News & Events

BSWB establishes framework in the Second Circuit for determining when claims are based upon interrelated wrongful acts

May 25, 2006

BSWB’s Alexis J. Rogoski recently obtained another winning decision on the application of an interrelated claim provision to a lawsuit that, as a result, was deemed a claim first made under a prior policy period. Specifically, Mr. Rogoski was granted judgment on the pleadings on behalf of Greenwich Insurance Company by the Honorable Loretta A. Preska in Eric Zahler v. Twin City Fire Ins. Co. et al., 2006 WL 846352 (S.D.N.Y. March 31, 2006).

The Zahler Court held that the wrongful acts alleged in an ERISA lawsuit were interrelated to the wrongful acts alleged in an earlier securities action, and as such, the ERISA claim was deemed first made within Twin City’s coverage period, and prior to Greenwich’s coverage period. In her opinion, J. Preska agreed with Mr. Rogoski’s reasoning that the bargained-for language in the claims-made policy at issue clearly and unambiguously indicated that the ERISA claim was interrelated to the securities claim, as each action alleged a class period that commenced immediately after the publication of allegedly misleading statements with respect to the expansion of telecommunications services provided by the defendants, which adversely affected the value of the defendant company’s stock. The Court noted that the factual similarities between the two actions rendered them “related claims,” notwithstanding the fact that the two lawsuits entailed different parties who sought relief under distinct statutory frameworks.

The Zahler decision comes closely on the heels of Mr. Rogoski’s recent victory in Seneca Ins. Co. v. Kemper Ins. Co., 133 Fed.Appx. 770 (2nd Cir. May 27, 2005), wherein the Court of Appeals for the Second Circuit issued a Summary Order affirming the dismissal of a complaint based on the application of an interrelated wrongful acts clause. Following oral argument, the Second Circuit relied on district court precedent in using the “sufficient factual nexus” test to conclude that the claims at issue were “neither factually or legally distinct” and arose from “numerous logically connected facts and circumstances.”

Together, the Zahler and Seneca decisions have provided a framework for all insurers whose policies include a “first made provision” by setting forth the guidelines for determining when two or more separate claims can be considered to arise out of interrelated wrongful acts, such that they may be deemed first-made on the date of the earliest of such claims. In this respect, the Southern District’s decision in Zahler is significant considering the recent proliferation of tag-along ERISA lawsuits that have sprung out of factually similar securities actions.

Rachel L. Simon and Daniela Ben-Moshe assisted Mr. Rogoski on the papers in these matters.

Link to Zahler decision
Link to Seneca decision

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