Insurer Had No Duty to Defend or Indemnify for Lawsuit Refiled During the Policy Period

Applying Illinois law, a federal district court has held that an insurer did not have a duty to defend or indemnify for a lawsuit that was filed and dismissed prior to the policy period and later refiled during the policy period.  Navigators Specialty Ins. Co. v. B.D. McClure & Assocs., Ltd., 2020 WL 5909067 (N.D. Ill. Oct. 6, 2020).

The insured, an insurance producer, entered a producer agreement with another insurer, pursuant to which the other insurer provided coverage to the insured’s client.  In 2015, prior to the policy period, the client and the client’s insurer sued the insured in Illinois state court, alleging that the insured had breached the production agreement by failing to timely notify the client’s insurer about a lawsuit filed against the client in 2010.  The client’s insurer voluntarily dismissed the suit, but refiled it in 2018, during the policy period, asserting the same claims as the previous 2015 suit.

The insurer issued an E&O policy to the insured for the policy period of August 18, 2018 to August 17, 2019, which provided coverage for “Wrongful Acts.”  The policy provided that coverage was only available if “such alleged Wrongful Act and all Related Wrongful Acts were committed on or subsequent to the Retroactive Date” and if “prior to the First Inception Date, no Insured knew or reasonably could have known that such Wrongful Act could result in a Claim.” “Related Claims” were defined as “all Claims . . . arising out of a single Wrongful Act of a series of. . . Wrongful Acts that have a common nexus, are interrelated, or are logically of casually connected by reason of any fact, circumstance, situation, event, transaction, practice, act, error, omission, [or] decision.”  The policy provided that all Related Claims “will be considered a single Claim and will be deemed to have been made on . . . the earliest date on which any such Claim was first made.”  The insurer denied coverage for the 2018 lawsuit based on these policy provisions and brought suit seeking a declaratory judgment that it owed no duty to defend or indemnify.  Both parties filed motions for judgment on the pleadings.

The court denied the insured’s motion and granted motion for judgment on the pleadings in favor of the insurer.  The court held that “[b]ecause all of [claimant’s] demands arose from a single wrongful act, the policy deems them to be a single claim” which was first made prior to the policy’s 2018 inception date.  The court also held that coverage for the underlying lawsuit was unavailable because the Wrongful Act alleged in the underlying lawsuit occurred before the retroactive date.  Finally, the court held that coverage would be barred by the policy’s prior knowledge exclusion because the insured plainly was aware of Wrongful Acts that not only could result in a Claim, they already had.