SUMMARY JUDGMENT FOR INSURERS TOSSED AS HOUSTON COURT FINDS COVERAGE IN SPITE OF “INTERRELATIONSHIP OF CLAIMS PROVISION”

July 22, 2013

The Fourteenth Court of Appeals in Houston on Tuesday held that an “interrelationship of claims” provision in a claims-made liability policy did not place a set of lawsuits outside of the relevant policy period, and therefore reversed a judgment in favor of the insurers and remanded to the trial court for further proceedings.  In Gastar Exploration Ltd. v. U.S. Specialty Insurance Co., No. 14-12-00118-CV, 2013 WL 3693603 (Tex. App.—Houston [14th Dist.] July 16, 2013), the court considered a coverage controversy concerning primary and excess directors’ and officers’ liability policies that were implicated in a number of lawsuits arising out a fraudulent investment scheme.  The scheme involved leases of thoroughbred mares that allegedly were claimed to be tax-advantaged and to bring attractive or even guaranteed rates of returns, but which were oversold and inadequately funded.  The scheme resulted in approximately 30 lawsuits, ten of which were relevant to this appeal.

Of the ten suits at issue, it was undisputed that three were filed before the relevant policy period, and the remaining seven were filed during the policy period.  The insurers denied coverage pursuant to an “interrelationship of claims provision,” which stated that:

All Claims, alleging, arising out of, based upon or attributable to the same facts, circumstances, situations, transactions or events or to a series of related facts, circumstances, situations, transactions or events will be considered to be a single Claim and will be considered to have been made at the time the earliest such Claim was made.

The insurers contended that under this provision, the seven suits filed during the policy period related back to those filed before the policy period, and therefore were not covered.

The Court concluded that the interrelationship provision was an exclusion because it “narrow[ed] the coverage originally created by the Insuring Agreement[.]”  Because the provision was an exclusion, it was required to be construed narrowly.  Moreover, the interrelationship either created a conflict with another time-based exclusion, or at least an ambiguity that must be resolved against the insurer.  The Court therefore held that the insurers denial of coverage was incorrect, and remanded for further proceedings.