(Article from Insurance Law Alert, July/August 2018)
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The Sixth Circuit affirmed a Tennessee district court decision holding that a settlement offer constituted a “claim” under a claims-made policy and that the policyholder’s Notice of Circumstances did not preserve coverage. First Horizon Nat’l Corp. v. Houston Cas. Co., 2018 WL 3359555 (6th Cir. July 10, 2018).
In 2012, government agencies began investigating First Horizon for potential False Claims Act violations. First Horizon met with the agencies during 2013 and executed a tolling agreement in 2014, in which the Department of Justice (“DOJ”) agreed to postpone filing an action against First Horizon in order to allow for settlement negotiations. In April 2014, the DOJ issued a “settlement offer” of $610 million to First Horizon, which was later confirmed via email.
In May 2014, First Horizon sent a Notice of Circumstances to its insurers, setting forth facts that might give rise to a claim under the 2013-2014 policy. The Notice of Circumstances did not disclose the DOJ settlement offer or the tolling agreement. In December 2014, the DOJ informed First Horizon that its investigation was nearly complete and that if it did not receive a settlement counteroffer, it would proceed with litigation. In February 2015, First Horizon notified its insurers of an upcoming meeting with the DOJ and its intention to make a $50 million settlement counteroffer. First Horizon ultimately settled with the government for $212.5 million and then sued its insurers for coverage.
The Sixth Circuit ruled that the DOJ’s April 2014 settlement offer was a “claim,” defined as “any written demand for monetary, non-monetary or injunctive relief.” The court rejected First Horizon’s assertion that the April 2014 offer was not a “demand” because it was not a forceful statement seeking money with a threat of consequences, holding that a communication can still be a demand even if it is phrased as a request.
Additionally, the Sixth Circuit held that First Horizon’s Notice of Circumstances did not constitute sufficient notice under the policy, in part because it failed to mention the $610 million settlement offer. Finally, the court rejected First Horizon’s assertion that the insurers were not prejudiced by this lack of specificity, noting that Tennessee law does not require an insurer to establish prejudice under such circumstances.