Notice of Events That May Become a Claim Not Enough to Trigger Coverage

The Eleventh Circuit, applying Florida law, affirmed the District Court’s grant of an insurer’s motion for summary judgment due to the policyholder’s failure to provide notice of a “Claim” within the policy period or discovery period of the claims-made Executive and Organization Liability Insurance policy.

After obtaining an unfavorable result in an arbitration proceeding, Crowley Maritime Corporation (“Crowley Maritime”) sued its insurer National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) seeking reimbursement of over $2.5 million in legal fees paid on behalf of Thomas Farmer (“Farmer”), the Vice President of Price and Yield Management of Crowley Liner Services, Inc. (“Crowley Liner” and, together with Crowley Maritime, “Crowley”).  The policy period for the claims-made National Union policy was November 1, 2007 through November 1, 2008 with an extended discovery period running through November 1, 2013.  The policy covered “Defense Costs” resulting from the investigation, adjustment, and defense of a “Claim” against an Insured.

The coverage dispute stems from an April 17, 2008 search warrant that was executed at Crowley Liner’s headquarters.  An FBI special agent submitted an affidavit supporting the search warrant.  The affidavit asserted Farmer and others had been involved in communications and agreements to allocate customers and coordinate pricing in violation of the Sherman Act.  However, to protect the ongoing FBI/DOJ investigation, the affidavit was sealed.  The search warrant itself referenced there was an affidavit of support, but the detailed descriptions of Farmer’s alleged misconduct were not apparent from the face of the search warrant.  On April 25, 2008, Crowley’s insurance broker sent National Union a notice of “Claim” and asked National Union to consent to the retention of defense counsel and the expenditure of “Defense Costs.”

National Union asserted that the policy did not provide coverage because, in part, the search warrant did not identify in writing anyone as a target of the investigation as required by the policy.  National Union did, however, accept the notice “as a notice of circumstances that may give rise to a Claim being made against an Insured, pursuant to Clause 7(c) of the Policy.”  National Union requested that Crowley submit additional information in the future that might be relevant to a coverage determination.

In December 2012, an arbitration took place to determine whether, based on the information provided, the FBI/DOJ investigation constituted a “Claim” under the policy.  The sealed affidavit did not appear in the list of documents considered by the arbitrators as evidence of the FBI/DOJ investigation.  The arbitration panel entered a decision in favor of National Union on January 29, 2013 observing that “the triggering event for a Claim … is when the DOJ identifies in writing an Insured Person as one against whom a criminal proceeding may be commenced.”

Two weeks later, the government offered to enter into a plea agreement with Farmer (the “Plea Offer”).  Crowley notified National Union of the Plea Offer on February 15, 2013.   National Union then agreed to treat the FBI/DOJ investigation as a “Claim” under the policy as of the date of the Plea Offer because Crowley submitted the notice within the six-year discovery period and that it also “appear[ed] to be related to prior correspondence which was acknowledged by National Union as notice of circumstances under Section (7)(c) of the policy.”  Thus, National Union agreed to cover future defense costs relating to the investigation.

The Plea offer was rejected, and Farmer was acquitted at trial. The affidavit was unsealed on April 24, 2015. Crowley notified National Union that Farmer was acquitted and that the affidavit was unsealed.  According to Crowley, the affidavit made it clear that a “Claim” had been “asserted with respect to Mr. Farmer as of the date of filing of the search warrant affidavit in April 2008.” Crowley demanded reimbursement of about $2.5 million in legal fees paid between April 2008 and February 2013.

The district court granted summary judgment in National Union’s favor finding that even though the limited-scope arbitration did not preclude consideration of the unsealed affidavit in the federal case, Crowley’s reporting of the “Claim” based on the affidavit in 2015 was untimely because the discovery period had ended.  In the alternative, the district court concluded that if a “Claim” based on the affidavit was deemed reported in 2008, then the 2012 arbitration would preclude Crowley from bringing its federal lawsuit on res judicata grounds.   Crowley appealed.

The appellate court based its ruling on the essence of a claims-made policy.  The policy expressly limited coverage to “Claims” that are “first made against an Insured” during the policy period or the discovery period and that also are “reported to the Insurer” pursuant to the terms of the policy.  First, the appellate court determined that the substantive content of the affidavit clearly constituted a “Claim.”  Then the appellate court considered when the “Claim” was “first made against” Farmer, but ultimately found that it did not need to decide that issue because Crowley did not timely report the “Claim” based on the affidavit to National Union in the manner required by the policy.

The appellate court found that Crowley failed to establish that it properly notify National Union because: (1) Crowley was bound by the arbitration panel’s determination that it had not reported a “Claim” to National Union as of December 31, 2012; (2) Crowley’s July 2015 notice was untimely because it came after the November 1, 2013 expiration of the extended discovery period; and (3) Crowley expressly waived any argument that either its February 2013 notice or its July 2015 notice should relate back to the April 2008 notice under Section 7 of the policy.  Crowley Maritime Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 18-10953 (11th Cir. July 23, 2019).