Prior Litigation Exclusion Bars Coverage Despite Differences in Parties and Damages Sought

A Michigan federal court has held that a prior and pending litigation exclusion barred coverage for a lawsuit against a real estate broker listing service because the suit alleged the same anti-competitive behavior as prior proceedings by other plaintiffs and the Federal Trade Commission (FTC).  Realcomp II, Ltd. v. ACE Am. Ins. Co., No. 12-cv-11280 (E.D. Mich. Sept. 9, 2014).

Prior to the inception of a series of claims-made professional liability policies, the insured was sued by the FTC for alleged anti-competitive behavior.  The FTC asserted that the insured’s real estate listings discriminated against “discount” brokers using alternative contractual arrangements.  A discount brokerage also filed a civil action against the insured alleging that this conduct put the brokerage out of business.  After the policies incepted, another lawsuit was filed based upon the same underlying set of circumstances and alleging restraint of trade or commerce under the Sherman Act.

The operative policy excluded coverage for “any claim based upon, arising out of, in consequence of, or in any way involving . . . any prior and/or pending litigation . . . ; or [a]ny fact, circumstance, or situation underlying or alleged in such litigation[.]”  The insured argued that the exclusion did not apply to the later lawsuit because “the parties are distinct; the claims are separate and distinct; and the claims were not, or could not have been, brought by the [original] plaintiffs.”  The court rejected these arguments, noting that the exclusion did not require privity or joinder between the plaintiffs in prior and excluded claims.  The court further found that the exclusion applied even though the prior lawsuit sought damages based on the plaintiff’s allegation that the insured forced it out of business and the later lawsuit alleged that the plaintiffs were damaged due to increased prices for brokerage services.  The court found it sufficient that the prior and later lawsuits alleged the same anti-competitive behavior by the insured—that the insured used policies for access to its services that discriminated against discount brokers in restraint of trade.

Wiley Executive Summary

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