In a win for Wiley's client, the United States District Court for the Western District of Pennsylvania, applying Pennsylvania law, determined that an insured was not entitled to coverage for a judgment against it because both a "Changes in Exposure Provision" and an "Interrelated Actions Provision" applied. PNC Bank, N.A., v. AXIS Ins. Co., No. 21-01299 (W.D. Pa. Mar. 13, 2024).
The insured bank was held liable for a "nine-figure" judgment arising out of liabilities it assumed through the acquisition of another bank. The insured sought coverage for the judgment and defense costs under several excess bankers professional liability policies. While the acquisition occurred eleven hours after the primary policy incepted, the liabilities arose prior to the acquisition and pre-dated the coverage period. The excess insurers denied coverage, and the insured brought a declaratory judgment action.
The insurers relied on a "Changes in Exposure" provision of the primary policy, which stated that "[i]f, during the Policy Period . . . the Company acquires any organization or entity by merger into or consolidation with the Company, then coverage shall apply . . . but only with respect to Wrongful Act(s) committed, attempted, or allegedly committed or attempted, at the time of or after such event." The insured argued that, because the primary policy's definition of "Insured" included "predecessors in business," the prior Wrongful Acts of the acquired entity were covered, either by the plain language of that definition or because the "Changes in Exposure" endorsement created an ambiguity in the policy.
The court held that the "plain language of the [Changes in Exposure] provision demonstrates that coverage does not exist for the 'Wrongful Acts' of an acquired company committed before an acquisition or merger, and there is no dispute here that the 'Wrongful Acts" in question were committed years before [the insured acquired the other bank]." The court also ruled that the "Changes in Exposure" provision was "unambiguous" because "one provision in a contract . . . that alters the practical effects of a provision elsewhere in the contract . . . does not constitute a 'redrafting' of that agreement."
The excess insurers also contended that the underlying litigation resulting in the judgment against the insured and two other lawsuits against the acquired entity that pre-dated the coverage period arose from "Interrelated Wrongful Acts" because they shared an "underlying factual basis." The insured argued that the underlying litigation did not arise out of "Interrelated Wrongful Acts" because the two other lawsuits were not "interrelated" and were filed against the acquired entity, which was not an "Insured" at the time of filing. The court ruled that the wrongful acts alleged in the three lawsuits were "causally connected," and thus the underlying litigation was "interrelated" with the actions that pre-dated the coverage period such that the underlying litigation was deemed first made prior to the relevant policy period and not covered.
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