The Eighth Circuit Court of Appeals recently held that no coverage was available under two excess professional liability claims-made insurance policies for class action lawsuits asserting claims similar to those asserted in class actions filed prior to the policies’ effective date. In so ruling, the Court rejected the insured's argument that the later suits were covered despite the policies' prior acts provision because, at the time of the policies' inception, the insured could not reasonably foresee that a claim might be brought by the specific claimants. H&R Block, Inc. v. American International Specialty Lines Ins. Co., et al., No. 07-3156 (8th Cir. Nov. 14, 2008).
In May 1996, the insured purchased the excess policies at issue and disclosed to the excess insurers that a number of class action lawsuits had previously been filed asserting a number claims arising out of the insured's Refund Anticipation Loan program (“RAL”). The insured's primary insurance policies included coverage for “prior acts” claims based on wrongful acts that occurred prior to the policy’s effective date so long as the insured “had no knowledge of the prior wrongful act on the effective date of this Policy, nor any reasonable way to foresee that a claim might be brought.” During the policy period, additional class actions were filed asserting allegations similar to those previously asserted and disclosed.
The Eighth Circuit affirmed the lower court decision that the insured had reason to know that additional claims would be filed against it when it procured the excess coverage and, therefore, there was no coverage for the additional RAL class action lawsuits under the excess policies. While the insured argued that the prior acts provision should only apply where it could reasonably foresee “a specific claimant making a claim based on a specific alleged wrongful act,” the court noted that the insurance policies only required that the insured have knowledge that a claim would be filed: "when a product or service has been sold nationwide . . . even if the prior class action was limited to clients in a particular jurisdiction, claims based on uniform aspects of the RAL program and on causes of action recognized in most or all jurisdictions . . . put [the insured] on reasonable notice that other contemporaneous clients will assert the same claims alleging that the same 'wrongful acts' infected their individual transactions." Accordingly, the Court held that the two excess policies did not provide coverage for the RAL class action lawsuits.
For a full copy of the decision, please click here.