief, including orders of specific performance and/or injunction, damages, attorneys fees and costs, as is necessary to effectuate the foregoing determinations and declarations and to afford complete relief. 10

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DEMAND FOR JUDGMENT WHEREFORE, the Insureds demand judgment as follows: (a) Against ACE and in favor of the Insureds for compensatory damages in connection with the claims asserted together with pre-judgment and postjudgment interest, expert witness fees, costs and attorneys fees, as permitted by law, in an amount to be determined at trial; (b) Attorneys fees and costs against ACE as permitted by Colorado law as pled above, including the Insureds claims for statutory bad faith under C.R.S. 10-31115, 1116 as well as any other applicable law; (c) Damages against ACE in the amount of two times the covered benefit under the Policy pursuant to C.R.S. 10-3-1116; and (d) Such other and further relief as the Court deems proper.

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JURY DEMAND Plaintiffs demand trial by jury. DATED: June 29, 2011 RESPECTFULLY SUBMITTED, SHERMAN & HOWARD L.L.C. Original Signature on file at the offices of Sherman & Howard L.L.C. By: s/ Gordon W. Netzorg Gordon W. Netzorg, #7436 Jerome H. Sturhahn, #36903 633 Seventeenth Street, Suite 3000 Denver, Colorado 80202 (303) 297-2900 Attorneys for Evergreen Energy Inc., C-Lock Technology, Inc. and Thomas H. Stoner, Jr. Address of Plaintiffs: 1225 17th Street, Suite 1300 Denver CO 80202-5506

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JS 44

(Rev. 11/04)

CIVIL COVER SHEET

The JS-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM).

I. (a) PLAINTIFFS: EVERGREEN ENERGY INC., C-LOCK TECHNOLOGY, INC., AND THOMAS H. STONER, JR.,

DEFENDANTS: ACE AMERICAN INSURANCE COMPANY,

County of Residence of First Listed Defendant Philadelphia (Penn.) County___

(b) County of Residence of First Listed Plaintiff _Denver County_

(EXCEPT IN U.S. PLAINTIFF CASES) NOTE:

(IN U.S. PLAINTIFF CASES ONLY) IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE LAND INVOLVED

(c) Attorneys (Firm Name, Address, and Telephone Number) Gordon W. Netzorg, #7436 Jerome H. Sturhahn, #36903 Sherman & Howard LLC 633 17th Street, #3000 Denver, CO 80202 303-297-2900 II. BASIS OF JURISDICTION (Place An X in One Box Only)
1 U.S. Government Plaintiff U.S. Government Defendant 3 Federal Question (U.S. Government Not A Party) 4 Diversity (Indicate Citizenship Of Parties in Item III)

Attorneys (If Known)

(For Diversity Cases Only) PTF DEF Citizen of This State 1 1 Citizen of Another State Citizen or Subject of a Foreign Country 2 3 2

III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an X in One Box for Plaintiff

and One Box for Defendant) PTF DEF Incorporated or Principal Place 4 4 of Business in This State Incorporated and Principal Place of Business in Another State 3 Foreign Nation 5 6 5 6

IV. NATURE OF SUIT (Place an X in One Box Only)

CONTRACT
110 Insurance 120 Marine 130 Miller Act 140 Negotiable Instrument 150 Recovery of Overpayment & Enforcement of Judgment 151 Medicare Act 152 Recovery of Defaulted Student Loans (Excl. Veterans) 153 Recovery of Overpayment of Veterans Benefits 160 Stockholders Suits 190 Other Contract 195 Contract Product Liability 196 Franchise

TORTS
PERSONAL INJURY 310 Airplane 315 Airplane Product Liability 320 Assault, Libel & Slander 330 Federal Employers Liability 340 Marine 345 Marine Product Liability 350 Motor Vehicle 355 Motor Vehicle Product Liability 360 Other Personal Injury PERSONAL INJURY 362 Personal Injury Med. Malpractice 365 Personal Injury Product Liability 368 Asbestos Personal Injury Product Liability PERSONAL PROPERTY 370 Other Fraud 371 Truth In Lending 380 Other Personal Property Damage 385 Property Damage Product Liability

FORFEITURE/PENALTY
610 Agriculture 620 Other Food and Drug 625 Drug Related Seizure of Property 21 USC 881 630 Liquor Laws 640 R.R. & Truck 650 Airline Regs. 660 Occupational Safety/Health 690 Other

BANKRUPTCY
422 Appeal 28 USC 158 423 Withdrawal 28 USC 157

OTHER STATUTES
400 State Reapportionment 410 Antitrust 430 Banks and Banking 450 Commerce 460 Deportation 470 Racketeer Influenced and Corrupt Organizations 480 Consumer Credit 490 Cable/Sat TV 810 Selective Service 850 Securities/Commodities/ Exchange 875 Customer Challenge 12 USC 3410 890 Other Statutory Actions 891 Agricultural Acts 892 Economic Stabilization Act 893 Environmental Matters 894 Energy Allocation Act 895 Freedom of Information Act 900 Appeal of Fee determination Under Equal Access to Justice 950 Constitutionality of State Statutes

PROPERTY RIGHTS
820 Copyrights 830 Patent 840 Trademark

LABOR
710 Fair Labor Standards Act 720 Labor/Mgmt. Relations 730 Labor/Mgmt. Reporting & Disclosure Act 740 Railway Labor Act 790 Other Labor Litigation 791 Empl. Ret. Inc Security Act

SOCIAL SECURITY
861 HIA (1395ff) 862 Black Lung (923) 863 DIWC/DIWW (405(g)) 864 SSID Title XVI 865 RSI (405(g))

REAL PROPERTY
210 Land Condemnation 220 Foreclosure 230 Rent Lease & Ejectment 240 Torts to Land 245 Tort Product Liability 290 All Other Real Property

CIVIL RIGHTS
441 Voting 442 Employment 443 Housing/ Accommodations 444 Welfare 445 Amer. w/Disabilities Employment 445 Amer. w/Disabilities Other 440 Other Civil Rights

PRISONER PETITIONS
510 Motions to Vacate Sentence Habeas Corpus: 530 General 535 Death Penalty 540 Mandamus & Other 550 Civil Rights 555 Prison Condition

FEDERAL TAX SUITS

870 Taxes (U.S. Plaintiff or Defendant) 871 IRS Third Party 26 USC 7609

V.
1

ORIGIN
Original Proceeding

(Place an X in One Box Only)

Removed from State Court

Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
28 U.S.C. 1332

3 Remanded from Appellate Court

4 Reinstated or Reopened

Transferred from 5 another district (specify)

6 Multidistrict Litigation

Appeal to District Judge from 7 Magistrate Judgment

VI.

CAUSE OF ACTION

Brief description of cause: BREACH OF CONTRACT PURSUANT TO INSURANCE POLICY AND BAD FAITH INSURANCE CONDUCT ARISING FROM CLAIMS HANDLING.

VII. REQUESTED IN COMPLAINT:

DATE

CHECK IF THIS IS A CLASS ACTION UNDER F.R.C.P. 23

DEMAND $

CHECK YES only if demanded in complaint: JURY DEMAND: Yes No

SIGNATURE OF ATTORNEY OF RECORD

June 29, 2011

FOR OFFICE USE ONLY RECEIPT # _______________ AMOUNT ________________

s/ Gordon W. Netzorg

APPLYING IFP _______________

JUDGE ________________

MAG. JUDGE _____________

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