Prior acts exclusion doesn’t shield Chubb in coverage disputePosted On: Jul. 11, 2019 1:49 PM CST
A prior acts exclusion in an excess policy issued by Chubb Ltd. is not applicable because the differences between the prior case and the current case outweigh their similarities, says a Delaware court in ruling the insurer is obligated to pay defense or indemnification costs.
Stamford, Connecticut-based Providence Service Corp. owns Pathways Community Corrections Inc., which is an additional insured under a health care facilities concurrent excess liability policy issued by Chubb unit Illinois Union Insurance Co. Ltd., according to Tuesday’s ruling by the Delaware Superior Court in Wilmington in Providence Service Corp. v. Illinois Union Insurance Co.
PCC administered the Rutherford, County, Tennessee, misdemeanor probation system, which involves the collection of court cost and fees from probationers, according to the ruling.
In 2015, PCC was sued in a class action suit alleging it illegally assessed fees and surcharges against probationers and made improper threats of arrest and probation revocation if the probationers did not pay the assessed amounts. The parties reached a settlement agreement of more than $14 million, according to court papers.
After the primary insurer paid for PCC’s defense costs, Chubb refused to pay for the excess loss, citing coverage was barred under a prior acts or prior notice exclusion, according to the ruling.
PCC filed suit against Chubb alleging breach of contract in state court in Wilmington.
Chubb and PCC disagreed as to whether the Tennessee action was related to another class action five years earlier and therefore fell under the prior acts exclusion. The earlier case involved two specific fees charged to probationers by PCC.
The court ruled in Providence’s favor, after analyzing the two cases. “To accept Defendant’s broad definition of ‘related’ would render all claims involving PCC professional services ‘related,’” said the ruling. “Coverage would be illusory. It would be difficult, if not impossible, to find unrelated incidents in the context of providing probationary services,” it said.
“The similarities between the two actions are outweighed by their differences. There are significant differences between the two Actions,” including that while the previous action was based on breach of contract, the current action raised constitutional challenges, said the ruling in granting PCC partial summary judgment in the case.
Attorneys in the case had no comment.
In March, a federal appeals court affirmed a lower court ruling and held Illinois Union was not obligated to indemnify an apartment owner under a claims-made policy it issued to a contracting firm that expired 19 months before the insurer learned of the claim.