No Coverage for Second Lawsuit Alleging Acts that Correlate to Acts Alleged in Earlier Lawsuit Predating Claims-Made Policy Period
A federal district court, applying Florida law, has held that an insurer owed no duty to defend or indemnify its insured because the acts giving rise to the underlying litigation were related to earlier litigation that predated the claims-made policy period. Datamaxx Applied Tech., Inc. v. Chubb Custom Ins. Co., 2021 WL 4166740 (M.D. Fla. Sept. 13, 2021).
The insured, a technology company providing products and services to the law enforcement, criminal justice, public safety, and security industries, entered into a license agreement in which it agreed to use the claimant’s patented code to make and sell a jointly-developed product called Greenlight. In September 2013, the claimant sued the insured for allegedly violating the license agreement by using the claimant’s code to develop its own competing product called Omnixx+. The claimant alleged that the insured had breached the license agreement by failing to properly brand the Omnixx+ product as using the Greenlight technology and failing to pay the claimant for using Greenlight in the Omnixx+ product under the license agreement. Ultimately, the parties settled the litigation. However, in October 2018, the claimant sued the insured a second time, alleging that the insured had again breached the terms of the license agreement, as well as the first settlement agreement, by creating and marketing a new product with functions indistinguishable from those provided by Greenlight. The parties settled the second litigation in January 2020.
The insured tendered the second lawsuit to its insurer. The policy did not apply to loss “in connection with an act, if such act also correlates with any claim deemed to have been made before the beginning of the policy period.” The policy defined “act” to include “all correlated acts, errors or omissions and all series of continuous or repeated acts, errors or omissions.” The insurer denied coverage because the second lawsuit related back to the first lawsuit, and was thus not a claim first made during the policy period. In the subsequent coverage litigation that followed, both the insured and the insurer moved for summary judgment.
The court ruled in favor of the insurer and concluded that the second lawsuit correlated to the acts at issue in the first lawsuit, such that the second lawsuit was not covered under the policy because it was deemed to have been made before the beginning of the policy period. Although the policy did not define the term “correlate,” the court found that it was synonymous with “relate,” which Eleventh Circuit precedent holds to be unambiguous and encompassing both logical and causal connections. The court rejected the insured’s attempts to distinguish the two lawsuits, finding the distinctions “insignificant” because the policy language required the court to instead look at the acts underlying the two lawsuits, both of which involved the insured’s improper use of the Greenlight code in its own, competing product. Even though the products themselves differed, the court found that the acts were essentially the same. At the very least, the court determined that the insured’s violations of the license agreement before and during the negotiation of the first settlement constituted continuous or repeated acts. The court further concluded it “would simply defy logic to conclude that those claims are not related” because the second lawsuit alleged a breach of the settlement of the first lawsuit.
The court similarly rejected the insured’s attempts to invoke the reasonable expectation doctrine, noting that Florida law does not recognize this doctrine. Finally, the court denied the insured’s attempts to assert promissory estoppel because the insured could not establish that it had reasonably relied on any representation of coverage by the insurer.