Separate Lawsuits Part of a Single Claim First Made Prior to Policy Period

The United States District Court for the District of Colorado, applying Colorado law, has held that two lawsuits were connected by the “single scheme” of a contractor to interfere with a government contract for a surveillance camera system.  Ciber, Inc. v. Ace Am. Ins. Co., 2017 WL 2537092 (D. Colo. June 9, 2017).  The district court further held that, because the lawsuits were connected, they were part of a single claim first made prior to the inception of a claims-made professional liability policy.  As a result, there was no coverage under the policy.

In 2003, the New Orleans police used private security footage to investigate a car wash shooting.  Finding the footage useful, the Mayor of New Orleans solicited bids for a public surveillance system and awarded the contract to a private contractor.  The city also hired a second contractor to assist, who in turn hired city-employed subcontractors.  A dispute arose between the private contractor and the second contractor in which the first contractor alleged that the second contractor and its city-employed subcontractors interfered with the implementation of the contract.  The case settled.

A few years later, a technology company sued the first contractor, the second contractor, and several defendants named in the earlier action.  The company alleged that it had created the surveillance technology in collaboration with the first contractor, and further alleged that both contractors had colluded with city employees to win the government contract.  The second contractor tendered the lawsuit to its liability insurer, who denied coverage on the basis that the operative “claim” was first made when the prior lawsuit occurred, and therefore outside the policy period.

The district court agreed, framing the issue as whether the two lawsuits involved “interrelated wrongful acts,” which the policy defined as “all wrongful acts that have as a common nexus any fact, circumstance, situation, event, [or] transaction.”  The insured urged the court to require a causal connection between the lawsuits, but the court rejected the argument, stating, “[The insurer] points out that the ‘problem with [the] ‘but-for’ standard is that it would require the Court to rewrite the Policy, which Colorado law forbids.’”

Instead, the district court focused on whether there was a “connection” between the two suits and found that there was.  In particular, the court determined that both lawsuits involved the same contract and were connected by the second contractor’s “single scheme” to “cut out the originators of [the surveillance] system from current and future business dealings” in favor of city employees.  Thus, the court held that, because the claim arose prior to the inception of the claims-made policy, no coverage existed.

Wiley Executive Summary

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