Two Lawsuits Involve “Interrelated Wrongful Acts” Where They Allege a Common, Continuing Scheme by the Insured

Applying Maryland law, a federal district court has held that a 2006 lawsuit and a 2010 lawsuit involved “Interrelated Wrongful Acts” and were therefore properly treated as a single claim first made in 2006, prior to the subject policy’s inception.  W.C. & A.N. Miller Dev. Co. v. Cont’l Cas. Co., Case No. 14-cv-00425-GJH (D. Md. Nov. 7, 2014).  Wiley Rein represented the insurer.

In 2006, certain officers and subsidiaries of the insured real estate company were sued by an entity alleging that it had been forced into bankruptcy.  The entity alleged that the insureds had conspired with other defendants to deprive the entity of a commission fee it earned for securing financing for a real estate deal.  The entity’s bankruptcy trustee obtained a default judgment against certain of the defendants for $4.6 million.  In 2010, the bankruptcy trustee brought a second adversary proceeding to “recover and collect” on the default judgment obtained in 2006.  The second adversary proceeding also alleged that the insured company, along with some of its officers and subsidiaries, had continued to conspire with the other defendants during the course of the first adversary proceeding to transfer assets and make them unavailable to satisfy the default judgment – all in a continuing effort to deprive the bankrupt entity of its fee commission.  The insurer denied coverage for the 2010 adversary proceeding based on its conclusion that the 2010 suit and the 2006 suit involved “Interrelated Wrongful Acts,” meaning that the suits were properly treated as a single claim that was first made in 2006, years before the inception of the subject policy.

In ruling on dispositive motions filed in the coverage litigation that followed, the court agreed that the two underlying lawsuits involved “Interrelated Wrongful Acts” under the policy’s expansive definition of that term.  The court held that the two underlying proceedings both involved allegations of a “common scheme” that was directed at the same entity and that sought the same outcome – namely, to preclude the bankrupt entity from recovering for its involvement in the real estate deal.  The court also held that the common scheme both logically and causally connected the 2006 lawsuit with the 2010 lawsuit.  The court conceded that the underlying lawsuits were marked by differences, but observed that the language of the policy focuses on similarities (not differences) between claims.  The court recognized that the policy requires only a single common fact, circumstance, situation or event to logically or causally connect claims.  The court also rejected the insured’s argument that the two lawsuits could not involve “Interrelated Wrongful Acts” because the first lawsuit would have been barred by the policy’s breach of contract exclusion.  The court agreed with the insurer that claims need not be covered in order to involve “Interrelated Wrongful Acts.”