(Article from Insurance Law Alert, July/August 2017)
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A Tennessee federal district court ruled that insurers were not obligated to indemnify a settlement based on insufficient notice of a claim. First Horizon Nat’l Corp. v. Houston Casualty Co., 2017 WL 2954716 (W.D. Tenn. June 23, 2017).
Plaintiffs sought coverage for a $212.5 million payment to the Department of Justice (“DOJ”) in settlement of a False Claims Act suit. The insurers denied coverage on the basis that the claim was first made prior to the August 1, 2013 – July 31, 2014 policy period and that Plaintiffs failed to provide sufficient notice. The court ruled that an April 2014 settlement offer constituted a claim within the policy period, but that Plaintiffs failed to give appropriate notice under the policy.
The insurers argued that the claim first arose prior to the inception of the 2013-14 policy period as a result of the DOJ’s service of subpoenas and a Civil Investigation Demand. The court rejected this contention, finding that those actions did not constitute a claim because they did not contain allegations of a wrongful act. The court similarly held that a May 2013 Presentation by the DOJ did “not quite constitute a ‘demand for monetary . . . .relief’ under the Policy to be considered a Claim,” although it presented a close question. In particular, the court noted that the Presentation stated the elements of the False Claims Act, cited evidence against Plaintiffs and detailed theoretical damages. However, it also described the investigation as “ongoing” and thus “slightly closer to the ‘lodging of a grievance’ than a ‘request to do something under a particular claim of right.”
The court ultimately concluded that a claim first arose in April 2014 (during the policy period), when the DOJ issued an email with a $610 million settlement demand. In so ruling, the court deemed irrelevant Plaintiffs’ subjective understanding of whether a lawsuit might ensue, explaining that the settlement email was clearly a demand for monetary relief. Having determined that a claim arose in April 2014, the court concluded that the policyholder’s May 2014 notice was timely. However, the court ruled that the notice was deficient because it provided only “general, boiler-plate type language” and it failed to include information about the $610 million settlement demand.