No Coverage for Claim That Related Back to Prior Policy Period

The United States District Court for the District of New Jersey, applying New Jersey law, granted an insurer’s motion for summary judgment, finding that an insured’s claim related back to a prior policy period when the insurer was not on the risk. Baron v. Nautilus Ins. Co., 2024 WL 1375972 (D.N.J. Mar. 28, 2024). The court also held that, notwithstanding that the claim was disclosed during the application process, a specific claim exclusion in the later policy was not enforceable because the insurer inadvertently left the description of the disclosed claim off the exclusion.

An attorney represented a family for more than thirty years. The relationship eventually soured, and the family filed a lawsuit against the attorney in 2019 alleging breaches of fiduciary duty for mishandling family assets (the “2019 Claim”). In 2020, the family named the attorney in another lawsuit seeking to quiet title to various parcels of land owned by family trusts that the attorney allegedly managed improperly (the “2020 Claim”). Finally, in 2021, the family filed a third lawsuit alleging that various defendants, including the attorney, participated in an improper restructuring of certain family entities (the “2021 Claim”).

The attorney tendered the 2019 and 2020 Claims to his firm’s professional liability insurer at the time, which accepted coverage. The insurer did not renew the firm’s policy, and the firm applied for coverage from a new insurer for the next policy year. The firm disclosed the 2019 and 2020 Claims on its application. The 2021 Claim was filed during the application process and was also disclosed. The application stated that “IT IS UNDERSTOOD AND AGREED THAT THE INSURER SHALL NOT BE LIABLE TO MAKE ANY PAYMENT FOR DAMAGES OR CLAIMS EXPENSE IN CONNECTION WITH ANY CLAIM MADE AGAINST ANY INSURED BASED UPON, ARISING OUT OF, DIRECTLY OR INDIRECTLY RESULTING FROM OR IN CONSEQUENCE OF, OR IN ANY WAY INVOLVING ANY PROFESSIONAL LIABILITY CLAIM OR SUIT, FACT, CIRCUMSTANCE, OR SITUATION SET FORTH OR THAT SHOULD HAVE BEEN SET FORTH IN RESPONSE TO [the relevant questions in the application].” The insurer advised the attorney that it would issue a specific claim exclusion for the 2021 Claim. However, when the policy was issued, the exclusion was inadvertently left blank where the description of the 2021 Claim should have been.

The policy also provided that it did not apply if an Insured gave notice of a Related Claim to a prior insurer. “Related Claims” were defined as “all claims arising out of a single act or omission or arising out of related acts or omissions in the rendering of legal services.” “Related Acts or Omissions” were defined as “all acts or omissions in the rendering of Legal Services that are temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision.” The attorney tendered the 2021 Claim to the prior insurer, which denied coverage. The later insurer also denied coverage for the 2021 Claim because of the specific claim exclusion and because the 2021 Claim was part of a Related Claim with the 2019 and 2020 Claims. Coverage litigation with the 2021 insurer followed, and the parties moved for the summary judgment. The court ruled in favor of the insurer.

The court first held that, despite multiple conspicuous warnings in the application that coverage would not be available for claims disclosed in the application process, the specific claim exclusion was not enforceable because the blank description made it ambiguous. Nonetheless, the court found that there was no coverage available because the 2021 Action was part of a Related Claim deemed first made under the earlier policy with the 2019 and 2020 Claims. The court highlighted the “very broad” definition of “Related Claims” and “Related Acts or Omissions,” which included the phrases “any” and “all.” The court held that the 2021 Claim relied upon the same allegations forming the basis of the prior claims and emphasized that the 2021 Claim cited to the earlier suits in the complaint. The court reasoned that these allegations did not constitute mere background information, but were alleged in support of the causes of action in the later claim. Accordingly, the court concluded there was no coverage under the 2021 policy.