Third Circuit Holds Interrelated Claims Provision Is An Exclusion to Coverage

In its recent decision in Borough of Moosic v. Darwin National Assurance Co., 2014 U.S. Ap. LEXIS 2118 (3d Cir. Feb. 4, 2014), the United States Court of Appeals for the Third Circuit, applying Pennsylvania law, had occasion to consider whether an interrelated claims provision in claims made policy should be considered a condition precedent to coverage or an exclusion of coverage.

Darwin insured the Borough of Moosic under a public officials professional liability policy, providing coverage for the period August 1, 2010 to August 1, 2011.  During the policy period, Moosic was named as a defendant in a suit alleging that Moosic had committed a civil rights violation in connection with a land use dispute.  Upon learning that the underlying claimants had brought other suits against Moosic prior to the policy’s date of inception, Darwin denied coverage.  Specifically, Darwin asserted that the civil rights lawsuit was related to a mandamus suit brought against Moosic in 2006 for a dispute pertaining to the same land use issue.  Darwin relied on the following provision in its policy’s Conditions section, stating:

All Related Claims will be treated as a single Claim made when the earliest of such Related Claims was first made, . . .

The Policy defined the term Related Claims as:

… all Claims for Wrongful Acts based upon, arising out of, resulting from, or in any way involving the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances situations, transactions or events, whether related logically, causally or in any other way.

On motion to dismiss, the district court agreed with Darwin that the Related Claims provision constituted a condition precedent to coverage, and that as such, Moosic bore the burden of demonstrating that the lawsuit filed in 2010 should not be considered a Related Claim to the 2006 mandamus suit.  Concluding that Moosic failed to sustain this burden, the lower court granted Darwin’s motion to dismiss.

On appeal, Moosic argued that the Related Claims provision should be treated as a policy exclusion rather than a condition precedent to coverage, and that as such, Darwin should have the burden of proving the various suits were Related Claims.  In considering this issue, the Third Circuit observed that a condition precedent is “an act of a party that must be performed or a certain event that must happen before a contractual right occurs … .”  An exclusion, on the other hand, is a limitation of coverage applicable to certain types of loss to which the policy does not apply.  With this in mind, the court concluded that the Related Claims provision served as a limitation of coverage, explaining:

The Related Claims provision here acts to limit coverage under the policy. If a claim is related to previous claims, all of the claims will be treated as one claim that was made at the same time as the oldest claim. As a result, a claim like the one at issue here that meets the requirements listed in the insuring agreement may still be denied coverage because the Related Claims provision operates to change the date the claim was first made from a date within the policy period to a date before the policy period began. The Related Claims provision thus carves out certain types of loss - those related to claims made before the inception of the policy - from the protection provided by the policy.

The court further concluded that the Related Claims provision did not qualify as a condition precedent to coverage since it did not specify an act Moosic was required to perform in order for coverage to attach.  In so concluding, the court rejected Darwin’s argument that the placement of the provision in the Policy’s conditions section, rather than the exclusions section, required a different outcome, noting that the placement of a policy provision is not determinative of whether it is a condition or exclusion.

Thus, concluding that the provision was an exclusion rather than a condition precedent to coverage, the court held that the district court erred in holding that it was Moosic’s burden to demonstrate that the two prior claims were not Related Claims.  Rather, the court held that it was Darwin’s burden to demonstrate that the claims were related for the purpose of the exclusion.