Fact Issues Preclude Summary Judgment As To Whether Related Companies Constitute “Insureds” And Whether Claims Are Related

Applying New Jersey law, the U.S. District Court for the District of New Jersey determined that issues of material fact precluded summary judgment as to whether certain companies with common ownership and operations qualified as “insureds.” Tryko Mgmt. Svcs. LLC v. Lloyd’s Syndicate 3624 (Hiscox), 2023 WL 2706861 (D.N.J., Mar. 30, 2023). The court also denied the parties’ cross-motions for summary judgment as to whether certain lawsuits related back to a lawsuit filed prior to the policy period.

Eight related companies were named as defendants in three separate lawsuits brought by the same plaintiff. The first lawsuit was filed against two of the eight companies and alleged trade secret misappropriation and breach of a confidentiality agreement. In the second lawsuit, four of the other related companies were sued for breach of fiduciary duties and overbilling. The third lawsuit was filed against the two remaining companies and alleged the same claims as the second lawsuit. 

One of the eight companies – a holding company – maintained a professional liability insurance policy and tendered the lawsuits to its insurer. The insurer denied coverage for the lawsuits on two separate grounds. First, the insurer argued that not all of the companies were insureds at the time the claims at issue were made against them. Second, the insurer declined coverage on the basis that all of the lawsuits constituted “related claims,” and the first lawsuit was filed before the policy incepted.

In coverage litigation, the parties cross-moved for summary judgment. The court denied summary judgment on the question of which companies were insureds. The holding company argued that its application for coverage included the other entities. The court held that “the record is unambiguous and does not support Plaintiffs’ argument that it was the parties’ shared initial intent to insure” the other entities. However, the court found a genuine factual dispute as to whether certain of the entities could qualify as part of the insured organization as “subsidiaries.”

The court also declined to grant summary judgment on the related claims issue. The court concluded that neither party “provide[d] any definitive documentation that speaks to the claims made” in the second lawsuit. In addition, while the third lawsuit “references some of the allegations and claims” in the first lawsuit, “providing background context in the ‘Statement of Facts’ section of a complaint does not automatically imply a nexus between a current and previous lawsuit.” Thus, the court found material fact issues as to whether the three lawsuits arose out of the same or related facts or circumstances or had “a common nexus” of such facts or circumstances in order to constitute “Related Claims” as defined by the policy.