The Eleventh Circuit upheld a win for the insurer
under a claims-made-and-reported policy in Crowley Mar. Corp. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, PA, No. 18-10953, 2019 WL 3294003 (11th Cir. July 23,
2019), finding that the insured did not provide timely notice. In so holding,
the court rejected the insured’s argument that it provided timely notice by sending
a letter to the insurer referencing an affidavit which the insured claimed
alleged wrongful conduct against the insured, but was sealed,
preventing the insurer from confirming the insured’s claim for
At issue in the Crowley
case was a policy issued to Crowley Maritime Corporation with an initial
policy period of November 1, 2007 to November 1, 2008, and an extended discovery
period through November 1, 2013. The policy covered certain claims made against
company executives and reported to the insurer during the initial policy period
or extended discovery period.
The coverage dispute in the Crowley case arose out of a grand jury investigation into Crowley’s
subsidiary and one of its executives, Thomas Farmer, alleged to have been
involved in setting artificially high prices for shipping between the U.S.
and Puerto Rico. On April 17, 2008, a search warrant was executed at Crowley’s
headquarters in connection with the investigation, and Farmer received
subpoenas to appear before the grand jury.
The day before the search warrant was executed, an FBI
agent delivered an affidavit supporting the search warrant to a federal
magistrate judge. The affidavit described the antitrust investigation and
asserted that Farmer was involved in the criminal activity. However,
the affidavit was sealed to protect the ongoing investigation, and
the search warrant and subpoenas served on Crowley and Farmer did not disclose
Farmer’s alleged conduct.
On April 25, 2008, Crowley provided notice to its
insurer of the claim, requesting coverage for Farmer’s defense costs. The
insurer denied coverage because the affidavit was under seal, preventing it
from reviewing the allegations to determine whether coverage was afforded, and the
search warrant and subpoena did not name Farmer as a target of the
investigation as required for coverage under the policy.
Over the next several years, Crowley incurred legal
fees of roughly $2.5 million on behalf of Farmer, before the government issued
a written plea offer to Farmer on February 11, 2013, at which point the
insurer agreed to treat the investigation as a claim under the policy and
defend Farmer. However, the insurer refused to reimburse Crowley for the
defense costs incurred prior to February 11, 2013, when it received notice of
the written plea offer. Ultimately, Farmer rejected the plea offer, and
proceeded to trial, which resulted in an acquittal.
Based upon the content of the affidavit, which was
unsealed on April 24, 2015, during the course of the trial, Crowley provided
the unsealed affidavit to the insurer in July 2015, and demanded reimbursement
for the $2.5 million in defense costs incurred on behalf of Farmer
from April 2008 until February 2013. When the insurer refused, Crowley
filed suit in the Middle District of Florida. The district court granted
summary judgment in favor of the insurer, and Crowley appealed.
On appeal, Crowley argued that the content of the
affidavit gave rise to a claim under its policy, and that such claim was
“first made against” Farmer and “reported to” the insurer in April 2008
(during the initial policy period), even though the affidavit was under
seal and the contents were not disclosed to Crowley or the insurer
at that time. The Eleventh Circuit held that the affidavit gave rise to a
claim under the policy and assumed arguendo
that the claim was “first made against” Farmer when the affidavit was executed
in April 2008.
However, the court held that the claim was not timely reported
to the insurer during the policy period or discovery period (November 1,
2007 to November 1, 2013) as required by the policy. In so holding,
the court held that Crowley had not provided notice of the claim to the insurer
in April 2008 (when it first provided notice of the claim, but the
affidavit was sealed), and Crowley’s notice to the insurer in July 2015
(following the unsealing of the affidavit), was untimely because it
came over a year after the expiration of the extended discovery period. In
relation to the April 2008 notice, the court held that “Crowley had to do more
than simply point to the sealed Affidavit and ask [the insurer] to take its
word for it that a Claim in fact existed.”
As a result, the court
affirmed the district court’s denial of coverage, holding that Crowley
was not entitled to reimbursement for the $2.5 million in defense
costs incurred on behalf of Farmer from April 2008 to November 2013.