Court: Unclear whether Interrelated Claims provision relieves insured of obligation to give notice of subsequent suits

New York

by Christopher Graham and Joseph Kelly

Sirius XM Radio, Inc. v. XL Specialty Insurance Co., et al, Case Nos. 650831/2013, 002 (Sup. N.Y. Cty. Nov. 7, 2013)

An insured timely notified its D&O insurer of one Claim, but then failed to notify that insurer timely of four others involving the same “Interrelated Wrongful Acts.” Did the insured’s timely notice of the first of five Claims involving the same Interrelated Wrongful Acts mean the Insured had no obligation to provide the insurer notice of the four subsequent Claims? Maybe.

XL received a notice of circumstance for the first of five suits relating to Sirius’s merger with XM Satellite Radio and mismanagement after the merger. XL claimed it didn’t receive a notice of the first suit, but for XL’s motion to dismiss the Court assumed XL did receive notice. XL denied coverage for four subsequent suits, claiming it didn’t receive notice of them and that Sirius didn’t get XL’s approval before incurring defense costs for them.

Sirius sued, and XL moved to dismiss.

XL issued a “Management Liability and Company Reimbursement Policy” providing:


(A) NOTICE. (1) As a condition precedent to any right to payment under this Policy with respect to any Claim, the Insured shall give written notice to the Insurer of any Claim as soon as practicable after it is first made. . . .

(B) INTERRELATED CLAIMS. All Claims arising from the same Interrelated Wrongful Acts shall be deemed to have been made at the earliest of the time at which the earliest such Claim is made or deemed to have been made pursuant to GENERAL CONDITIONS (A)(1) above or GENERAL CONDITIONS (A)(2), if applicable.”

“Claim” includes “any civil proceeding in a court of law or equity, or arbitration.”

Additionally, “[n]o Insured may incur any Defense Expenses … without the Insurer’s consent, such consent not to be unreasonably withheld.”

Sirius argued that separate notice of the four subsequent suits was unnecessary because those suits and the first suit, for which notice was timely, arose from the same Interrelated Wrongful Acts and, thus, should be treated as a single Claim.

XL argued that the “Interrelated Claims provision determines when a Claim is deemed made against an Insured– it has absolutely no bearing on the XL policy’s separate notice requirement.”

The court rejected XL’s argument, stating:

“At this pre-answer stage of the case, it suffices to say that XL’s parsing of section VI (B), as merely stating that, ‘if timely notice of a Claim is given, that Claim will be treated as having been made in the policy period in which a previous notice of circumstance (or Claim) had been given’ (XL, reply, p. 12) is far from compelling. XL ignores the clause upon which Sirius relies, ‘[a]ll Claims arising from the same Interrelated Wrongful Acts shall be deemed to constitute a single Claim.’ At oral argument, too, counsel for XL ignored that clause, arguing that section VI (B) does not modify the requirement of prompt notice in section VI (A) (1), because § VI (A) (1) refers to ‘any Claim’ in the singular, while section VI (B) initially refers to ‘[a]ll Claims,’ in the plural.

Whether the deemed date of the later Claim relieves the Insured of the obligation to give notice each time a later Claim is made is not sufficiently clear from the words of Policy §§ VI (A) (1) and VI (B) to require dismissal of the complaint on the basis of documentary evidence under CPLR 3211 (a)(1) (see Goshen v Mutual Life Ins. Co. of N. Y., 98 NY2d 314, 326 [2002]; Morpheus Capital Advisors LLC v UBS AG, 105 AD3d 145, 148 [1st Dept 2013]).”

Sirius could have avoided any issue by providing notice of each subsequent suit timely to the D&O insurer. Ordinarily that’s what happens. It’s not clear why Sirius didn’t do so. The D&O policy wording at issue here is common. So we have at least one court suggesting a rewrite is in order–so there’s no question that an insured is expected to provide the insurer timely notice of each separate suit, where suits involve the same Interrelated Wrongful Acts as an earlier suit.

Tags: D&O, notice, interrelated

Category: D&O Digest Comment »

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