No Coverage for Related Claims Where Insured Received Third-Party Indemnification

The United States District Court for the Southern District of Texas, applying Texas law, has held that an insurance broker is not entitled to coverage under its E&O policy because its former corporate parent already indemnified it for the settlement at issue. Southwest Risk LP v. Ironshore Specialty Ins. Co., 2016 WL 2898040 (S.D. Tex. May 18, 2016).

The insured, a property and casualty insurance broker, was sued by multiple parties alleging the broker’s failure to place sufficient insurance before an impending hurricane. The insured sought coverage under its professional liability policy. The insurer denied coverage on the basis that the claims were not “first made” during the policy period because the insured received the first demand letter and lawsuit before the policy period and the lawsuits all alleged related wrongful acts. The insurer also argued that it had no obligation to cover one of the settlements because the broker’s former corporate parent had agreed to indemnify the broker and already paid the settlement.

The court granted summary judgment for the insurer. The insured, while not disputing that the lawsuits all involved related allegations, argued that the original demand letter and petition received before the policy period were not “claims” under the policy and therefore the subsequent lawsuits could not be related back. Under the policy, “claim” was defined as “any written demand received by the insured for damages or for non-monetary relief based on any actual or alleged wrongful act.” The court rejected the broker’s argument that the original demand letter and petition were not claims because they did not clearly allege broker liability.

The court held that, because the letter and petition sought damages from the insured broker, they were written claims for damages against the broker within the meaning of the policy. In addition, the court held that the broker was not entitled to coverage for a settlement of one of the lawsuits in any event. The broker’s former corporate parent had agreed to indemnify the broker for certain liabilities in connection with the sale of the broker to another entity. Pursuant to that indemnity agreement, the former parent paid the settlement. The court held that, under Texas law, the broker and its present owner were not entitled to insurance coverage because they had suffered no pecuniary loss and were not entitled to a double recovery.

Wiley Executive Summary

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