Specific Matter Exclusion Bars Coverage for Lawsuits Involving Same Parties as Lawsuit Included in Definition of “Specific Matter”
The United States Court of Appeals for the Ninth Circuit, applying California law, has affirmed the district court’s holding that a specific matter exclusion bars coverage for a series of lawsuits involving the same parties as a lawsuit included in the policy’s definition of “Specific Matter” in that exclusion. Ocean Towers Hous. Corp. v. Evanston Ins. Co., 2019 WL 2484415 (9th Cir. June 14, 2019).
The insured, a housing corporation, was sued in a series of lawsuits brought by a bank alleging that the insured’s officers and directors engaged in a scheme by which the bank’s security interests in several units of the insured’s buildings would be extinguished. The insured’s directors and officers were also sued in a derivative suit for breach of fiduciary duty. The insured sought coverage for the lawsuits under successive directors and officers policies. The insurer denied coverage for the lawsuits based on a specific matter exclusion. The specific matter exclusion barred coverage for “Loss on account of any Claim based upon, arising from, or in consequence of any fact, circumstance or situation underlying or alleged in any Specific Matter or any substantially similar fact, circumstance or situation.” The definition of “Specific Matter” included a prior lawsuit between the insured and the bank.
The insured filed a declaratory judgment action, and the district court granted summary judgment for the insurer. The court concluded that “[w]hile the allegations in the four [bank] actions are not completely identical to those in the [Specific Matter], the [underlying plaintiff’s] allegations plainly echo them” and “[t]he claims in the [derivative action] are, in part, explicitly based on the alleged misconduct of [the insured] and its officers and directors that led to the [Specific Matter].” Ocean Towers Hous. Corp. v. Evanston Ins. Co., 2017 WL 5665002, at *3-*4 (C.D. Cal. Nov. 16, 2017).
After the district court ruled in favor of the insurer, on appeal, the Ninth Circuit affirmed the entry of summary judgement, concluding that the “very broad” specific matter exclusion applied to bar coverage because the lawsuits were “‘based upon, aris[e] from, or [are] in consequence of any fact, circumstance or situation underlying or alleged in’ [the Specific Matter] or are ‘based upon, aris[e] from, or [are] in consequence of ... any substantially similar fact, circumstance or situation.’”