March 23, 2022
Attorneys James Deaver, Jan Duffalo and Izak Weintraub of London Fischer LLP recently obtained summary judgment in the Eastern District of New York in a case involving coverage for a corporate officer under a Directors & Officers (D&O) policy. In granting summary judgment to London Fischer’s client, Westchester Fire Insurance Company (“Westchester”), the Court applied the policy’s Interrelated Wrongful Act language and held that contempt proceedings in 2018 against the officer arose out of Interrelated Wrongful Acts and prior claims made before the start of the 2017-18 claims-made policy.
The D&O policy at issue covered, among other entities, Atlas and its officers and directors. The plaintiff in the coverage action, an officer of Atlas, sought coverage for a 2018 contempt proceeding in Texas federal court. The contempt proceeding arose out of prior litigation proceedings between Atlas, which provides prepaid calling card services, and local telephone carriers involving switched access charges. Atlas breached a 2013 settlement agreement in which it agreed pay the charges and the Texas federal court issued an injunction in 2016 requiring Atlas to pay the charges. When Atlas failed to comply with the injunction, the Court held the plaintiff and others in contempt. The plaintiff argued that he was not personally implicated in the litigation until the contempt proceeding in 2018, so that the proceeding was a timely reported “Claim” as to him and should be covered by the Policy.
On Westchester’s summary judgment motion, Senior U.S. District Court Judge Frederic Block held that the contempt proceeding “Claim” against the plaintiff arose from Interrelated Wrongful Acts that had given rise to the prior litigation Claims, the earliest of which was made in 2013. The Court found that the Interrelated Wrongful Acts language only requires a common nexus of facts and such a nexus was established because the contempt proceeding involved enforcement of an earlier settlement agreement between Atlas and the telephone carriers that Atlas had breached. Under the Policy, all Claims arising out of Interrelated Wrongful Acts are deemed to be a single Claim made at the time the earliest Claim was made. The Court held that the contempt proceeding “Claim” against the plaintiff was deemed to have been first made in 2013, not during the policy period, and therefore was not a claim first made during the 2017-18 policy period .
Whether claims involve related or interrelated wrongful acts is a frequent coverage issue. The Eastern District’s decision confirms that interrelated wrongful acts may give rise to separate claims against a director/officer and the corporation, and such claims are deemed to be a single claim made at the time the earliest such claim was made.
View a copy of the decision below: