Lawsuit Deemed Related to Notice of Circumstances Submitted During Prior Claims-Made Policy Period Under Florida’s “Sufficient Factual Nexus” Test

The United States District Court for the Western District of Louisiana, applying Florida law, has held that an investor’s lawsuit against an attorney related back to a notice of a potential claim submitted during the earlier policy period of a different claims-made policy because the lawsuit and the prior notice were logically linked by a “sufficient factual nexus” under Florida law. Stafford v. Stanton, 2022 WL 4491073 (W.D. La. Sept. 27, 2022).

In 2016, an attorney allegedly solicited a $2.5 million investment on behalf of a client operating a fraudulent business scheme. Later that year, the attorney provided notice to its then-insurer of a potential claim arising from his representation of the client. The investor subsequently filed suit against the attorney for negligence and breach of fiduciary duty relating to the investment and also named the attorney’s new professional liability insurer for the 2017-2018 policy period as a defendant. That insurer denied coverage.

In the ensuing coverage litigation, the insurer argued that the lawsuit related back to the notice of a potential claim that the attorney had submitted during the prior policy period of a different insurer’s claims-made policy. The court agreed, holding that, under Florida law, the question of relatedness “does not require exact factual overlap, or even identical legal causes of action, but rather focuses simply on whether the claims are logically linked by a ‘sufficient factual nexus.’” The court reasoned that the attorney sent its prior insurer notice of a potential claim after (i) the attorney had learned that the fraudulent business defaulted on several loans; (ii) a group of guarantors had filed suit against the fraudulent business over a multimillion-dollar loan; and (iii) the attorney had been subpoenaed for all documents and communications related to the fraud. Under the circumstances, the court determined that both the notice of a potential claim and the lawsuit arose out of the attorney’s representation of the fraudulent business and the role the attorney played in securing and handling its loans. The lawsuit against the attorney thus properly was deemed a claim first made when the notice of a potential claim was provided to the insured’s prior insurer in 2016.

The court also held that, even if the investor’s claim against the attorney was a claim first made during the 2017-2018 policy, the policy’s prior knowledge provision would bar coverage. That provision stated that “[a]s of the inception date of this policy, no insured had any knowledge of any circumstance likely to result in or give rise to a ‘Claim’ nor could have reasonably foreseen that a claim might likely be made.” According to the court, under Florida law, such a provision “may be triggered under a subjective or an objective standard.” Because, prior to the inception of the 2017-2018 policy, the attorney “could have reasonably foreseen that a claim might likely be made” due to the attorney’s representation of the fraudulent business, the court determined that the prior knowledge provision would bar coverage for the investor’s claim.

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