Florida Court Holds No Coverage for Related Claims Under E&O Policy

In its recent decision in Zodiac Group v. Axis Surplus Ins. Co., 2012 U.S. Dist. LEXIS 176622 (S.D. Fla. Dec. 13, 2012), the United States District Court for the Southern District of Florida had occasion to consider whether an insured was entitled to coverage under a claims made and reported professional liability policy for a newly filed lawsuit related to a earlier suit filed prior to the policy’s date of inception.

The underlying dispute arose out of a contract between Zodiak and Linda Georgian, whereby Ms. Georgian was hired to endorse Zodiak’s telephone psychic services.   In April 2008, Ms. Georgian brought suit in state court against Zodiak for allegedly continuing to use her name and likeness in their advertising after the endorsement contract terminated.  The suit was dismissed for lack of prosecution in November 2009, but later refiled in federal court in January 2010, albeit with slightly different causes of action.

In September 2008, while the earlier state court suit was pending, Zodiak applied for a professional liability insurance policy from AXIS.  The policy application required Zodiak to identify any pending or prior claims made in the last five years.  In response, Zodiak stated “Former contract celebrity claimed unauthorized use of her name after their [sic] relationship ended. Allegations of invasion of privacy & injunctive relief.”  AXIS subsequently issued a one year claims-made and reported professional liability policy for the period October 2008 through October 2009.  The policy was later renewed for the period October 2009 to October 2010.  Notably, the 09-10 policy provided coverage for wrongful acts committed subsequent to the policy’s March 6, 1998 retroactive date and prior to inception date of the policy, but only if the claim was first made during the policy period, and only if prior to the policy’s date of inception the insured was unaware of circumstances that could give rise to a claim.   Additionally, the policy stated that "[a]ll Claims arising from the same Wrongful Act will be deemed to have been made on the earlier of" either "[t]he date the first of those Claims is made against any Insured," or “[t]he first date the [insurance company] receives the Insured's written notice of the Wrongful Act.” 

Zodiak contended that although the earlier state court was first made prior to the inception date of either policy, the lawsuit later filed in federal court should be considered a claim first made and reported during the 09-10 policy period, and thus covered under that policy.  AXIS countered that the federal court lawsuit involved the same allegations as the previously filed state court lawsuit, and that it light of this relationship should be considered a claim first made prior to the 09-10 policy’s inception date.

Observing that the federal court lawsuit was premised on the same alleged wrongdoing as alleged in the earlier state court lawsuit, the court granted AXIS’ motion to dismiss Zodiak’s complaint.  The court reasoned that the two preconditions for coverage for prior wrongful acts were not satisfied.  First, the federal court lawsuit was not first made during the policy period given its relationship to the state court lawsuit.  Second, Zodiak failed to establish that at the time of the policy’s issuance, it was unaware of circumstances that could give rise to a claim.  On the contrary, its responses in the application indicated otherwise.  As the court explained:

Nor is it true that Zodiac had no knowledge, prior to the policy's inception date, "of a circumstance that could reasonably be expected to lead to the Claim." … That is plainly false because Zodiac in fact disclosed on its application for insurance the underlying dispute with Georgian that later materialized into the federal lawsuit. In response to the question about pending or prior claims, Zodiac wrote that a "[f]ormer contract celebrity claimed unauthorized use of her name after their relationship ended," and that the suit involved "[a]llegations of invasion of privacy & injunctive relief." … Although Zodiac responded "no" to the question about whether it knew of any facts or circumstances that might reasonably result in a future claim being made, that obviously does not lessen its knowledge about the April 2008 state court lawsuit and the circumstances and facts underlying it.