(Article from Insurance Law Alert, April 2016)
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Last month, we reported on decisions upholding the denial of claims-made coverage based on policy provisions that bar coverage for acts “interrelated” to wrongful acts allegedly committed prior to the policy period. See March 2016 Alert. This month, a Pennsylvania federal district court reached the opposite conclusion, finding that conduct alleged in two separate complaints against the insured was not sufficiently interrelated so as to bar coverage pursuant to an interrelated wrongful acts exclusion. Connect America Holdings, LLC v. Arch Ins. Co., 2016 WL 1254073 (E.D. Pa. Mar. 31, 2016).
Life Alert and Connect are competitors in the market for medical alert response systems. In 2009, Life Alert sued Connect alleging trademark infringement and unfair competition. The action was settled and an injunction was issued enjoining Connect from using Life Alert’s trademarks. In 2013, Life Alert brought another suit against Connect. This time, Life Alert named several other defendants who were not included in the first action. The complaint alleged unfair competition, trademark infringement and false advertising, among others. The parties settled the 2013 action and Connect sought coverage from Arch under a claims-made policy. Arch denied coverage on several bases, including an interrelated claims provision which precluded coverage for claims arising out of wrongful acts that are related to wrongful acts that occurred before the policy’s inception date. In ensuing litigation, a Pennsylvania federal district court granted Connect’s motion for summary judgment on the interrelated claims provision issue, ruling that the two lawsuits were not based on interrelated wrongful acts.
The policy defined Interrelated Wrongful Acts as “Wrongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of causally connected facts, circumstances, situations, events, transactions or causes.” The court held that the term “common nexus” was ambiguous and should be construed to require a “link between the acts.” The court acknowledged that the 2009 and 2013 complaints shared numerous similarities: they alleged many of the same causes of action; they both claimed that Connect deliberately caused confusion and deception among customers; and they both involved some of the same trademarks. However, the court noted that Connect’s alleged scheme and conduct were different in each action. Whereas the 2009 complaint focused on Connect’s website and internet activities, the 2013 complaint centered on a telemarketing scheme. In addition, the 2013 action included a new false advertising claim and allegations relating to a trademark that was not yet in existence in 2009. Finally, the court noted that in the 2013 action, Life Alert did not seek an injunction and did not allege that Connect had violated the 2009 injunction. Based on these factors, the court concluded that there was no “common nexus” between the two actions.