Prior Knowledge/Warranty Exclusion

In a win for Wiley Rein’s client, the United States District Court for the Southern District of Florida, applying Florida law, held that, as a matter of law, a lawsuit against an engineer arising out of three alleged errors in connection with a construction project constituted a single “claim” under the engineer’s claims-made-and-reported architects and engineers policies. Nova Southeastern Univ., Inc. v. Continental Cas. Co., No. 18-CIV-61842-RAR (S.D. Fla. Dec. 27, 2019).  Furthermore, the court held that the policies’ prior knowledge and prior notice provisions separately and independently barred coverage for the lawsuit.

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Applying Ohio law, a federal district court has held that misrepresentations in an application warranty statement regarding three unreported lawsuits filed against the insured during the initial policy period rendered a renewed claims-made and reported policy void ab initioCertain Underwriters at Lloyds London Subscribing to Policy No.  HMPL 18-0164 & HMPL 17-0158 v. KG Admin. Servs., Inc., 2019 WL 6770061 (N.D. Ohio Dec. 12, 2019).  The court also held that, because the claims were not reported during the initial policy period, the insurer did not have any coverage obligations under the initial policy.

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Applying California law, the United States Court of Appeals for the Sixth Circuit has held that an insurer properly denied coverage under consecutive claims-made-and-reported policies based on the insured’s failure to provide timely notice of a claim and the insured’s failure to disclose the pending claim in its application for coverage.  US HF Cellular Commc’ns., LLC v. Scottsdale Ins. Co., 2019 WL 2323802 (6th Cir. May 31, 2019).

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The United States District Court for the Central District of California, applying California law, has held that an insured is entitled to independent counsel where an insurer’s coverage action turns on facts that overlap with facts that might establish an insured’s liability in the underlying lawsuit.  Aspen Am. Ins. Co. v. Ou, 2019 WL 1950293 (C.D. Cal. Mar. 14, 2019).

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The United States District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, found that an attorney “knew or should have known” he might get sued for (allegedly) botching a settlement term sheet where a worker’s compensation review board publicly criticized his handling of the settlement, even though his client did not appear angry at the time.  Zavodnick, Zavodnick & Lasky, LLC v. Nat’l Liab. & Fire Ins. Co., 2019 WL 1003157 (E.D. Pa. Mar. 1, 2019).  Because the insured attorney knew the relevant facts before his professional liability policy incepted, the district court granted the insurer’s motion for summary judgment that there was no coverage.

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The United States Court of Appeals for the Seventh Circuit, applying Indiana law, has revived a coverage dispute over whether a medical malpractice insurer’s professional liability insurer must cover the malpractice insurer’s post-verdict excess settlement of an underlying wrongful death claim, finding that factual questions remain as to whether the malpractice insurer’s refusal to settle the wrongful death claim on behalf of its insured physician was an actual “Wrongful Act” triggering a prior knowledge exclusion.  Med. Protective Co. v. Am. Int’l Specialty Lines Ins. Co., 2018 WL 6613336 (7th Cir. Dec. 18, 2018).

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The United States Court of Appeals for the Second Circuit, applying New York law, has held that a warranty executed before the inception of an excess directors and officers liability policy precluded coverage for a Securities and Exchange Commission (SEC) action because the insured knew of the SEC’s “escalating” investigation before the warranty was signed.  Patriarch Partners, LLC v. AXIS Ins. Co., 2018 WL 6431024 (2d Cir. Dec. 6, 2018).

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Applying Michigan law, the United States Court of Appeals for the Sixth Circuit has held that an insured had prior knowledge of a potential claim following a letter from an investor demanding compensation for losses and threatening legal action.  Alterra Excess & Surplus Co. v. Excel Title Agency, 2018 WL 3599597 (6th Cir. July 26, 2018).

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An Ohio federal district court has held that a specific litigation exclusion concerning a lawsuit brought by a state attorney general alleging that the insured oversupplied “pill mills” barred coverage for a show cause order the insured later received from a federal law enforcement agency concerning some of the same alleged misconduct.  Miami-Luken, Inc. v. Navigators Ins. Co., 2018 WL 3424448 (S.D. Ohio July 11, 2018).

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