The U.S. Court of Appeals for the Fifth Circuit has ruled that an insurance company properly denied all of its insured’s claims under the “interrelatedness” provision of a directors and officers liability insurance policy where the insured had learned of a related claim when the previous year’s policy was in effect but failed to timely notify the insurer of that initial claim.
The Case
In August 2014, ADI Worldlink, L.L.C., received an employee’s claim alleging its failure to pay overtime wages to nonexempt employees.
In April 2015, other employees filed similar claims against Worldlink.
In September 2015, Worldlink first notified its insurer, RSUI Indemnity Company, of the claims.
Worldlink had purchased annual directors and officers liability insurance policies from RSUI beginning in late 2012. The 2014 policy had a coverage period from December 31, 2013 to December 31, 2014, while the 2015 policy covered the subsequent year, ending December 31, 2015 (which the parties extended through January 14, 2016).
Relying on a so-called “interrelatedness” provision in the 2015 policy, RSUI deemed all the employment claims to be a single claim that were controlled by the 2014 policy. Citing Worldlink’s failure to provide notice of the August 2014 claim before the expiration of the 2014 policy (as required by the 2014 policy), and deeming all of the later claims to be related to that initial claim, RSUI denied coverage on all.
Worldlink sought a declaratory judgment to compel RSUI to cover all the claims.
The U.S. District Court for the Eastern District of Texas granted summary judgment for RSUI, concluding that Worldlink had not provided timely notice of the 2014 claim and that the 2015 claims all related back to the 2014 claim and were governed by the 2014 policy, thus entitling RSUI to deny coverage for all of the claims.
Worldlink appealed.
The Worldlink Policy
The “interrelatedness” provision in the 2015 Worldlink policy stated:
All Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events, or the same or related series of facts, circumstances, situations, transactions or events, shall be deemed to be a single Claim for all purposes under this policy, . . . and shall be deemed first made when the earliest of such Claims is first made, regardless of whether such date is before or during the Policy Period.
The Appellate Court’s Decision
The appellate court, applying Texas law, affirmed.
In its decision, the appellate court construed the 2015 claims as being subject to the 2014 policy and said that the 2014 policy would have provided coverage except that Worldlink failed to comply in 2014 with a notice provision.
It then held that the absence of notice, joined with the fact that the 2015 policy deemed all the later claims to fall under the 2014 policy, “prevented coverage of the claims.”
The appellate court concluded that “the 2015 claims arising from lawsuits that were related to the others brought in 2014 were governed by the earlier policy. The absence of timely notice [meant that] the claims were properly denied.”
The case is ADI Worldlink, L.L.C. v. RSUI Indemnity Co., No. 17-41050 (5th Cir. Aug. 2, 2019). Attorneys involved include: For Adi Worldlink, L.L.C., Plaintiff – Appellant: Jerold Oshinsky, Esq., Kirsten C. Jackson, Esq., Curtis Duane Porterfield, Counsel, Kasowitz, Benson, Torres, L.L.P., Los Angeles, CA; Constantine Z. Pamphilis, Kasowitz, Benson, Torres, L.L.P., Houston, TX. For RSUI Indemnity Company, Defendant – Appellee: James Richard Harmon, Esq., Linda Szuhy Ressetar, Thompson, Coe, Cousins & Irons, L.L.P., Dallas, TX.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].