No coverage for class action claim first filed on counterclaim before the coverage period | Wiley Rein LLP

The United States District Court for the District of Kansas has held under Kansas law that an insured is not entitled to coverage under a claims-made-and-reported policy because the counterclaim filed in the class action claim was first filed before the policy. commencement. Certain Underwriters at Lloyd’s, London v. Automobile Acceptance Corp.2024 WL 3580594 (D. Kan. July 30, 2024). Alternatively, the court also held that if the class action lawsuit involved separate claims by individual class members, with some claims being asserted for the first time during the relevant policy period, all such claims would be related. As a result, the claims are treated as a single claim first made before the policy period.

In May 2015, the insured, an auto finance company, sued a customer in Missouri state court, attempting to collect a deficiency balance. The client filed a counterclaim in August 2016 to assert claims on behalf of a putative class. In September 2022, the state court certified the class action, and in December 2022, the insured tendered the class action to its insurer. The insured sought coverage under three consecutive mortgage company liability policies dating from March 1, 2019 to March 1, 2023. The insurer denied coverage on the grounds that the counterclaim was first brought against the insured in August 2016, prior to commencement of it. of any policy. The insurer subsequently filed this declaratory judgment.

In the coverage action, the court agreed with the insurer and held that it was entitled to a judgment as a matter of law because the class action counterclaim was first filed in August 2016. As a result, the court rejected the argument of the insured that the claim first made in September 2022, when the state court approved the class certification.

Citing the interrelated claim provisions in the policies, the court also rejected the insured’s argument that each class member claimed a different claim, some of which fell within the coverage period. The policy provided that all claims arising from interrelated tortious acts would be considered as a single claim, defining “interrelated tortious acts” as “TORTIVE ACTS that have in common a 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 sufficiently similar for class certification, the claims should also be related under the controlling policy language. The insured focused on the word “nexus” in the definition of “interrelated claims,” arguing that interconnectedness under the policy is more restrictive than the commonality required for class certification because “nexus” requires causation. The court rejected that argument, explaining that while “nexus often means causation (it does not) mean that only causation is required.” Accordingly, the court determined that even if the class members asserted separate claims, the policies’ interrelated claim provisions require the court to treat these claims as a single claim first filed in August 2016.

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