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Ruling for Scottsdale in D&O insurance dispute affirmed

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A federal appeals court affirmed a lower court ruling in favor of Scottsdale Insurance Co. in directors and officers liability coverage litigation involving a group of interrelated telecommunications firms, in part because it held the litigation filed against it was not filed on a timely basis.

The plaintiffs in the case are four companies that share an office in Laguna Beach, California; US HF Cellular Communications LLC, Virsenet LLC; ShipCom LLC and Global Wideband HF Net LLC, according to Friday’s ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in USHF Cellular Communications LLC et al. v. Scottsdale Insurance Co.

In May 2018, two founders of ShipCom, who retained 20% of the business after selling the remainder to USHFCC, allegedly discovered USHFCC was planning to exploit a waiver ShipCom had obtained from the Federal Communications Commission and exclude them from the potential profits. The filed suit against all four companies as well as two of the companies’ officials.

The four companies had purchased D&O policies from Scottsdale. Scottsdale denied coverage to USCHFCC, Virsenet and ShipCom on the basis it was informed of the litigation in January 2016, and the policy coverage had ended on July 31, 2015. Two months later, it also denied coverage under the Global policy, which was reported to it in October 2016.

The companies filed suit against Scottsdale in U.S. District Court in Columbus Ohio, which ruled that USHFCC, Virsenet and ShipCom had failed to timely report the coverage. It denied coverage to Global on for its 2015-2016 policy on the basis it had made a “material misrepresentation” in its insurance application.

The lower court’s rulings were affirmed by a unanimous three-judge appeals court panel. Discussing the USHFCC, Virsenet and ShipCom policies, the ruling said, “Plaintiffs advance multiple arguments seeking to excuse their untimely reporting” of the lawsuit. The panel held, however, that the policies’ “plain language” precludes their coverage under the policies.

In the case of the Global policy, the ruling said the policy application asked whether there had been prior litigation. A company official had first answered “yes” to the question on Aug. 25, 2015, but changed the answer six days later to say “no” in a revised application. Scottsdale said by this time, the original complaint in the ShipCom litigation against it had been filed.

Global’s arguments included that the prior litigation question on the application form was ambiguous, said the ruling. “Because the prior litigation question is not susceptible to more than one reasonable interpterion, it is not ambiguous as a matter of law,” the ruling said, however, in affirming the lower court’s judgment.

Attorneys in the case had no comment.

In May, a federal appeals court upheld a ruling in favor of Axis Reinsurance Co. in a D&O liability coverage dispute with a pharmaceuticals company and a company executive over a claims-made policy. 



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