A New York trial court, applying New York law, ruled that an excess insurer failed to meet its burden on summary judgment to prove that a “prior and pending” litigation or investigation exclusion applied to bar coverage.

The insurance coverage case stemmed from an SEC proceeding and criminal prosecutions alleging Platinum Management (NY) LLC’s (“Platinum”) and other defendants were involved in a Ponzi-like scheme (the “Underlying Prosecution”).  Berkley Insurance Company (“Berkley”) issued an excess policy to Platinum effective from November 20, 2015 to November 20, 2016.  The Berkley policy provided coverage in accordance with Platinum’s primary policy for Directors and Officers Liability coverage, but it excluded coverage for claims that involve “in any way” litigation or investigation that was “prior or pending” as of November 20, 2015.  On summary judgment, Berkley sought a declaration that it had no duty to defend or indemnify Platinum due to a prior investigation.

The parties agreed that the “prior or pending litigation … or investigation” potentially at issue was the investigation and subsequent prosecution of Platinum’s founder, Murray Huberfeld, and according to the parties, a determination of whether the exclusion applied required a “side-by-side review” comparing facts that occurred before November 20, 2015 with facts alleged in the Underlying Prosecution to determine whether there was a factual nexus.  The court, however, disagreed.  According to the court, a “side-by-side review” was not applicable to determine whether the exclusion applied.  Instead the court found that in order to meet its burden on summary judgment, Berkley must at a minimum show, as a matter of law, that (a) there existed an investigation prior to November 20, 2015, (b) that there was a common “fact, circumstance, situation, transaction or event” between that investigation and the Underlying Prosecution, and (c) that this common “fact, circumstance, situation, transaction or event” was one that was “underlying” the prior investigation.

According to Berkley, the common nexus was the bribery that was the subject of the Huberfeld Investigation also helped Platinum and the other defendants continue their alleged Ponzi-like scheme by providing funds to satisfy redemption requests.  Only two of Berkley’s exhibits had any relevant evidentiary value:  a May 2015 Subpoena addressed to Huberfeld and Platinum Partners seeking records relating to transactions between Platinum Partners and the Correction Officers Benevolent Association (“COBA”) and the sworn statement of FBI Special Agent Blaire Toleman which concerned a bribery scheme involving Huberfeld as well as a need at Platinum Partners for new funds to meet pending redemption requests.  According to the court, “[a]lthough the evidence references a need for new funds to meet redemption request at Platinum Partners, there are no indications that as of November 20, 2015, the investigation of Huberfled [and the president of COBA ] in any way included a fact circumstance, situation, transaction or event of a Ponzi-like scheme within Platinum Partners.”  Berkley failed to meet its burden of proof that the exclusion applied, and therefore, the court denied Berkley’s motion for summary judgment and its request to vacate the prior order regarding defense costs.  Freedom Specialty Ins. Co. v. Platinum Management (NY), LLC, No. 652505/2017 (N.Y. Sup. Ct. Sept. 10, 2018).