Amended Complaint Adding Allegations and Defendants Not an Independent Claim
The United States Court of Appeals for the Seventh Circuit, applying Illinois law, has affirmed that a claims-made D&O policy does not afford coverage where the insured failed to report a lawsuit when made and reported only the subsequent amended complaint during a successive policy period. Hanover Ins. Co. v. R.W. Dunteman Co., 2022 WL 13769371 (7th Cir. Oct. 24, 2022).
The insured company purchased claims-made D&O policies for successive policy periods. During the first policy period, a claimant filed suit against the insured company seeking a declaration as to the shareholders’ respective ownership rights. In the subsequent policy period, the claimant filed an amended complaint adding new allegations as well as additional insured defendants. The insureds did not tender the initial complaint but did provide notice of the amended complaint. The insurer denied coverage for failure to report the claim within the reporting period of the initial policy. The district court granted the insurer’s motion for judgment on the pleadings, and the insureds appealed.
The Seventh Circuit affirmed. The court agreed that the insured had a duty to report the initial complaint. Citing the policy’s broad definition of “Wrongful Acts,” the court rejected the argument that the initial declaratory judgment complaint did not allege any Wrongful Acts. The court held: “the reporting obligation does not depend on the specific remedies that the plaintiff requests in the underlying litigation. Nor is it relevant whether the suit could have led to a compensable loss.”
The court further agreed with the insurer that the amended complaint was not a new “Claim.” The court noted that the policies defined a Claim as a “civil proceeding,” which can “encompass far more than just the allegations and theories contained in a first pleading.” The court also reasoned that the amended complaint was a single Claim with the initial complaint under the policies’ broad definitions of “Related Wrongful Acts” and “Related Claims.” The court held that the new theories of relief brought against the newly named insured defendants were at least “based upon” or “related” to the allegations at issue in the original complaint.
- Special Counsel