A New York appellate court, applying New York law, has rejected a D&O insurer’s argument based on alleged late notice of claim that it had no coverage obligations for amounts Sirius XM Radio had incurred in underlying litigation, holding that the insurer’s policy was ambiguous on the timeliness requirements for notice of interrelated claims. A copy of the New York Supreme Court, Appellate Division’s May 29, 2014 opinion can be found here.
According to a summary of the insurance dispute on Law 360 (here, subscription required), the underlying lawsuits related to the merger of Sirius Satellite Radio and XM Satellite radio. A total of five lawsuits ultimately were filed, alleging, among other things, that the two companies had conspired to create a monopoly by combining in order to increase prices, in violation of the state consumer protection laws and federal antitrust statues.
The five cases ultimately were resolved. Sirius XM sought to be reimbursed for amounts incurred in the litigation from the D&O carrier whose policy was in force from August 2008 through August 2008 through August 2009, the period during which the first of the lawsuits was filed. XM also sought reimbursement for these amounts from the D&O insurer whose policy was in force at the time of the subsequent lawsuits were filed. The D&O insurer whose policy was in force in 2008-09 denied coverage for these amounts, as did the subsequent D&O insurer.
XM initiated a coverage lawsuit in New York Count (New York) Supreme Court against both of the D&O insurers. The D&O insurer whose policy was in force during 2008-09 moved to dismiss, arguing among other things that XM had not provided timely notice of claim with regard to three of the lawsuits. The D&O insurer contended that XM knew about the three actions in March, April and May of 2011, but did not provide notice to the D&O insurer until sending a January 2012 email.
In a November 8, 2013 ruling, Supreme Court Judge Peter Sherwood denied the D&O insurer’s motion to dismiss, and the D&O insurer appealed.
In a unanimous May 29, 2014 opinion, a panel of the New York Supreme Court, Appellate Division, First Department affirmed the trial court’s ruling, holding that the D&O insurer’s policy’s notice requirements are “ambiguous” on the question “whether its requirement of notice with respect to ‘any’ claim pertains to claims that are related under the provisions for ‘interrelated wrongful acts.’”
The appellate court said that “even assuming that plaintiff did have to notify [the D&O insurer] of every interrelated claim as soon as practicable, the documentary evidence fails to resolve all factual issues as a matter of law.” The appellate court said that, among other things, triable issues exist “as to the relatedness of the timely claim and three disputed claims.”
It is hard to discern everything that is going on here from the appellate court’s terse opinion, particularly given the opinion’s use of run-on sentences that telescope seemingly unrelated topics. The one thing is clear is that the D&O insurer was not able to get out of the case based on a late notice defense.
It was my observation back when I made my living as an attorney representing D&O carriers in coverage litigation that courts generally do not like notice defenses. I think many judges have an unconscious bias against allowing insurers out of coverage based on merely procedural grounds, particularly where the insurer can demonstrate no prejudice. In this case, the carrier was not only trying to raise one of those disfavored notice defenses, but it was trying to raise the argument in the context of an interrelated claim issue. As I have noted at length elsewhere, courts find interrelatedness issues vexing and court decisions on interrelatedness issues are all over the map.
My point here is that even if I can’t discern from the appellate court’s brief three-page opinion everything that was going on in this case, the one thing I do know is it was always going to be tough for a carrier to prevail on a disfavored notice defense particularly given the interrelated claim context.
I will say that the case does raise an interesting issue. If there are multiple interrelated claims and if notice for the first of the claims was timely, must notice of all subsequent interrelated claims also be timely? On the one hand, I can see the policyholder’s argument against imposing a continuing notice requirement as it could operate as a trapdoor to snatch coverage away. On the other hand, I can see the carrier’s argument that it must be provided with timely information about subsequent claims so that the insurer can take appropriate steps to protect the policyholder’s and the carrier’s mutual interests.
In the end the court decided that the clause was ambiguous and that questions of fact remained, so its opinion does not substantially answer the question of whether or not the notice of all subsequent interrelated claims must comply with the policy timeliness of notice requirements if the provision of notice of the initial claim complied with the notice timeliness requirements. It is interesting question that undoubtedly will come up again in the future.