No Coverage Where Underlying Complaint Did Not Allege Conduct After Retroactive Date; Suits Involving Nearly Identical Course of Conduct Are Related

An Illinois federal court has held that an insurer owed no duty to defend an underlying lawsuit where the complaint did not allege any conduct occurring after that policy’s retroactive date.  Wesco Ins. Co. v. Regas, 2015 WL 500702 (N.D. Ill. Feb. 3, 2015).  The court also held that a second carrier owed no duty to defend the suit by operation of a prior notice exclusion. Wiley Rein represented one of the insurers.

An insured lawyer was sued in two underlying cases, one of which was filed in 2010 and one of which was filed in 2013.  Both lawsuits alleged a “widespread and long-lasting conspiracy,” in which the insured’s father schemed to defraud a bank through the issuance of improper loans.  The lawyer’s 2010 E&O carrier accepted a defense for the 2010 suit under a reservation of rights.  However, both the lawyer’s 2010 E&O carrier and her 2013 E&O carrier denied coverage for the 2013 suit.

The court granted a motion for judgment on the pleadings filed by the 2010 carrier because the 2013 underlying complaint did not allege any conduct occurring after that policy’s retroactive date.  The claimant admitted that the underlying complaint did not “describe a particular action” on or after the retroactive date, but argued that the activities described in the complaint “ha[d] not been the subject of discovery” and were inherently “shrouded in secrecy.”  The court rejected this theory, and held that the carrier had no duty to defend “based on the allegations of the [u]nderlying complaint as they are currently pled, not based on the possibility of future discovery and/or amendments to the complaint.”

The court also granted a motion for summary judgment by the 2013 carrier, holding that it owed no duty to defend the insured in the 2013 suit because of a prior notice exclusion.  That exclusion barred coverage for claims noticed to prior carriers that arose out of acts in the rendering of legal services that were “temporally, logically or casually connected by any common fact, circumstance, situation, transaction, event, advice or decision.”   The court found this policy language to be “sweeping.” Although the 2010 suit and the 2013 suit may have alleged “distinct legal claims,” both suits arose out of “nearly indistinguishable” courses of conduct.  As the 2010 suit was noticed to a prior carrier, the court found that the suits were related under the language of the policy and held that the insurer owed no duty to defend the 2013 suit.


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