No Coverage for “Related Claims” Derived From Single Transaction Where First Claim Was Not Timely Noticed to Insurer

The U.S. District Court for the Northern District of Illinois, applying Illinois law, has held that a complaint and cross-claims filed in the same lawsuit constitute “related claims” and therefore a single claim first made at the time of the complaint because they derive from a single transaction. Lloyd’s Syndicate 3624 (Hiscox) v. Clow, 2023 WL 2572424 (N.D. Ill. Mar. 20, 2023). Because the insureds failed to timely provide notice of the complaint to the insurer, coverage was unavailable for the subsequent cross-claims.

The insureds sought coverage for a lawsuit alleging that they failed to disclose contaminants on property the insureds sold on behalf of a family trust to the underlying plaintiff. The insurer denied coverage and filed a lawsuit against the insureds. The court granted summary judgment for the insurer, concluding that no coverage was available for the lawsuit because the insureds failed to provide timely notice of the lawsuit to the insurer.

Subsequently, a direct beneficiary of the trust (the “Foundation”) filed cross-claims against both the underlying plaintiff and the insureds. The cross-claims alleged breach of fiduciary duty and fraud against the insureds based on their negotiation of the trust property sale. The insureds sought coverage for the cross-claims.

In the coverage litigation, the insurer moved for judgment on the pleadings, arguing that no coverage was available for the cross-claims because they were related to the underlying plaintiff’s original complaint, which the court concluded the insureds had not timely tendered for coverage. The policy provided that claims are “related” where they are “based upon, arise out of, or allege . . . [a] common fact, circumstance, situation, event, service, transaction, cause, or origin,” and “[a]ll related claims, regardless of when made, will be treated as one claim, and all subsequent related claims will be deemed to have been made against you on the date the first such claim was made.”

The court granted judgment on the pleadings for the insurer. The court explained that “[i]t is obvious that all these claims rise from a single transaction, i.e., the sale of the Trust’s farm to [the underlying plaintiff].” The court held that “the claims of the Foundation and [the underlying plaintiff] are clearly related under the terms of the [policy] and constitute a single claim and are therefore subject to the Court’s previous decision holding that the claims are untimely.”