Insurer Owes No Duty to Defend “Related Claim” Where Suit is Based on Same Course of Discriminatory Conduct Alleged in Prior Litigation
Applying New York law, a federal district court has held that an insurer owed no duty to defend a policyholder, finding that a claim arising from allegations of “longstanding discriminatory animus” was related to a prior claim based on a “sufficient factual nexus” between the lawsuits brought thirteen years apart. Darwin Nat’l Assurance Co. v. Westport Ins. Corp., 2015 WL 1475887 (E.D.N.Y. Mar. 13, 2015). In addition, the court determined that coverage also was excluded under the “claims-made” policy’s “prior or pending litigation” provision.
In 1996, a Catholic diocese brought an action alleging that a village violated its rights to use a property for religious purposes by denying its application to develop a cemetery. The diocese prevailed but brought a subsequent action against the insured municipality in 2009, generally alleging that the village continued to discriminate against it by taking measures that prevented the diocese from developing the property. The insured tendered the defense of the 2009 action to two insurers under separate “claims-made” Public Officials and Employees Liability policies. The insurers, the first of which had defended the village in the 1996 action, agreed to share in advancing defense costs. The second insurer filed the present declaratory judgment action, asserting that the 2009 action did not constitute a claim “first made” during the policy period and that the policy’s “prior or pending litigation exclusion” precluded coverage.
On the parties’ motions for summary judgment, the court first determined that, although a “claim” should be construed as a cause of action, rather than a lawsuit, the causes of action alleged in the 2009 action were related to those of the 1996 action because they shared a “sufficient factual nexus.” Noting the “broad construction” given to the unambiguous terms “based upon,” “arising out of” and “in any way involving” in the policy’s definition of “related claim,” the court reasoned that the claims were related largely because the lawsuits involved the same property, the same types of complaints, and “virtually the same parties.” The court concluded that under either “arising out of,” which requires a causal connection, or “in any way involving,” which requires only “some kind of connection or relationship,” the claims were related based on its finding that, in the 2009 action, the diocese alleged a “consistent course of discriminatory conduct” and a “longstanding discriminatory animus” that resulted in both the initial denial of the diocese’s application and the subsequent measures taken by the insured to avoid the consequences of the state court ruling. In reaching that result, the court rejected the village’s argument that the claims were unrelated because some causes of action in the 2009 action were based on allegations of abuse unrelated to the earlier lawsuit, finding instead that the complaint alleged that the village took those actions “as part of a long-standing campaign” to block development that dated back to the 1996 action.
Applying similar reasoning, the court further held that the policy’s “prior or pending litigation” exclusion, which excluded from coverage defense expenses “from any Claim based on, arising out of . . . or in any way involving . . . any fact, circumstance, situation, transaction, event, or Wrongful Act . . . underlying or alleged in any . . . litigation . . . brought prior to the Inception Date,” negated the insurer’s duty to defend. Because the diocese generally alleged that the campaign to block its application for development stemmed from the village’s animus, the court found that the 2009 action alleged causes of action that arose out of or in any way involved facts “underlying or alleged” in the 1996 action.
The court also held that the first insurer had a duty to defend in the 2009 action. In so doing, the court rejected the argument that the dismissal of certain causes of action as time-barred severed any connection between the two suits. The court concluded that the argument ignored the fact that the standard for establishing a duty to defend, which is a question of contract interpretation, is different from the standard for finding a continuing violation for statute of limitations purposes, which must be based on the accrual date of certain claims.