The United States District Court for the District of Hawaii, applying Hawaii law, has held that a claims-made policy did not provide coverage for damages awarded in a final judgment for an underlying lawsuit because the claims in that lawsuit were first made prior to the policy period.  Greenspon v. AIG Specialty Ins. Co., 2020 WL 1917333 (D. Haw. Apr. 20, 2020).

The plaintiff, a property owner, had filed two separate lawsuits in 2011 and 2014.  In the 2011 lawsuit, the property owner asserted claims to quiet title based on an alleged wrongful foreclosure of his property and fraudulent transfer of title against several financial institutions.  In the 2014 lawsuit, the plaintiff asserted claims that the insured and other entities had, among other things, wrongfully initiated foreclosure on his property and failed to publish a notice containing the actual date and time of the sale of his property.  In 2018, the state court entered a final judgment in the 2014 lawsuit in favor of the property owner and against the insured, awarding the property owner over $36 million in compensatory damages, punitive damages, and costs.

The property owner subsequently filed a complaint against the defendant’s D&O insurer seeking coverage for that final judgment under the insured’s policy.  The insurer argued that there was no coverage because the property owner had first asserted his claims for wrongful foreclosure in the 2011 lawsuit, which was prior to the policy period in force when the 2014 action was filed.  The property owner argued that the claims asserted in his 2014 lawsuit for negligent auction conduct and breach of duty were first made during the policy period and were unrelated to the allegations made in the 2011 lawsuit.

The court concluded that the claims alleged in the 2014 lawsuit were first made in the 2011 lawsuit, and, as a result, there was no coverage under the policy in effect when the 2014 lawsuit was filed.  The court determined that each of the claims in both the 2011 and 2014 lawsuits were premised on the alleged wrongful foreclosure of the plaintiff’s property.  Accordingly, “the civil proceeding commenced by service of a complaint alleging wrongful foreclosure was first made in the 2011 lawsuit, irrespective of it also being made in the 2014 lawsuit.”

In addition, the court concluded that the final judgment did not distinguish between the alleged unlawful acts in the two lawsuits and instead awarded commingled damages for commingled claims.  As such, even if the property owner could show that some of the acts alleged in the 2014 lawsuit were claims first made during the policy period, he could not establish that the damages for which he sought coverage related exclusively to those covered claims.