Applying New York law, the United States District Court for the Southern District of New York has held that no coverage is available for five lawsuits because the lawsuits constitute related claims, which relate back to a lawsuit that was filed before the policy period.  Nomura Holding America Co. v. Federal Ins. Co., 2014 WL 4473374 (S.D.N.Y. Sept. 11, 2014).  However, the court held that a specific litigation exclusion does not apply to bar coverage for the five lawsuits.

The insureds, a holding company, its subsidiaries, and their directors and officers, acted as sponsors, depositors, and underwriters for various securitizations of residential mortgage-backed securities (RMBS).  In January 2008, the insureds were named as defendants in a lawsuit alleging that misrepresentations were made in offering documents for RMBS securitizations.  In 2011 and 2012, five additional lawsuits were filed against the insureds alleging misrepresentations in various RMBS securitizations.

The policy’s specific litigation exclusion provided that no coverage was available for a claim “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 [in the 2008 suit].”

The policy defined “related claims” 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.”  The policy further specified that all related claims are deemed a single claim, made at the time the earliest of the claims was first made.

The insurer denied coverage for the five lawsuits because a specific litigation exclusion barred coverage and because the five lawsuits related back to the 2008 suit and therefore were deemed first made before the inception of the claims-made policy.  In the coverage action that followed, the court held that the specific litigation exclusion did nor bar coverage.  The court held that the exclusion was subject to more than one reasonable interpretation because it could apply only to claims that are the same or substantially similar to the amended complaint in the 2008 suit or claims with allegations that are the same or similar to the allegations in the amended complaint in the 2008 suit.  Because all doubts on the interpretation of the exclusion should be resolved in favor of the insured, the court concluded that the specific litigation exclusion did not preclude coverage for the five lawsuits.

The court held, however, that the five lawsuits were related claims, all of which related back to the 2008 suit, and therefore were deemed first made before the inception of the policy.  According to the court, the 2008 suit and the five lawsuits constituted related claims because each of them “share[d] a strong factual nexus.”  The court held that each action alleged specific misrepresentations concerning (i) underwriting standards, (ii) mortgages issued to otherwise unqualified borrowers, (iii) the number of delinquent borrowers, (iv) the value of the mortgages, (v) loan-to-value ratios, and (vi) the investment grade nature of the RMBs in each securitization.  Moreover, each suit was “brought by similarly injured 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, pooled, and securitized in strikingly similar ways.”