In a June 6, 2016 opinion (here), Middle District of Florida Judge Sheri Polster Chappell, applying Florida law, held that subsequent claims filed in 2011 and 2012 were interrelated with claims first made in 2008, and therefore deemed made at the time of the initial claim. Because the initial claim was filed before the relevant policy incepted, there is, Judge Chappell concluded, no coverage for the claims under the relevant policy.
In reaching these conclusions, Judge Chappell rejected the policyholder’s argument that the policy’s related claim provision conflicted with the policy’s prior and pending litigation provision (which had a May 2003 date), and therefore should be construed against the insurer and disregarded in light of the prior and pending litigation date. Judge Chappell’s opinion quite sensibly and correctly rejects arguments that other courts (applying different jurisdiction’s law) have accepted, as discussed below. A July 22, 2016 post on the Wiley Rein law firm’s Executive Summary Blog about Judge Chappell’s opinion can be found here.
The policyholder in this case (ATIF) is a title insurer. It filed a lawsuit against a group of entities referred to in Judge Chappell’s opinion as Section 10. In the lawsuit, ATIF sought to recover $3 million it had paid as a title insurer for fraudulently sold property. In 2008, Section 10 filed a counterclaim against ATIF for slander of title, wrongful lis pendens, declaratory judgment, tortious interference, and wrongful injunction. In 2011, Section 10 filed amended counterclaims for slander of title and tortious interference. Section 10 later filed a motion to further amend its counterclaim, in connection with the lis pendens proceeding.
From 2010 to 2011, ATIF was insured under a D&O insurance policy. When Section 10 filed the 2011 counterclaim, ATIF presented it to the insurer, seeking coverage. ATIF later also presented the motion to file the amended counterclaim. The insurer denied coverage for the counterclaims. ATIF entered an agreement with Section 10 whereby the parties agreed to settle their dispute. ATIF agreed to a $40 million consent judgment together with an agreement that the judgment could only be enforced against its insurers. ATIF assigned all of its rights under the D&O policy to Section 10.
Section 10 then filed a separate lawsuit against the D&O insurer seeking to enforce the judgment. The insurer moved for summary judgment, arguing that there is no coverage under its policies because the subsequent counterclaims were interrelated with the initial 2008 counterclaim, and therefor were deemed first made in 2008, before the insurer’s coverage first incepted.
The policy’s “Related Claims Provision” provided that
[All claims] based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events, or the same or related series of facts, circumstances, situations, transactions or events, shall be deemed a single Claim for such purposes … and shall be deemed first made when the earliest of such Claims is first made, regardless of whether such date is before or during the Policy Period.
The policy also contained a “Prior and Pending Litigation Exclusion,” which provides that
The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured: Alleging, arising out of, based upon or attributable to, in whole or in part, any litigation involving any Insured that commenced or initiated prior to, or pending as of May 31, 2003, or arising out of or based upon, in whole or in part, any facts circumstances underlying or alleged in any such prior or pending litigation.
The June 6, 2016 Opinion
In her June 6, 2016 opinion, Judge Chappell granted the insurer’s motion for summary judgment, agreeing with the insurer that the subsequent counterclaims were interrelated with the initial 2008 counterclaim, and were therefore deemed first made at the time of the initial claim. Because the initial claim was first made before the D&O insurer’s policy incepted, there is no coverage under the insurer’s policy for the counterclaims.
In reaching this conclusion, Judge Chappell rejected Section 10’s arguments made in reliance on the existence in the policy of the Prior and Pending Litigation Exclusion. Section 10 had tried to argue that the parties had included the Prior and Pending Litigation Exclusion so that no claims filed after the prior and pending litigation date would be excluded from coverage. Judge Chappell rejected this argument, holding that “adding a strict temporal limitation to an exclusion’s applicability does not, and cannot, create coverage.”
Judge Chappell also held that there is no conflict between the Related Claims Condition and the Prior and Pending Litigation Exclusion. She noted, first, that the Related Claim Condition provides a strict deadline for when a claim related to preexisting litigation is automatically excluded from coverage, while the Prior and Pending Litigation Exclusion confines coverage to those claims that are first made during the respective policy periods and unrelated to any previously made claim. So a claim could, like the present one, escape the Prior and Pending Exclusion yet fall within the Related Claim Condition. This alone, Judge Chappell said, “illustrated their separate and distinct purposes and how they work in harmony.”
Finally, Judge Chappell rejected Section 10’s argument that, because the Related Claims Condition is located in the Conditions section of the policy and not in the exclusions section, it is “not intended to bar coverage altogether.” The Related Claims Condition, she said, “was not intended to act as an exclusion.” Rather, it is “a condition that must be satisfied for coverage.”
I suspect that most readers will find Judge Chappell’s decision unremarkable, and that some readers likely will find Section 10’s arguments made in reliance on the prior and pending litigation clause to be more than a little bit strange. The casual reader might well be forgiven for wondering what in the world Section 10 thought it could gain by relying on a May 2003 P&P lit clause to try to establish coverage, when the first of the various counterclaims was not filed until 2008.
The problem is that at least one other court has been taken in by the arguments that Section 10 raised here about the P&P lit clause. As discussed here, in July 2013, a Texas intermediate court, applying Texas law, essentially bought the line of argumentation that Section 10 was trying to rely in this case. While it could be argued that the different outcome between the two cases is attributable to the differences between Texas law and Florida law, I think the real difference is that Judge Chappell, by contrast to the Texas court, took a very straightforward approach to the issues.
Judge Chappell clearly saw that the Related Claim Condition and the Prior and Pending Litigation Exclusion are separate provisions that have separate purposes and that the two provisions can be read together to, as she said, “work in harmony.”
The Texas court in the prior case, by contrast, held that the policy’s interrelated claim provision conflict with the policy’s prior and pending litigation provision; that because of this conflict between the two sections, the interrelatedness provision must be construed against the insurer; and therefore that the policy covers seven lawsuits filed during the policy period even though the seven are interrelated with three lawsuits filed prior to the policy period.
As I made clear in my prior blog post about the Texas case, I think the Texas court’s reasoning was muddled and that it managed to come up with a ruling that did not even remotely make sense either in light of the circumstances presented or in light of the meaning and purposes of the respective policy provisions.
Most readers know that at least in my current life as a broker, I tend to take a policyholder-oriented approach to coverage issues, trying to look at policy issues in a way that maximizes coverage. However, even though the Texas decision was helpful to the policyholder in that case, I found it unsatisfying, based as it was (in my opinion) on a strained reading of the policy that depended on finding conflicts between policy provisions where none actually exists.
Because of my dissatisfaction with the prior Texas ruling, I was relieved to read Judge Chappell’s straightforward reading of the policy in this case, even though it meant that the policyholder (or rather, the policyholder’s assignee) did not have coverage under this policy. In the long haul, everyone is better off if the courts take a sensible approach to coverage issues, rather than straining to create issues where none exists. The prior and pending litigation provision and the related claim provision are each in the policy for separate purposes, and they can and should be read in a way, as Judge Chappell found, so that they “work in harmony.”