No Coverage When Claims Relate Back to Notices Prior to Policy Inception
It is pretty common for D&O and E&O and other professional liability claims-made policies to have exclusions that preclude coverage for incidents that took place and were noticed prior to the inception of the policy. Unless the policyholder has purchased “nose” coverage or has a retroactive date that goes back far enough, a prior noticed claim will not be covered by a current policy. Additionally, these same policies typically have related claim provisions that tie a subsequent, related claim back to the earliest notice of claim and treat them as one claim. In a recent case, the New York Appellate Division, First Department affirmed a grant of summary judgment to the carriers using these provisions.
In Berkshire Hathaway Specialty Ins. Co. v. H.I.G. Capital, LLC, No. 652750/17 (N.Y. App. Div. 1st Dep’t May 21, 2019), a warning notice from a UK regulator asserting alleged wrongful conduct concerning the purchase of a UK entity was received prior to the inception of the 2016 policies in issue. It was undisputed that a 2014 notice was given to insurers prior to the inception of the 2016 policies. There was also a related 2016 notice. he policyholder asserted that the 2016 notice was sufficient to provide coverage.
In affirming the summary judgment order in favor of the insurers, the appellate court found that both notices related to the underlying business purchase and, therefore, both notices were related and deemed to be a single claim made on the earliest date on which the claim was first made. That date preceded the inception of the 2016 policies. Under the Prior Notice Exclusion, which the court found to be unambiguous, the insurers were not liable to make any payment for any loss concerning a claim that has been the subject of any written notice given before the inception of the policy period. The court held that it did not matter which notice the UK regulator will seek to pursue, because the 2016 notice was based on and arose out of the underlying purchase of the UK entity. The related nature of the notices, which all related back to the underlying purchase, and the pre-inception notice given to insurers concerning the purchase, triggered both these provisions of the 2016 policy and barred coverage.