No Coverage for Criminal Investigation Where Sealed Affidavit Identifying Insured as Target of Investigation Was Not Reported During Policy Period

The United States District Court for the Middle District of Florida has held that an errors and omissions policy does not provide coverage for a criminal investigation of an insured individual where the affidavit identifying the individual as a target of the investigation was not unsealed or reported to the insurer until after the policy’s reporting period had expired.  Crowley Maritime Corp. v. National Union Fire Ins. Co., 2018 WL 783606 (M.D. Fla. Feb. 8, 2018).

In 2008, a shipping company received a search warrant from the Department of Justice (DOJ).  DOJ also issued a subpoena to a company executive.  The shipping company provided notice of the search warrant and subpoena to its errors and omissions insurer under a 2007-2008 policy with a six-year run-off period, which allowed the company to report claims until 2013.  The policy provided coverage for criminal investigations of Insured Persons where an Insured Person had been identified in writing as the target of the investigation.  The insurer advised that the investigation was not a Claim because the shipping company had not furnished a writing identifying the executive as a target of the investigation, but it agreed to accept the 2008 materials as notice of circumstances that may give rise to a Claim.  The shipping company instituted a coverage arbitration on the issue whether the investigation was a Claim, and the insurer prevailed.

In 2013, DOJ offered the executive a plea deal, and the insurer began advancing defense costs.  The executive rejected the plea, proceeded to trial, and was acquitted.  The trial evidence included a previously sealed affidavit that DOJ had used to obtain the 2008 search warrant.  The affidavit demonstrated that the executive had been a target of the investigation as early as 2008.

The shipping company then sued the insurer to recover the executive’s defense costs incurred between 2008 and 2013.  The court rejected the insurer’s claim preclusion argument based on the earlier arbitration, holding that the affidavit had not been available at the time of the arbitration and was therefore not subject to that ruling.  By the same token, however, the court held that the insured was not entitled to coverage for the claim based on the affidavit because the reporting period ended in 2013, and the affidavit was not reported to the insurer until 2015.