Applying California and Virginia law, a federal district court has held that two class action lawsuits alleging similar wrongful conduct, but brought by different classes for different class periods, were nonetheless related and constituted a single claim. Northrop Grumman Corp. v. AXIS Reinsurance Co., 2018 WL 5314918 (D. Del. Oct. 26, 2018).
The insured, a defense technology company, was named as a defendant in a class action lawsuit for allegedly breaching its fiduciary duties by allowing its retirement plans to pay excessive administrative fees to the insured and third-party service providers and allowing the plans to pay excessive investment management fees on various funds. The insured tendered the lawsuit to its insurers, who in turn determined that the claim was made during the 2006-2007 policy year. Several years later, another class action lawsuit was filed against the insured. This second lawsuit also alleged that the insured had violated its fiduciary duties by allowing the plans to pay excessive administrative fees to the insured and a third-party service provider and by allowing the plans to pay excessive investment management fees on certain funds.
The insured sought coverage for the second lawsuit under its 2016-2017 policies, but the primary carrier took the position that the two lawsuits were related and that coverage properly belonged under the 2006-2007 policy. Because the primary carrier’s limit of liability had been exhausted under the 2006-2007 policy, it argued that the excess carrier’s policy was implicated. The excess carrier, however, argued that the two lawsuits were not related and that coverage belonged under the 2016-2017 tower, such that the primary carrier’s policy was triggered. The insured filed suit against both carriers.
The court ultimately determined that the two lawsuits alleged related Wrongful Acts such that they were deemed made at the time of the first lawsuit under the 2006-2007 policy. As an initial matter, the court noted that claims are “related” if there is either a logical or a causal connection between them. The court found that the allegedly offending behavior in both lawsuits was the administration of the insured’s retirement plans, and that each case relied upon the same specific behaviors: the payment of allegedly excessive administrative fees to the insured and third party service providers; and the payment of allegedly excessive investment management fees on various funds. Although there were differences between the two lawsuits—including the plaintiffs and class periods—the court concluded that there was a large overlap between the classes in each of the lawsuits. The court was unpersuaded by the fact that the members of the insured’s relevant committees tasked with managing the plans had changed over time, because they all continued in the same course of allegedly illegal conduct. The court thus held that the two lawsuits alleged related Wrongful Acts, such that the lawsuits were considered made at the time of the earlier lawsuit under the 2006-2007 policy.