By Rory Eric Jurman and Steven S. Cula
As appeared in Law360 Expert Analysis on December 6, 2016
Limits of Liability When Wrongful Acts Occur in Different Policy Periods
When wrongful acts occur or claims are made in separate policy periods, the limits of more than one policy may be triggered, unless the circumstances of the wrongful acts or claims are sufficiently related. Some courts have allowed insureds to obtain coverage for a lawsuit alleging wrongful acts similar to those alleged in a lawsuit notified under an earlier issued policy, finding there was not a sufficient causal link between the lawsuits.
In Seneca Insurance Co. v. Kemper Insurance Co., (S.D.N.Y. May 21, 2004), the court held that a complaint filed during the latter policy period was not first made during that policy period because the allegations had a sufficient "factual nexus" with a lawsuit filed before the policy period. The court concluded that as defined in the policy, the term"interrelated wrongful acts" was unambiguous and that the separate lawsuits would be deemed one claim that was first made on the date of the filing of the first complaint.Because the complaints detailed numerous logically connected facts and circumstances, the court found that the "factual nexus" was sufficient to justify the conclusion that the two lawsuits arose from interrelated wrongful acts.
However, in Lehigh Valley Health Network v. Exec. Risk Indem. Inc., (E.D. Pa. 2001),the insured hospital and health network purchased claims-made D&O policies from three separate insurers for two, one and three successive year-long policy periods,respectively. A lawsuit concerning a surgeon's efforts to hire another surgeon led to two subsequent lawsuits by the surgeon candidate. The two subsequent suits both concerned allegations that the hospital's board conspired to exclude the surgeon candidate from the cardio thoracic surgical market. The initial lawsuit was commenced during the period of coverage provided by the first insurer. The two subsequent lawsuits were filed during the periods of coverage provided by the second and third insurers,respectively. The second insurer argued that there was no coverage under its policy for the subsequent lawsuits pursuant to its policy's "related claims" and "prior litigation"exclusions. Despite finding "a modicum of overlap between the two suits," the court held that the connection between the subsequent lawsuits was "too attenuated" to the initial suit to constitute a single claim that would relate back to the first insurer's policy.
Interpretations of Related Claim Provisions Under Florida Law
In Florida, the courts generally tend to err on the side of finding the claims to be related claims. In addition to the Southern District of Florida's decision in Capital Growth Fin.LLC v. Quanta Specialty Lines Insurance Co., (S.D. Fla. July 30, 2008), discussed above, the Middle District of Florida also found claims asserted by multiple plaintiffs who were business partners against their accountants to be related claims subject to a single limit. Camico Mut. Insurance Co. v. Rogozinski, 2012 WL 4052090 (M.D. Fla. Sept. 13,2012). The Rogozinski decision noted its disagreement with the holdings of various district courts outside Florida which found that the term "related" was ambiguous and thus construed the policy against the insurer. See id. at 9*. The court's decision in Rogozinski relied in part on the Eleventh Circuit's per curiam affirmance in another case, Continental Cas. Co. v. Wendt, where the district court found claims by investors against an attorney to all be related based on "a single course of conduct." Id. at *10.
Most recently, Florida's Third District Court of Appeal decided the application of a related acts provision based on a class action lawsuit filed by a group of investors. Gidney v. Axis Surplus Insurance Co., 140 So. 3d 609 (Fla. 3rd DCA 2014). The Third District held that the class action related back to an earlier claim filed by an investor and thus was not covered under the current policy. The court's decision in this regard was highly dependent on the language in the policy. However, it is critical that the court did not find the policy provision itself to be ambiguous, which would necessitate the court finding in favor of the insured regardless of which position was taken by either party.
On the other hand, in terms of an occurrence-based policy, the Supreme Court of Florida has held that each separate shot fired from a gun by a single shooter constituted a separate occurrence under the policy. Koikos v. Travelers Insurance Co., 849 So. 2d263 (Fla. 2003). The insured in Koikos was sued for negligent failure to provide security.In rendering its decision, the court held that "[i]t is the act that causes the damage,which is neither expected nor intended from the standpoint of the insured, that constitutes the 'occurrence.'" Id. at 271. Accordingly, the Supreme Court held that each separate firing constituted a separate occurrence, rather than the insured's singular failure to provide security.
This matter was closely examined in Mid-Continent Cas. Co. v. Basdeo, 477 Fed. Appx.702 (11th Cir. 2012). There, both parties agreed that faulty tarping of a roof performed by Mid-Continent Casualty Co.'s insured, First State, constituted one occurrence under the policy language. Id. at 707. The parties disagreed as to whether various damages resulting from the roof repair work constituted a single occurrence or various separate occurrences. Id. at 707-08. The court emphasized that "occurrence" was defined in the policy as "an accident, including continuous or related exposure to substantially the same general harmful conditions." Id. The court noted that the "continuous or related exposure" language is meant to broaden the scope of what constitutes an "occurrence,"rather than limit it, and is meant to include ongoing and slowly developing injury. Id. The court further held that if Mid-Continent had wanted all damages resulting from a single breach of contract to constitute a single occurrence under the policy, it should have drafted clear policy language to accomplish that result. Id. Moreover, the court held that Mid-Continent failed to demonstrate the sort of "proximate causal link" which would qualify the various damages as sufficiently interrelated to constitute one occurrence. Id.Such a link would require that subsequent damages be reasonably foreseeable to result from earlier damages. Id.
A string of Florida cases involving the same insured company, Vozzcom Inc. suing different insurers for coverage, highlights the importance and complexity of the issue of related acts. On June 2007, former Vozzcom employee, Teixera sued Vozzcom for violations of the Fair Labor Standards Act. Vozzcom Inc. v. Beazley Insurance Co., 666F. Supp. 2d 1321 (S.D. Fla. 2009). At the time, Vozzcom had an employment practices liability policy with Beazley Insurance Company and Beazley paid the costs associated with defending the Texeira suit. Id. In January 2008, DaSilva, another former Vozzcom employee, brought suit against Vozzcom with similar allegations as the Texeira suit. At the time of the DaSilva suit, Vozzcom's insurance policy with Vozzcom had expired and it had obtained a similar policy from Great American Insurance Company Id. The U.S.District Court for the Southern District of Florida held that the Texeira and DaSilva claims were related and were considered filed at the same time. Id. Therefore, that court decided that the DaSilva claim was covered under the Beazley policy and that the Great American policy did not provide coverage because the DaSilva action was deemed filed before Great American's policy was in effect. Id.
In January of 2009, another former employee of Vozzcom, Elliot, sued Vozzcom forsimilar FLSA violations. Great American again denied coverage and Vozzcom again brought action against Great American. Vozzcom Inc. v. Great Am. Insurance Co. of N.Y., 666 F. Supp. 2d 1332 (S.D. Fla. 2009), aff'd, 374 F. App'x 906 (11th Cir. 2010).The U.S. District Court for the Southern District of Florida held, and the 11th Circuit Court affirmed, that the Elliot claim is related to the Texeira and DaSilva claim. Id. The court found persuasive that the allegations in all three suits were almost identical as to the facts of the case and the FLSA violations. Id. Because all three claims were related,the Elliot claim was deemed filed in June 2007 like the previous two claims, and before the Great American policy took effect. Id. To that end, Great American was once again let off the hook as the court ruled that Great American had no duty to defend the claim.Id.
To complicate matters further, in March of 2009, two more former Vozzcom employees brought claims against Vozzcom for similar FLSA violations. Vozzcom Inc. v. XL Specialty Insurance Co., 2010 WL 1540023 (S.D. Fla. 2010). By this time, Vozzcom's insurer was XL Specialty Insurance Company. When XL Specialty denied coverage, Vozzcom sued the insurer. XL Specialty's arguments were similar to Great American'sin the previous cases. Namely, that the two claims were related to the previous suit that was commenced prior to the policy period. Especially since the two employees filed notices in this matter consenting to becoming additional plaintiffs in the Elliot matter. Id.This time, however, the court did not agree with the insurer. Instead, it held that the Notices were not enough evidence to consider the new employees' claims related to the Elliot claim and subject to the exclusion for interrelated wrongful acts. Id. Though this case was comparable to the earlier two cases where the claims were found to be related, the court here required more evidence as to the facts and alleged violations if it was to decide that the claims were sufficiently similar to be considered related. Id.Therefore, unlike Great American in the previous cases, XL Specialty could not avoid coverage.
Florida courts' strict dependence on the policy language in deciding interrelatedness of acts is evidenced by the outcome in TIG Insurance Co. v. Smart School, 401 F. Supp.2d 1334 (S.D. Fla. 2005). In that case, a teacher continually sexually molested and ultimately raped a student, during two different policy periods. Id. Upon close reading of the policy and relevant provisions, the court found that the teacher's molestation of student during initial policy period was related to teacher's rape of student during the second policy period. Id. The court found unambiguous the clause stating that "sexual abuse occurrence” is deemed to have occurred when the first of a “series of related acts” of sexual abuse or molestation occurred. Id. The court reasoned that the sexual abuse acts were all logically and causally related due to the identities of the abuser and victim, their teacher student relationship, and the nature of the abuse. Id. The result was that coverage was only provided under the initial policy. This was especially consequential in this case because the insurer had previously settled a claim brought by another student for similar sexual abuse by the same teacher, and this court also decided that all sexual misconduct by a single perpetrator is considered a single occurrence. Id. Thus, the limits of the initial policy, which was now deemed to cover both students and all sexual abuse acts, had been substantially eroded by the settlement of one of the students.
Courts' analysis regarding whether multiple acts, errors, omissions or claims are interrelated or related and subject to single or multiple retentions or limits of liability are very fact-specific and highly dependent on the language of the policy in question. This correspondence is not intended to provide an opinion with regard to the facts of your case, as the outcome of your case may vary based on the facts and circumstances of your claims as well as the policy language.
Complex decisions such as these should be navigated by insurers in close communication with their in-house and coverage counsel. Interrelated wrongful acts clauses in the policy(ies) must be closely reviewed, and the facts which underlie the various claims must be examined, potentially through the discovery process. In addition,an insurer may need to advise the insured of its reservation of rights with regard to a number of different policies, or find itself without recourse after a judgment against its insured.