E-Alert Case Updates
Lawsuit Seeking Enforcement of Judgment against Insured Was Sufficiently Connected to Underlying Lawsuit To Be Considered Same Claim Under Insurance Policy’s Interrelated Wrongful Acts Provision
W.C. & A.N. Miller Development Company v. Continental Casualty Company
In a recent unreported opinion, the United States Court of Appeals for the Fourth Circuit held that an insurer properly denied coverage to its insured due to the broad wording of the insurance policy’s “interrelated wrongful acts” provision.
In approximately 2002, a principal of W.C. & A.N. Miller Development Company, Plaintiff, formed a separate company, Haymount Limited Partnership, with the intention of developing certain land in Virginia. Plaintiff owned over eighty percent of Haymount at all relevant times, and it was not disputed that Haymount was a subsidiary of Plaintiff. To secure its objective, Haymount required a loan, and so it solicited two (2) financing companies – International Benefits Group, Inc. (“IBG”) and American Property Consultants, Ltd. (“APC”) – to assist it in its search for funding. Haymount agreed separately with each company that it would pay a finder’s fee of $3 million if it obtained a loan as a result of the financing company’s introductions to lenders. Haymount eventually secured a loan, and paid APC a finder’s fee. IBG, however, also separately introduced Haymount to its eventual lender, but Haymount refused to pay IBG a second finder’s fee.
In 2006, IBG sued Haymount for breach of contract, seeking payment of the $3 million finder’s fee. IBG also named as defendants several entities which invested in Haymount, including Plaintiff. IBG was ultimately successful in its suit. Subsequently, in 2010, IBG again sued Haymount, Plaintiff, and other entities, alleging that the companies against which IBG had obtained a judgment had taken wrongful actions to make themselves judgment-proof. In particular, IBG set forth causes of action for fraudulent transfer, fraudulent conveyance, common law and statutory conspiracy, creditor fraud, and aiding and abetting.
Plaintiff tendered the second lawsuit to its insurer, Continental Casualty Company, Defendant. Defendant denied coverage, arguing that the lawsuit was outside of the scope of the insurance policy (the “policy”) that Plaintiff maintained with Defendant. Plaintiff defended itself in the second lawsuit, and was successful. Subsequently, Plaintiff brought suit against Defendant, alleging that Defendant wrongfully denied coverage and seeking the costs it incurred in defending the second lawsuit.
In pertinent part, the policy provided that that Defendant would provide coverage for Plaintiff for claims made against Plaintiff during the policy period, which ran from November 1, 2010 to November 1, 2011. It was undisputed that the policy provided coverage to subsidiaries of Plaintiff, including Haymount. The policy defined “claim” as a demand for damages or relief, but also stated that “[m]ore than one Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be considered as one Claim which shall be deemed made on . . . the date on which the earliest such Claim was first made.” “Interrelated Wrongful Acts” were defined as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction or event.”
Defendant argued that the actions taken by Haymount that were at issue in each of the two lawsuits with IBG constituted a single “claim” under the policy, and that such claim was deemed to have been made at the time of the 2006 lawsuit. Because the policy was not in effect at the time of 2006 lawsuit, Defendant asserted that the claim was not covered. The United States District Court for the District of Maryland agreed with Defendant, holding that, under the broad definition of “interrelated wrongful acts,” the two IBG lawsuits “shared a common nexus” and “involved allegations of a common scheme involving the same claimant, the same fee commission, the same contract, and the same real estate transaction.” Accordingly, it concluded that Defendant properly denied coverage. Plaintiff appealed.
On appeal, in an unreported per curiam opinion, the United States Court of Appeals for the Fourth Circuit affirmed. The Court began by emphasizing that the policy defined “interrelated wrongful acts” expansively and unambiguously. In this case, it was persuaded that the two (2) IBG lawsuits were connected by a multitude of common facts (most notably, the allegation that Haymount failed to pay IBG its finder’s fee), a single transaction (the contract between Haymount and IBG), and common circumstances (Haymount’s attempts to secure a loan). Said the Court: “Absent Haymount’s breach of its contract and other alleged torts, IBG would not have sued for damages in 2006, nor would it have sued for enforcement of the 2006 judgment in 2010.”
The Court was not swayed by Plaintiff’s argument that the allegations in the two (2) lawsuits involved merely a “common motive,” which it asserted was insufficient to establish that they were interrelated. Here, Haymount’s actions were much more connected than Plaintiffs argued. The allegations all involved the same development project, the same contract, the same fee, and the same wronged party. Under these circumstances, the claims in the IBG lawsuits were sufficiently connected to be considered a single claim. Because, under the terms of the policy, that claim was deemed to have been made at the time of the 2006 lawsuit, and because the policy was not in effect at the time of the 2006 lawsuit, Defendant properly denied coverage.
Maryland Defense Counsel, Inc.
1218 Broadway Rd.
Lutherville, MD 21093
|©2008 Maryland Defense Counsel, Inc. All Rights Reserved.|