In a recent decision, the Seventh Circuit Court of Appeals found an amended complaint filed in an underlying action was a “related claim” with respect to the original complaint filed in the same suit and thus that the matter should have been reported to the insurer during the policy period in effect at the time of the original pleading.
The dispute in Hanover Insurance Co. v. R.W. Dunteman Co. arose from a conflict among family members over the ownership interests in the family’s construction business. Jane Dunteman, the matriarch, held a minority stake in Du-Kane Asphalt Co. and Crush-Crete Inc., two companies owned and operated by her husband, Paul Dunteman Sr., and other family members. The couple’s four sons were the majority shareholders and directors and officers of Du-Kane and Crush-Crete.
Hanover Insurance issued two directors, officers, and entity liability policies covering Du-Kane, Crush-Crete, and the four Dunteman brothers, effective from 2017-2018 and 2018-2019. The policies provided coverage for claims both made and reported during their respective policy periods. Further, the 2018-2019 policy provided that “Related Claims will be considered as a single Claim made in the Policy Period … in which the earliest of such Related Claims was first made or first deemed to have been made.”
After Jane and Paul Dunteman’s deaths, a dispute arose as to Jane’s exact ownership interest. On August 28, 2017, Jane’s estate filed suit in state court against Du-Kane seeking a declaratory judgment that Jane owned 24% of the company at the time of her death. On July 16, 2018, while discovery was still underway, the estate filed a second amended complaint that broadened the allegations and theories of liability as alleged in the original pleading. The second amended complaint also added Crush-Crete and the four Dunteman brothers as defendants. On July 13, 2018, all six defendants provided notice of the lawsuit for the first time to Hanover and sought coverage under the 2018-2019 Hanover policy. Hanover denied coverage on the grounds that the “claim” was first made during the 2017-2018 policy period, when the original complaint was filed, and that the insureds therefore failed to report the lawsuit during the applicable policy period.
In the ensuing coverage litigation, the U.S. District Court for the Northern District of Illinois agreed with Hanover that the second amended complaint against all of the defendants was a “related claim” with respect to the original complaint filed against Du-Kane only. As such, the court held that coverage for the allegations in the second amended complaint was properly denied as untimely reported under the 2018-2019 Hanover policy.
On appeal, the Seventh Circuit noted that the 2018-2019 policy broadly defined “related wrongful acts” as acts that are “logically or causally connected by reason of any common fact, circumstance, situation, transaction, casualty, event, result, injury or decision.” The court further noted that the policy defined “related claims” “even more broadly” than “related wrongful acts,” encompassing “all Claims based upon, arising from or in any way related to the same facts, circumstances, situations, transactions, results, damage or events or the same series of facts, circumstances, situations, transactions, results, damage or events.”
In finding the claims in the second amended complaint were sufficiently “related” to the original complaint, the Seventh Circuit noted that all six defendants were co-insureds under the 2018-2019 Hanover policy, “and the policy’s aggregation provisions tie the allegations in the second amended complaint to the claim raised earlier in the estate’s original complaint against Du-Kane Asphalt.” The court found that the “purpose of the reporting requirement would be seriously undermined if later iterations of the complaint based on facts learned during discovery could excuse the insured’s failure to timely notify the insurer of the lawsuit when it was first filed.” The court also noted, however, that “[h]ad the original complaint named an unaffiliated defendant or raised unrelated wrongful acts, Hanover’s position would be on shakier ground.” Nonetheless, having found the second amended complaint was a “related claim” with respect to the earlier complaint, and that the claim was not reported during the applicable policy period, the Seventh Circuit affirmed the district court’s grant of judgment on the pleadings in Hanover’s favor.
