By Lindsey Dean, Esq. of Tressler LLP
Two lawsuits, filed four years apart and involving different theories of liability, involved Interrelated Wrongful Acts and constituted a single Claim first made outside the policy period. W.C. & A.N. Miller Dev. Co. v. Continental Casualty Company, No. 14-2327 (4th Cir. December 30, 2015).
W.C. and A.N. Miller Development Company (Miller) owned 80 percent of a land development company, Haymount. Haymount entered into a financing agreement with International Benefits Group, Inc. (IBG), under which IBG agreed to introduce Haymount to third-party lenders for its land development products in exchange for a finder’s fee of $3 million if Haymount secured a loan as a result of IBG’s introductions. Haymount eventually secured a $14 million loan from General Motors Acceptance Corporation Residential (GMAC) and refused to pay IBG its finder’s fee, despite the fact that IBG had, along with another party, introduced Haymount to GMAC.
IBG sued Haymount and other related parties for breach of contract in 2006, seeking payment of the $3 million finder’s fee. The District Court entered judgment in favor of IBG and against Haymount on January 8, 2010. On October 29, 2010, IBG again sued Haymount and other defendants, alleging that Haymount and the other defendants took actions to render themselves judgment proof. IBG alleged causes of action for fraudulent transfer, fraudulent conveyance, common law and statutory conspiracy, creditor fraud, and aiding and abetting.
Continental Casualty Company (Continental) issued a management liability policy to Haymount’s parent, Miller, for Claims for Wrongful Acts first made against Miller and/or its Subsidiaries during the period of November 1, 2010, to November 1, 2011. The policy contained a related claims provisions that provided: “[m]ore than one Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be considered as one Claim which shall be deemed made on…the date on which the earliest of such Claim was first made.” The policy defined Interrelated Wrongful Acts as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction or event.”
Miller tendered the 2010 lawsuit to Continental, seeking coverage of defense costs. Continental denied coverage on the basis that the acts alleged in the 2006 and 2010 lawsuits involved Interrelated Wrongful Acts and therefore constituted a single Claim deemed first made in 2006, prior to the inception of the policy. Haymount filed a declaratory judgment action in the U.S. District Court for the District of Maryland. The District Court agreed with Continental, finding that the broad definition of Interrelated Wrongful Acts supported Continental’s position that the 2006 and 2010 lawsuits were related. The District Court noted that the alleged common scheme “logically and causally” connected the 2006 action, finding that but for the actions of Haymount in trying to avoid payment to IBG, the 2010 lawsuit would never have been filed.
Applying Maryland law, the 4th U.S. Circuit Court of Appeals affirmed, finding the policy’s “expansive” definition of Interrelated Wrongful Acts to be unambiguous, particularly in light of the facts of the case. The court rejected the argument that the two lawsuits only contained a common motive, noting that the allegations in the lawsuits arose out of the same land development project, involved the same contract to secure financing, implicated a dispute over the same fee and were brought by the same claimant. The factual similarities created a common nexus sufficient to make the claims in the 2006 and 2010 lawsuits part of a single Claim first made outside of the policy period.
This case highlights that a related claims provision may push a claim outside of the policy period, particularly where, as here, there is significant factual overlap. Even though the claimant in the underlying lawsuits pleaded different causes of action and filed the lawsuits four years apart, the 4th Circuit focused on the factual similarities between the two actions in deeming the lawsuits related. Of note, the 4th Circuit deemed the Interrelated Wrongful Acts definition in the policy unambiguous, but nevertheless applied its own “common nexus” standard not found in the language of the policy itself. Courts that stray from the applicable policy language often produce inconsistent results in “related claims” cases.
For additional information, please contact Lindsey at firstname.lastname@example.org – (312) 627-4123