Prior and Pending Litigation Exclusion Upheld to Bar Coverage
Insurance Law Flash
In Aon Corporation v. Certain Underwriters at Lloyd's of London, et al., Cook County Circuit Court of Illinois, Case No. 06CH16852, an Illinois trial court held that a prior and pending litigation exclusion precluded coverage for multiple class actions filed against Aon. The suits were filed in connection with Aon's alleged business practice of collecting contingent fee commissions from insurers, which were not disclosed to its customers.
Aon was originally sued in 1999 in a class action alleging Aon's collection of contingent commissions constituted improper kickbacks, creating a conflict of interest with its customers because Aon allegedly steered customers in the direction of insurers who allegedly provided the most profitable commission arrangements with Aon. Five years later, Aon's practices became the subject of an investigation by New York Attorney General Eliot Spitzer. The disclosure of Mr. Spitzer's investigation was followed by a host of lawsuits by Aon's policyholder clients, who alleged their business resulted in Aon's collection of secret contingent commissions. The policyholder lawsuits alleged violations of state statutes prohibiting deceptive business practices and consumer fraud, RICO and federal antitrust violations.
Aon sought coverage for the policyholder claims from two groups of insurers. The first group subscribed to a combined lines policy for 1999-2000. The second group of insurers subscribed to a claims made and reported directors and officers (D&O) liability policy for 2004-2005. On August 17, 2006, Aon filed its complaint seeking coverage for the policyholder lawsuits under both the combined lines policy and the D&O policies. Aon alleged the policyholder lawsuits constituted "interrelated claims" vis-a-vis the original 1999 class action because they were both based on common factual allegations, i.e., that Aon failed to consider its clients' best interests by choosing to offer insurance with carriers that offered contingent commissions, without disclosing the commissions. Aon also alleged, in the alternative, that if the subsequent matters were not "interrelated" to the original litigation, then coverage would be available under the later D&O policies.
The combined lines policy provided that "interrelated wrongful acts" would relate back to covered "wrongful acts" if logically or causally connected due to common facts, circumstances or transactions. In contrast, the D&O policies contained an exclusion that precluded coverage for claims arising out of or attributable to any prior or pending litigation filed on or before August 31, 2002, or the same or substantially the same fact, circumstance or situation underlying or alleged therein. Aon's complaint, which alleged that the subsequent policyholder lawsuits (referred to as the "interrelated matters") were based upon the same misconduct alleged in the 1999 class action, served to underscore the irreconcilable conflict between its claims against the combined lines policies and the D&O policies.
The court determined that Aon was bound by its allegations that the later policyholder actions were interrelated with the original 1999 class action, and rejected Aon's alternative pleading argument. Aon's complaint did not allege alternative facts, but rather used the same set of factual allegations to seek coverage under either the combined lines policies or the D&O policies. The court cited case law from New York and other jurisdictions for the proposition that if a "sufficient factual nexus" was established between the prior and later actions, then the later actions will fall within the exclusion.