Court Holds that Ambiguity of One Endorsement Did Not Mean That Similar Endorsement Must Also Be Ambiguous
The United States District Court for the Northern District of California, applying California law, has held that a retroactive date endorsement limited coverage to $1 million if a claim involved wrongful acts occurring prior to the retroactive date, despite previously holding that a different retroactive date provision contained in the same policy was ambiguous. Emerson Equity, LLC v. Forge Underwriting, Limited, 2024 WL 4227599 (N.D. Cal. Sep. 18, 2024). The court’s ruling regarding the limit of liability was preceded by an earlier decision addressing a different but similarly worded retroactive date provision.
The insured financial services company faced bond claims and sought coverage under a securities broker/dealer professional liability policy. In the ensuing coverage litigation, the insured argued that, although the claim alleged wrongful acts committed prior to the retroactive date, the claim should be covered because it was first made after the retroactive date and thus within the coverage period. The insured relied on a provision stating that “the Insurer shall not be liable [to] make payment for Loss in connection with any Claim, including any Interrelated Wrongful Act(s), occurring prior to 25th October 2019.” The insurer argued that the provision excluded any claim alleging wrongful acts that occurred before that date. In December 2023, the court determined that this language was ambiguous and, applying the principle that ambiguities are resolved in favor of coverage, ruled in favor of the insured. As a result, the insurer had a duty to defend claims that were filed after October 25, 2019, even if they involved wrongful acts that occurred before that date.
After paying out $1 million in policy limits, the insurer suspended payment, relying on an exclusion limiting coverage for “Loss in connection with any Claim made against an Insured: alleging, arising out of, based upon or attributable to any Wrongful Act occurring prior to the Retroactive Date stated in Item [5] of the Declarations or arising out of any subsequent Interrelated Wrongful Act.” The declarations listed the Retroactive Date as “11th November 2004, but 25th October 2019 in respect of USD 4,000,000 aggregate limit of liability in excess of USD 1,000,000 aggregate limit of liability.” The insurer asserted that the provision limited covered Loss to a $1 million aggregate limit of liability in connection with any claim arising out of wrongful acts occurring prior to October 25, 2019 and/or any subsequent interrelated wrongful acts. The insurer also relied on an endorsement providing that “the Insurer shall not be liable [nor] make payment for Loss in connection with any Claim, including any Interrelated Wrongful Act(s), occurring prior to 25th October 2019. USD 4,000,000 each Claim and in the aggregate in excess of USD 1,000,000 each Claim and in the aggregate.”
The insurer argued that, because the court’s earlier ruling regarding a different retroactive date provision barred coverage for claims filed prior to the retroactive date, the only reasonable interpretation of this endorsement was that “it limits potential coverage for a Claim to $1 million if such Claim involves actual or alleged Wrongful Acts before October 24, 2019 and/or subsequent Interrelated Wrongful Acts.” The insured argued that the exclusion and limit of liability only applied to claims made after the retroactive date and was otherwise ambiguous given the court’s earlier ruling. The court disagreed, reasoning that it was illogical to apply the sublimit of liability only to claims first made after the retroactive date given the court’s earlier ruling concerning a different provision holding that such claims already were barred from coverage. The court thus held that the $1 million limit applied to claims involving wrongful acts taking place before the retroactive date and the insurer’s duty to provide coverage was extinguished upon payment of the $1 million limit.
