Policy With Earlier Coverage Period Is "Prior Policy" Notwithstanding Extension Of Reporting Period
JAMES RIVER INSURANCE CO. v. KEMPER CASUALTY INSURANCE CO. (October 28, 2009)
James River and Kemper both issued malpractice insurance policies to a law firm. The Kemper policy covered claims made between September of 2000 and September of 2007, for acts committed between 1937 and 2002. The James River policy covered claims made between November 2004 and November 2005, for acts committed after November 2002. The malpractice suit giving rise to the dispute between the insurance companies alleged that two lawyers represented a wife in a divorce case. In December of 1999, they entered into a property settlement wherein their client was to receive a significant amount of her husband's stock options. Their attempt to document the settlement failed to accomplish the transfer of the options. A lawsuit against the husband was still pending when, in July 2001, the husband's employer declared bankruptcy, rendering the options worthless. The suit against the husband was finally dismissed in 2003. Thus, the acts complained of in the malpractice action occurred during both policies' claim periods. The James River policy contained a provision that excluded from coverage any claim that arose from the same set of circumstances as a claim under a "prior policy." James River brought a declaratory judgment action against Kemper seeking a declaration that it had no duty to defend or indemnify. The court granted summary judgment to Kemper. James River appeals.
In their opinion, Judges Posner, Manion and Tinder reversed. First, the Court concluded that the wrongful acts that occurred during the James River policy period arose from and were a continuation of the wrongful acts and decisions committed during the prior period. This was just the situation the James River exclusion addressed. Next, The Court considered the district court's ruling that the Kemper policy was not a “prior policy.” The district court had relied on the fact that the firm had purchased a five-year reporting extension on the Kemper policy. Although the policy period ended in 2002, the reporting extension allowed for a claim to be made through 2007. The Court noted, however, that the reporting extension did not extend the policy period. The Court concluded, therefore, that the Kemper policy was a "prior policy" and the James River exclusion applied. The Court remanded for the entry of the declaratory judgment requested by James River.
