Fourth Circuit Holds Two Lawsuits Involve Interrelated Wrongful Acts Constituting Single “Claim” Where Allegations Establish “Common Nexus of Fact”

The United States Court of Appeals for the Fourth Circuit has affirmed a trial court’s determination that an adversary proceeding brought by a bankruptcy trustee and subsequent suit by the trustee to recover on the judgment rendered in the first proceeding involved “interrelated wrongful acts” because they involved a “common nexus of fact” linked by common facts, a common transaction, and several common circumstances. W.C. & A.N. Miller Dev. Co. v. Cont’l Cas. Co., 2015 WL 9487938 (4th Cir. Dec. 30, 2015). The court thus held that the two lawsuits constituted a single “Claim” first made before the claims-made policy period incepted. Wiley Rein represented the insurer.

In 2006, several entities and individuals related to the insured, a land development company, were sued in a contract dispute (2006 Lawsuit). In 2010, a judgment was entered in the contract dispute, and the claimant filed the underlying action against the insured to recover on that judgment (2010 Lawsuit). The 2010 Lawsuit detailed the events and contractual dispute at issue that gave rise to the judgment in the 2006 Lawsuit. The insured tendered the 2010 Lawsuit to its insurer, seeking coverage of defense costs under a claims-made policy. The insurer denied coverage on the basis that the 2006 Lawsuit and 2010 Lawsuit involved “Interrelated Wrongful Acts,” defined in the policy as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction, or event.” The insurer thus treated the two lawsuits as a single “Claim” first made in 2006 before the policy period incepted. In the ensuing coverage action, the trial court granted judgment on the pleadings in favor of the insurer, holding that the two lawsuits “shared a common nexus” because they involved allegations of “a common scheme involving the same claimant” that “logically and causally” connected the two lawsuits.

On the insured’s appeal, the Fourth Circuit affirmed, holding that the conduct alleged in the 2006 and 2010 Lawsuits shared a “common nexus of fact” and thus involved interrelated wrongful acts under the policy. As an initial matter, the court stated that the policy’s definition of “interrelated wrongful acts” was “expansive” and unambiguous. The court thus concluded that the two lawsuits involved interrelated wrongful acts because they were linked by (1) “a multitude of common facts,” (2) “a common transaction,” and (3) “common circumstances” that logically and causally connected the two lawsuits. In so holding, the court rejected the insured’s argument under ACE American Insurance Co. v. Ascend One Corp., 570 F. Supp. 2d 789 (D. Md. 2008), that the allegations in the two lawsuits merely involved a “common motive” insufficient to establish interrelatedness.