nomura1As the litigation wave arrived following the global financial crisis, many financial institutions were hit with multiple suits that arrived piecemeal and over time. For D&O insurance coverage purposes, these lawsuits were filed across multiple policy periods. A recurring question as the subprime litigation has worked its way through the system is whether the various lawsuits trigger only a single policy or multiple policies (refer, for example, here).


The question arose again in the D&O insurance coverage litigation related to the various RMBS-related securities lawsuits that were filed against Nomura Holding America, Inc. and certain of its operating subsidiaries. In a September 11, 2014 opinion (here), Southern District of New York Judge Katherine Polk Failla ruled that — because she found that the five subsequent lawsuits filed against the Nomura entities were related to a prior securities lawsuit previously pending against the firms — the five subsequent claims related back to and were deemed made at the time of first  lawsuit. Based on this determination, she ruled that there was no coverage for the subsequent suits under the D&O insurance policies in place at the time the subsequent suits were filed.


Though Judge Failla’s ruling in the Nomura coverage dispute, like outcomes in many of the cases involving interrelatedness issues, reflects circumstances specific to the situation involved, her ruling nonetheless has important lessons for parties that find themselves involved in a relatedness clash. In addition, her separate ruling that the applicable policies’ specific litigation exclusion does not preclude coverage for the subsequent claims has important lessons for anyone attempting to draft a similar exclusion.



Prior to the financial crisis, Nomura, through its operating subsidiaries, organized and issued residential mortgage-backed securities (RMBS) backed by mortgages originated by third-party lending institutions. In 2008, various Nomura subsidiaries and certain of the subsidiaries officers and directors were named as defendants in a securities class action lawsuit styled as Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp. (the “Plumbers’ Union” lawsuit). The Plumbers’ Union lawsuit alleged that the defendants had made various misrepresentation or omissions in the offering documents provided in connection with certain RMBS offerings. Nomura submitted the Plumbers’ Union lawsuit as a claim to the insurer providing Nomura’s D&O insurance at the time.


During the period July 1, 2010 to July 1, 2013, Nomura purchased three successive one-year D&O insurance policies from a different carrier than the one whose policy was in force at the time the Plumbers’ Union lawsuit was first filed. Between 2011 and 2012, five additional securities class action lawsuits were filed against Nomura and various of its subsidiaries, containing allegations that the named defendants had breached the securities laws in connection with the entities’ RMBS operations and issuance. Nomura provided notice of these five subsequent lawsuits to the D&O insurer whose policies were in place at the time the subsequent lawsuits were filed.


The D&O insurer to whom the five subsequent suits were submitted denied coverage for the claims. The insurer asserted two grounds for its denial. First, the insurer asserted that coverage was precluded by a manuscript endorsement that had been added to the policies the carrier issued to Nomura; the endorsement (referred to in the coverage lawsuit as the “Plumbers’ Union Exclusion”) provided that no coverage would be available under the policies for any claim that was


based upon, arising from, or in consequence of any fact, circumstance, situation, transaction event or matter described or cited below or the same or any substantially similar fact, circumstance, situation, transaction, event or matter:


Amended Complaint for Violation of Section 11, 12 (a)(2) and 15 of the Securities Act 1933 (USA), PLUMBERS’ UNION LOCAL NO. 12 PENSION FUND, individually and on behalf of all Others Similarly Situated vs. NOMURA ASSET ACCEPTANCE CORPORATION et al, United States District Court for the District of Massachusetts, No. 06-10446-RGS.


The D&O insurer also denied coverage in reliance Section 13(g) of its policies, which provides that “All Related Claims shall be treated as a single Claim first made on the date the earliest of such Related Claims was first made … regardless of whether such date is before or during the Policy Period.”


The term “Related Claims” is defined as “all Claims for Wrongful Acts based upon, arising from, or in consequence of the same or related facts, circumstances, situations, transactions, or events or the same or related series of facts, circumstances, situations, transactions or events.”


In response to the insurer’s coverage denial, Nomura filed a separate lawsuit seeking a declaratory judgment that the D&O insurer had wrongfully denied coverage for the five subsequent actions and that the carrier had breached its duty to provide coverage. The parties filed cross-motions for summary judgment.


The September 11 Opinion 

In her September 11 Opinion, Judge Failla denied the insurer’s summary judgment motion with respect to the Plumbers’ Union exclusion, holding that the insurer had failed to meet its burden of showing that the exclusion precludes coverage, but granted the insurer’s summary judgment motion with respect to section 13(g), based on Nomura’s “failure to show that the Policies provide coverage for the Underlying Actions.”


In support of its reliance on the Plumbers’ Union Exclusion, the insurer had argued that the subsequent lawsuits involved “the same or any substantially similar fact circumstance, situation, transaction, event or matter” as the “event or matter described or cited below” – that is, the Plumbers’ Union lawsuit. Nomura argued in opposition that the exclusion precluded coverage only for events or matters the same as or similar to the event or matter cited (that is, the Plumbers’ Union amended complaint itself) and not to factual matters contained in the Amended Compliant or legal arguments raised in that case. In making this argument, Nomura referenced the policies’ Prior and Pending Litigation exclusion, which, by contrast to the Plumbers’ Union Exclusion, precluded coverage not only for claims pending on the prior and pending litigation date, but also “circumstances or situations underlying or alleged therein.”


Judge Failla agreed that the Plumbers’ Union Exclusion referenced only the “matter” cited but not to “the factual allegations contained in the Plumbers’ Union Amended Complaint,” yet she also observed at the same time that “it is difficult to imagine how an action, but not necessarily its underlying factual allegations, could be the ‘same’ or ‘similar’ to the Plumbers Union Amended Complaint without also being ‘based upon, or arising from’ the Plumbers’ Union Amended Complaint.” In the end, because she found that the carrier’s interpretation depended on “adding words and phrases that are simply not there,” she concluded that the carrier had not carried its burden of showing that the Plumbers’ Union Exclusion precluded coverage.


With respect to the insurer’s reliance on Section 13(g), Judge Failla said that the subsequent complaints and the Plumbers’ Union lawsuit would be “substantially similar” within the meaning of the provision if they arose out of a common “factual nexus.” In order to determine whether a sufficient factual nexus exists, the Court, she said, must undertake a “side-by-side review” of the factual allegations to determine their relationship. Based on this analysis, she concluded that “the relevant complaints contain overlapping (and frequently identical) factual allegations, arising from strikingly similar circumstances, alleging similar claims for relief.” She separately identified six categories of alleged misrepresentations that the plaintiffs in each of the actions relied upon. She summarized her conclusions this way:


Plumbers’ Union and the Underlying Actions are each brought by similarly-situated investors against the same group of defendants who participated in the same types of securities offerings pursuant to nearly identical offering documents involving the sale of interests in pools of mortgage loans that were made, poled and securitized in strikingly similar ways. What is more, the factual allegations in the complaints are more than overlapping, they are nearly identical. On this basis, the Underlying Actions clearly allege facts which are the “same” or “similar to” those alleged in Plumbers’ Union.



I have referred numerous time on this blog (for example here) to the difficulty and vexatiousness of interrelatedness disputes. The difficulty arises from the fact that it is always possible to find similarities between two actions and it is always possible to find differences. The outcomes of interrelatedness cases tend to be all over the map and it is very difficult to draw any generalizations about the cases, except that they tend to be very situationally and factually specific. This case is no exception. But while there arguably may be no general principles to be drawn from Judge Failla’s rulings in this case, there are certain lessons that may be discerned for parties caught up in an interrelatedness dispute.


With respect to the lessons to be learned, I note at the outset that Judge Failla was even handed – she dished in equal measures on both parties and their counsel for making or failing to make various arguments. I happen to know the lawyers representing the parties here, either personally or by reputation, and I know them to be excellent, skilled practitioners. The various chastisements Judge Failla dispensed in the course of her opinion (for example, “the Court will not do Nomura’s work for it”) say more about her judicial temperament than about the quality of the advocacy involved.  


Before getting to the lessons to be learned for parties engaged in relatedness disputes, there is one preliminary lesson to be learned for those responsible for drafting manuscript endorsements. I have no doubt that the intent of the Plumbers’ Union exclusion was to preclude coverage for any subsequent lawsuits involving the same or similar factual allegations as the Plumbers’ Union lawsuit. But as Nomura was able to argue here, that is not what the exclusion actually said. The exclusion referred only to the Plumbers’ Union Amended Complaint, but it did not refer to “the factual allegations or the claims alleged therein.” It is not that the exclusion was not very carefully written; indeed, the Plumbers’ Union lawsuit itself is described in the exclusion in excruciatingly specific detail. But in the end the exclusion itself did not actually say what was intended. So the lesson for draftsman of manuscript endorsements is, first, to take care that the exclusion says that was intended – here, that what was meant to be excluded was any lawsuit containing the same or similar allegations as the Plumbers’ Union lawsuit – but also that if the exclusion is a specific litigation exclusion, that the exclusion precludes not just the referenced lawsuit itself, but also the facts alleged and claims asserted.


Now, for the lessons to be learned by those involved in interrelatedness disputes. First, for those parties seeking to establish that a prior and subsequent lawsuit are interrelated, the argument will be advanced to the extent that the similarities are demonstrated in a detailed, side-by-side comparison of the relevant allegations. Judge Failla chided the insurer for failing to provide this type of comparison, noting that “it was not until the Court requested supplemental briefing that Defendant submitted an in-depth, allegation-by-allegation review of the operative complaints in support of its argument.” In the absence of this specific documentation, the insurer was left to argue based “solely upon similar categories of misrepresentations,” which, Judge Failla noted, “could be applied so expansively that entire business lines could be precluded from coverage based on a single lawsuit.” The lesson, then, is that the party seeking to establish relatedness should provide a detailed, side-by-side comparison of the allegations in the complaints the party contends are related.  


Second, it is not enough for a party seeking to argue that different claims are unrelated to identify differences between the claims. Here, Nomura noted numerous differences between the various complaints – they involved different claimants, different defendants, different offerings, different underlying mortgages, and different underlying mortgage originators. Judge Failla was unpersuaded by existence of these differences, noting that “Nomura did nothing to demonstrate that these identified differences mattered, i.e., that they were anything other than differences in name only.” The lesson for the party seeking to show that separate lawsuits are unrelated is that it is not enough to show that there are differences; the party must also show why the differences matter, particularly with respect to the question of whether or the lawsuits involved a common factual nexus.


It is interesting to note that in rejecting Nomura’s arguments, Judge Failla rejected a specific argument Nomura had tried to make based on the language used in the policies’ definition of relatedness. Nomura had tried to argue that the policies had a narrower definition of relatedness than that involved in many of the other relatedness cases. Nomura made this argument because the definition of relatedness in the policies at issue, by contrast to the language found in the policies involved in the other cases, did not contain the words “or in any way involving” (i.e., the other policies in the other cases provided that the two matters are related if they are “arising from, based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving, the following, etc.”) Judge Failla expressly acknowledged that the policies at issue did not include the “or in any way involving” language, but that did not affect here analysis of the factual nexus issues.


While the absence of this language did not affect Judge Failla’s analysis in this case, it is interesting that Nomura tried to make the argument. There is nothing to provide assurance that the absence of this language might not make a difference in another case (indeed, Judge Failla noted that other courts have found the presence of this language to be significant). The lesson here seems to be that, at the time of placement, policyholder advocates would seek to have this language removed while insurer representatives would seek to have it included. In the event of a coverage dispute, policyholder advocates will argue with respect to a relatedness definition lacking this language that the definition is narrower and not as inclusive; while carrier advocates will argue that whether or not the language is present, the only operative question is whether not there is a common factual nexus between the two matters.


A Creature That Prospers Regardless of Circumstance: Here at The D&O Diary, we have been watching the build-up to next week’s referendum on Scottish independence with a mixture of fascination and trepidation. We understand the romantic appeal of an independent Scottish state yet fear what unanticipated circumstances it might bring as well. For all the reasons mustered for and against independence, the argument in support of independence that strikes us as the strangest is the one put forth in September 12, 2014 Bloomberg article entitled “Scottish Lawyers Say Referendum May Transform Legal Industry” (here).


It seems that some of the local lawyers support dumping a union that has lasted more three centuries because independence will mean more legal business. (I am not making this up.) According to the article, Scottish lawyers see a Yes vote in the September 18 referendum as “an opportunity to take their rule of law to the world, transforming a distinctly local market into an international one.” Another commentator is quoted as saying that “the impact of independence on the legal industry in Scotland and the rest of the U.K. will result in a very busy time for lawyers. “ (Others cautioned, however, that a Yes vote could lead to a prolonged period of stagnation – and that would be bad for business.)


What of questions of defense, trade, taxation and currency; what of generations of mutual struggle through wars, crises and change; what of ties based on a union that has lasted longer than that of the United States? What could be more thrilling than the possibility of billable hours?


“I Found a Picture of You”: While trying to follow the ins and out of the Scottish independence debate, I have taken up listening to the BBC World Service News using the BBC app on my iPad. I have wound up hearing a lot more than news about the referendum. Just the other day, I heard a very interesting interview of Chrissie Hynde, the rock vocalist and lead singer in The Pretenders. I confess that I have always had a fascination with Hynde, in part because I have never been able to figure out how someone from Akron, Ohio managed to transform herself into a British rock star. It was a good interview, but they didn’t play any of her music, so after it was over, I went to YouTube to see what I could find.


I have always like Hynde’s voice, so confident and so cool. She and her music may now be vestiges from an earlier time, but I think she is still worth listening to. So, to get your Monday morning started right, here’s a bit of music from Chrissie Hynde and The Pretenders – and what could be more appropriate for a Monday morning that “Back on the Chain Gang”?: