No Coverage for Claim Involving New Defendants and Alleging New Wrongful Acts Where Claim Relates Back to Earlier Policy Period
The United States District Court for the Southern District of Florida, applying Florida law, has held that a D&O policy did not cover a claim against directors because the claim related back to an earlier policy period, even though those individuals were not previously named as defendants in the lawsuit and the new allegations included alleged misconduct taking place after the prior policy had ended. PNI Litig. Trust v. Nat’l Union Fire Ins. Co., 2023 WL 2528942 (S.D. Fla. Feb. 14, 2023).
A company purchased claims-made D&O policies for two annual successive policy periods from January 2016 through January 2017, and January 2017 through January 2018. The policies’ relation-back provisions provided that, if multiple claims were related, the later claims would be deemed first made at the time of the earlier claim. The policies only provided coverage for claims first made during the policy period and expressly precluded coverage for claims deemed first made prior to policy inception. The policies defined “Related Claims” as claims “alleging, arising out of, based upon or attributable to any facts or Wrongful Acts that are the same as or related to those” in another claim.
In 2016, the policyholder and its directors were sued in a class action, alleging that the company’s CEO abused his position to manipulate the board of directors and unjustly enrich himself. The D&O carrier agreed to defend the lawsuit under the 16-17 policy. In 2017, the plaintiff filed amended pleadings, adding new derivative causes of action against the company based on new allegations specific to conduct that occurred in 2017 and naming three new directors as defendants. The D&O carrier denied coverage for the newly named directors under the 17-18 policy because the new allegations were related to the claim first made in 2016, even though the amended pleadings described acts that occurred in 2017 with individuals not named in the 2016 complaint. The D&O carrier determined that the 2017 claim was thus deemed first made during the 16-17 policy pursuant to the 17-18 policy’s relation-back provision and were accordingly not covered under the 17-18 policy.
The court rejected the policyholder’s arguments that the claims were unrelated. The court determined that the test for relatedness under the terms of the 17-18 policy was whether the allegations have a “logical or causal connection” in any “meaningful sense of the word.” In the court’s view, the claims were related because the 2017 acts were mere continuations, repetitions, and/or direct continuations of the earlier conduct described in the 2016 complaint. The 17-18 policy thus plainly did not cover the 2017 claim because it was deemed first made during the 16-17 policy period.