Prior or Pending Litigation Exclusions Bar Coverage for Contempt Motion Filed in Civil Action Commenced Before Prior or Pending Dates
The U.S. District Court for the Northern District of Illinois, applying Illinois and Nevada law, has held that prior or pending litigation exclusions bar coverage for a contempt motion filed in a civil action commenced before the prior or pending dates in the exclusions. Rimini Street, Inc. v. AXIS Ins. Co., 2022 WL 17487749 (N.D. Ill. Dec. 7, 2022).
In January 2010, the insured, a software company, was sued for copyright infringement (the “Copyright Action”). The court entered a permanent injunction in August 2018. In July 2020, the plaintiff in the copyright action filed a motion for order to show cause why the insured should not be held in contempt for violating the injunction (the “Contempt Motion”). The insured sought coverage for the Contempt Motion under errors and omissions insurance policies. The insurers denied coverage based on prior or pending litigation exclusions because the Copyright Action was filed before the prior or pending dates in the exclusions. The insured filed a declaratory judgment action, and the insurers moved to dismiss.
The court granted the motions to dismiss, concluding that the prior or pending litigation exclusions barred coverage. Examining each exclusion, the court reasoned that the exclusions all “bar coverage for claims arising out of prior or pending actions as well as claims arising out of the facts underlying those actions.” The court then rejected the insured’s argument that the exclusions do not bar coverage for the Contempt Motion because “the facts underlying the Contempt Motion differ from those in the Copyright Action” given that “the exclusions by their terms also bar coverage for claims arising out of prior actions, even if the factual milieu differs.” The court further reasoned that “there is no such thing as an independent cause of action for civil contempt” because “civil contempt proceedings are considered to be a part of the action from which they stem” and that “[t]his principle suggests the Contempt Motion is part of the Copyright Action.” The court then concluded that the Contempt Motion “arises out of the Copyright Action because it originates, or comes into being from that action” and “if not for the Copyright Action, [the underlying plaintiff] could never have filed the Contempt Motion against [the insured], so there would be nothing for [the insured] to seek coverage for.”