(Article from Insurance Law Alert, July/August 2020)
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The Seventh Circuit ruled that the “damages argument” in a trial of a thirteen-year old suit against the policyholder is not a “claim” that triggered coverage under a claims-made policy. Market Street Bancshares, Inc. v. Federal Ins. Co., 962 F.3d 947 (7th Cir. 2020).
In 2003, Peoples National Bank was sued in connection with a failed business deal. Nine years later, a court entered judgment against the bank on one claim. In 2014, the bank obtained a professional liability policy from Federal Insurance. The claims-made policy, in effect from 2014 to 2017, defined “claim” as “a written demand for monetary or non-monetary relief . . .[or] a civil proceeding commenced by the service of a complaint or similar pleading.” It further provided that a claim “will be deemed to have first been made when such Claim is commenced as set forth in this definition.” In 2015, the court granted summary judgment to the underlying plaintiff on the remaining claims against the bank, and in 2016, the underlying suit went to trial on damages. The bank notified Federal Insurance of the damages trial, taking the position that it gave rise to a “claim” under the policy. Federal denied coverage. In ensuing coverage litigation, an Illinois federal district court granted Federal’s summary judgment motion and the Seventh Circuit affirmed.
The Seventh Circuit ruled that the underlying “damages assertion—advanced about thirteen years into the lawsuit—” did not constitute a “claim” that triggered Federal’s defense and indemnity obligations. The court rejected the bank’s assertion that the underlying damages assertion was “a written demand for monetary relief,” finding instead that it was merely a part of the civil action that began in 2003. The court deemed it irrelevant that the damages argument went beyond the scope of the original legal theories and facts alleged in the underlying complaint, explaining that the operative question is how the policy defines “claim,” “not where the causes of action in a lawsuit begin and end.” The court stated: “reading a ‘civil proceeding’ as spanning less than the complete civil action opens the door to a single action between two parties encompassing multiple ‘claims,’ which would defeat the purpose of making the insurer’s risk exposure easy to identify.”