In a non-precedential Summary Order issued in Nomura Holding Am., Inc. v. Fed. Ins. Co., Case No. 14-3789 (2d. Cir., Oct. 21, 2015), the Second Circuit affirmed a federal district court holding (45 F. Supp. 3d 354 (S.D.N.Y. 2014)) that five timely reported claims related back to a first filed securities class action predating a series of D&O Policies issued to Nomura Holding America (“Nomura”) by Federal Insurance Company (“Federal”).

At the time of the first filed securities class action against Nomura in 2008, alleging misstatements regarding certain Residential Mortgage Backed Securities (“RMBS”) offerings, Nomura had purchased D&O insurance from Greenwich Insurance Company. Subsequently, five further RMBS lawsuits were filed against Nomura between 2011 and 2012, during which time Nomura had switched its D&O carrier to Federal.

The Federal D&O Policies defined Related Claims to mean “all Claims for Wrongful Acts based upon, arising from, or in consequence of the same or relatedfacts, circumstances, situations, transactions or events or the same or relatedseries of facts, circumstances, situations, transactions or events.” The consequence of claims being related was that “[a]ll Related Claims shall be treated as a single Claim first made on the date the earliest of such Related Claims was first made … regardless of whether such date is before or during the Policy Period.”

The district court criticized both parties’ initial arguments on summary judgment, and noted that Federal only submitted the key in-depth allegation-by-allegation review of the complaints upon the court’s request for further briefing. Federal first argued that relatedness can be found merely because the underlying actions each allege misrepresentations arising from common categories. The district court rejected this argument, noting that such an expansive interpretation of relatedness would improperly prohibit coverage for an entire line of business. The district court also rejected Nomura’s “much narrower definition of relatedness,” id. at 372, based upon “facial differences between the actions: different plaintiffs, different defendants, different offerings, and different mortgage pools.” Id. at 372-73. Although the district court did not describe what constitutes relatedness, it noted the fact intensive nature of the inquiry, and then utilized the “factual nexus” test to find that the claims were related. The court noted that a sufficient factual nexus exists when claims “are neither factually nor legally distinct, but instead arise from common facts and where the logically connected facts and circumstances demonstrate a factual nexus’ among the [c]laims.” Id. at 370 (citations and punctuation omitted). Finding the above satisfied, the district court granted summary judgment to Federal.

On appeal, the Second Circuit affirmed the district court’s grant of summary judgment, but noted that the district court erroneously used the “factual nexus” test to determine relatedness instead of relying on the unambiguous policy language of the Related Claims provision, although this error did not change the result. The Second Circuit found that the district court performed the required side-by-side analysis of the underlying complaints, which revealed that plaintiffs in all the underlying actions alleged that they invested on material misstatements in the offering and registration documents concerning various RMBS investments from 2005-2007, and indeed alleged many of the same specific material misstatements. The Second Circuit thus agreed with the district court that the underlying complaints were related because they contained overlapping, and in some cases, identical allegations which satisfied the unambiguous Related Claims provision. Because the five 2011-2012 claims all related to the first filed claim in 2008, which predated the Federal Policies, the Second Circuit held that “the underlying claims fall outside the ambit of coverage provided by the [Federal] Policies.” Therefore, Federal had no coverage obligation to Nomura.

The interrelatedness of claims continues to be a difficult and contentious issue in insurance coverage litigation. The inquiry is fact specific and relies heavily upon the specific policy language at issue. The major takeaway from the Second Circuit’s Summary Order is that the “factual nexus” test need not be used where the policy terms are clear and unambiguous as to the requirements for the interrelatedness of claims.