May 26, 2016

Last week, the United States District Court for the Southern District of Texas granted summary judgment in favor of a professional-liability insurer after finding in part that insureds claims of insufficient coverage against the insurance broker were “related wrongful acts” and not covered under the policy. In Southwest Risk, L.P. v. Ironshore Specialty Insurance Company, 2016 WL 2898040 (S.D. – Tex. May 18, 2016), an insurance broker specializing in securing property and casualty insurance for construction projects created an entity through which it insured various apartment projects for third-party property owners in Houston, Texas. The broker represented that it would provide $100 million in coverage and signed up thirty-four property owners with a combined property value of $1.1 billion.  After securing two layers of coverage of $25 million and $10 million, Hurricane Ike emerged as a threat and the broker was unable to secure the additional $65 million in coverage as promised.  Ike struck, the $35 million was exhausted and significant damages went uninsured.

On September 10, 2010, after the policy limits were exhausted, one insured presented a demand for $1.2 million in hurricane related property damage and filed suit that same day.  Southwest was sold later that year, on December 27, 2010, to ClearView Risk Holding, L.L.C. and the entities purchased a professional-liability on that same date.  The policy at issue in this lawsuit was a claims made policy covering “only claims first made against the insured during the policy period,” which ran from February 15, 2012 to February 15, 2013.  On May 4, 2012, another insured filed suit against Southwest for uninsured Hurricane Ike damages.  Southwest’s former owner funded the $6.9 million settlement of this latest lawsuit and Southwest and Clearview then filed suit against their professional-liability insurer, Ironshore seeking coverage for the $6.9 million and an additional $20.7 million in damages under the Texas Insurance Code.

Ironshore moved for summary judgment asserting in part that the 2012 lawsuit asserted claims for “related wrongful acts” as defined under its policy and those claims were first made against the insured in September 2010. The policy defined “related wrongful act” to include wrongful acts “that arise from a common nucleus of facts” even if “such claims involve the same or different claimants, insured[s] or legal causes of action.”  The court examined whether the first demand and 2010 lawsuit asserted “claims” as defined in the 2012 policy, and related issues and arguments asserted by the insured.  Applying Texas law, the court determined that the 2012 claims were “claims” and related to those first asserted against the insured in 2010.  The court also determined that Southwest’s previous owner’s indemnity for the $6.9 settlement of the 2012 lawsuit was a “related transaction”, the insureds in the pending coverage action suffered no pecuniary loss and, payment of the claim would result in a double recovery by the insured.  And because the court found no coverage under the policy, the Texas Insurance Code claims against Ironshore also failed as a matter of law.  Summary judgment on all claims was granted in the insurer’s favor.