Court: District Court of Appeal of Florida; April 9, 2014; Florida; State Appellate Court
Appellants contested a final summary judgment from the trial court, which ruled that no coverage existed under a claims-made insurance policy for a class action claim filed after the policy period. The court determined this was erroneous, as the class action claim was based on facts similar to an earlier claim filed during the policy period. The Multiple Claims provision of the policy allows such claims to relate back to prior claims, thus providing coverage.
Berman Mortgage Corporation (BMC), a mortgage broker, had a Miscellaneous Professional Liability Insurance Policy issued by Axis Surplus Insurance Company, effective from May 10, 2007, to May 10, 2008. The policy included coverage for negligent acts. In October 2007, Robert Revitz filed a claim against BMC for negligent brokering and servicing of mortgages, which was made during the policy period and properly notified Axis. Following the appointment of a Receiver for BMC in December 2007, the Revitz claim was stayed.
In May 2009, after the policy had expired, a class action was filed by the Receiver and Jerilynn Gidney on behalf of approximately 640 investors against BMC's principal officers, alleging negligence in brokering and servicing numerous projects, claiming damages exceeding $168 million. Axis subsequently sought a declaratory judgment to deny coverage for the class claim, leading to summary judgment in favor of Axis and a denial of the Receiver and Gidney's motion.
The trial court erroneously analyzed the case under the Reported Wrongful Acts provision instead of the Multiple Claims provision, which merely requires that the new claim be based on similar facts to a prior claim made during the policy period, thus warranting coverage.
The class action claim is deemed related to the Revitz claim, thereby qualifying for coverage under the policy. The insurance in question is a 'claims-made' policy, which requires that claims be reported within the policy term to trigger coverage. Unlike 'occurrence' policies that cover incidents occurring during the policy period regardless of when they are reported, claims-made policies necessitate that the claim or potential claim is made known to the insurer during the policy period. The specific policy provision, 'Claims First Made,' states that coverage applies only when a written claim is first made against an insured during the policy period, and the claim must arise from a wrongful act committed in that same period.
Additionally, claims-made policies often include provisions for 'related claims,' which allow claims made after the policy period to be covered if they relate back to a report made during the policy period or a claim made by a third party during that time. This is designed to limit related wrongful acts to a single policy period and liability limit, while also enabling insured parties to secure coverage for future related claims under earlier policies.
The dispute at hand revolves around whether the Revitz claim falls within the 'related claims' provisions. The trial court considered the 'Reported Wrongful Acts' provision, which allows coverage for claims made post-policy period if specific conditions are met. These include the wrongful act occurring during the policy period, with written notice provided to the insurer that contains detailed information about the act, the parties involved, and potential damages. The provision imposes strict requirements regarding the information that must be reported to ensure coverage.
The trial court classified the Revitz claim as a written report of a wrongful act but determined it lacked a description of the potential damages related to the class action claim, thus failing to trigger coverage for that claim. While it is agreed that the Revitz claim did not provide the necessary information, there is disagreement regarding the applicability of the Reported Wrongful Acts provision to the current coverage dispute. The policy includes a specific provision that addresses when later-filed claims relate back to previously filed claims, such as the Revitz claim. This situation differs from the National Union Fire Insurance Co. case, which dealt with whether subsequent claims could relate back to a report of a wrongful act rather than an actual claim.
The critical distinction lies in the policy provisions: the Multiple Claims provision does not require prior claims to identify or describe potential liabilities stemming from related claims. Under this provision, claims made after the policy period that relate back to a prior third-party claim made during the policy period are covered. The policy defines a claim broadly and states that all claims arising from the same wrongful act will be considered made on the date of the first claim or the date the insurer receives written notice of the wrongful act.
Notably, the Multiple Claims provision specifies that wrongful acts connected by common facts, circumstances, transactions, events, or decisions are treated as one wrongful act. As the Revitz claim was made during the policy period, the key question is whether the class claim relates back to it under this provision. If they are related in the specified manner, the class claim will be deemed to have been made on the date of the Revitz claim, thus triggering coverage under the Multiple Claims provision. The conclusion reached is that the class claim does indeed relate back to the Revitz claim.
In *Capital Growth Financial LLC v. Quanta Specialty Lines Insurance Co.*, the court analyzed a 'claims-made' insurance policy, particularly focusing on a provision for related claims. During the policy period, one client filed an arbitration alleging account churning and unsuitable investments by the brokerage. After the policy expired, five additional clients made similar claims. The central issue was whether these subsequent claims related back to the initial claim. The policy defined 'interrelated wrongful acts' broadly, encompassing connections through common facts or circumstances. The court determined that 'relatedness' involves both logical and causal connections, which do not require identical facts or legal causes but rather a 'sufficient factual nexus.'
In this case, all claims were linked by a common allegation of churning and inappropriate investment strategies, despite differences in claimants, accounts, and damages. The court emphasized that variations in misrepresentations or the financial positions of the investors did not negate the interrelatedness of the claims. This reasoning was echoed in *Vozzcom, Inc. v. Great American Insurance Company of New York*, where later claims filed after the policy period were deemed related to a claim made during the policy period. The *Vozzcom* court assessed relatedness based on factors such as the identity of parties, transaction similarities, contemporaneity of wrongful acts, and underlying schemes.
The analysis in *Capital Growth* supports the conclusion that the current class claim is related to the Revitz claim, as both stem from BMC’s allegedly negligent mortgage brokering and servicing, despite individual differences among class members' transactions.
The court determined that the claims were sufficiently related based on several factors: all claimants were employed as cable technicians by Vozzcom during a similar timeframe, were non-exempt hourly or piece rate workers, and allegedly denied overtime. This relatedness supports the conclusion that the current class claim is connected to the earlier Revitz claim. Both claims involve investors in comparable situations, with many projects listed in the Revitz claim also appearing in the class claim. The underlying conduct by BMC, particularly its negligence in due diligence, accounting, and property encumbrance detection, is common to both claims.
Despite arguments that the class claim's potential damages exceed those of the Revitz claim, the court found no legal basis for this distinction. Under the policy’s definition of "Wrongful act," claims can be considered related even with differing damages or claimant numbers, as long as they share common facts and circumstances. This interpretation aligns with the objectives of related claims provisions in claims-made insurance policies, allowing Axis to limit its liability for all related claims to a single policy period. The court emphasized that this interpretation would not hinder BMC’s ability to secure future insurance coverage despite its receivership status. The conclusion reached is that the class claim is indeed covered under the policy due to its relatedness to the Revitz claim, leading to a reversal and remand for further proceedings consistent with this opinion.
After the expiration of the policy period, officers and directors faced a lawsuit from shareholders for alleged federal securities law violations. The central issue was whether this lawsuit related back to a prior written report concerning a failed merger. The Court determined that the report lacked necessary details as required by the insurance policy, which obligates the insured to disclose potential consequences from reported wrongful acts. The Court noted that the report did not indicate any possible claims against the directors and officers by shareholders for securities violations. The case hinged on whether the subsequent securities claim could relate back to the previous report for coverage purposes, rather than relating back to a prior claim. The Court rejected Axis's argument to apply the requirements of the Reported Wrongful Acts provision to the Multiple Claims provision, emphasizing that courts should interpret insurance policies holistically without rewriting their language. According to precedent, if the insured had anticipated claims by reporting a wrongful act during the policy period, all subsequent claims would relate back to that report. The Multiple Claims provision was found to apply, eliminating the need to address issues regarding the propriety of policy termination raised by Gidney and the Receiver. Additionally, the trial court had not yet evaluated the class certification question, and this opinion does not provide any judgment on that matter. The Court affirmed Axis's cross-appeal concerning the application of a policy exclusion without further discussion.
