No Coverage for Class Action Claim First Made When Asserted in Counterclaim Before Coverage Period
The United States District Court for the District of Kansas, applying Kansas law, has held that an insured is not entitled to coverage under a claims-made-and-reported policy because the tendered class action counterclaim was a claim first made prior to the policy’s inception. Certain Underwriters at Lloyd’s, London v. Automobile Acceptance Corp., 2024 WL 3580594 (D. Kan. July 30, 2024). In the alternative, the court also held that if the class action lawsuit involved separate claims asserted by individual class members with some claims first made during the relevant policy period, then each such claim would be interrelated. As a result, the claims would be deemed a single claim first made before the policy period.
In May 2015, the insured, an automotive finance company, sued a customer in Missouri state court, seeking to collect a deficiency balance. The customer counterclaimed in August 2016 to assert claims on behalf of a putative class. In September 2022, the state court certified the class, and in December 2022, the insured tendered the class action to its insurer. The insured sought coverage under three consecutive Mortgage Company Liability Policies that ran from March 1, 2019, to March 1, 2023. The insurer denied coverage on the grounds that the class action counterclaim was first made against the insured in August 2016, before the inception of any of its policies. The insurer then initiated this declaratory judgment action.
In the coverage action, the court agreed with the insurer, determining that it was entitled to judgment as a matter of law because the class action counterclaim was first made in August 2016. As a result, the court rejected the insured’s argument that the claim was first made in September 2022, when the state court approved class certification.
Citing the policies’ interrelated claims provision, the court also rejected the insured’s argument that each class member asserted a different claim, some of which fall within the coverage period. The policies provided that all claims arising out of interrelated wrongful acts would be considered a single claim, defining “interrelated wrongful acts” as “WRONGFUL ACTS that have as a common nexus any fact, circumstance, situation, event or transaction or series of facts, circumstances, situations, events or transactions.” The court reasoned that, if the class members’ claims are similar enough for class certification, the claims must also be interrelated under the controlling policy language. The insured focused on the word “nexus” in the definition of “interrelated claims,” arguing that interrelatedness under the policy is more restrictive than the commonality required for class certification because “nexus” requires a causal connection. The court rejected that argument, explaining that although “nexus often means a causal connection, [it does not mean] that it exclusively requires a causal connection.” Accordingly, the court determined that even if the class members asserted separate claims, the policies’ interrelated claims provisions required the court to treat those claims as a single claim first made in August 2016.
