California Court of Appeal

In Feldman v. Illinois Union Ins. Co., 198 Cal.App.4th 1496  (Cal. Ct. App. Sept. 6, 2011), the California Court of Appeal for the Sixth District held that a directors' and officers' liability policy did not provide coverage for new causes of actions made against the insured's CEO in an amended cross complaint, which was part of a claim that was initially made before the policy incepted.

Plaintiff David Feldman was the president and CEO of ZF Micro Solutions, Inc., which sued National Semiconductor Corporation for breach of contract.  National Semiconductor filed a cross complaint against ZF Micro on May 28, 2002, and then filed an amended cross complaint on April 25, 2003, naming Feldman as a cross defendant.  The amended cross complaint alleged new causes of actions, including breach of fiduciary duty and fraudulent transfer of assets.

Between July 1, 2002 and July 1, 2003, ZF Micro and its directors and officers were insured under a "claims made policy" issued by Illinois Union Insurance Company.  Feldman tendered the amended cross complaint to Illinois Union for defense and indemnity.  Illinois Union denied coverage, invoking a policy provision that deemed "interrelated wrongful acts" to constitute a single claim and required such claims to be made during the policy period.  Feldman filed a coverage suit against Illinois Union, arguing that the underlying amended cross complaint alleged new and different wrongful acts that were not causally connected to, and were independent of, the wrongful acts alleged in the underlying original cross complaint.  The trial court was unconvinced by Feldman's arguments and entered summary adjudication for Illinois Union, from which Feldman appealed.

The Court of Appeal initially observed that Illinois Union's policy was a "claims made policy" that covered loss resulting from a claim first made during the policy period.  The court then compared the allegations in the original cross complaint with the allegations in the amended cross complaint to determine if Illinois Union correctly invoked the "interrelated wrongful acts" provision.  The court concluded that while the amended cross complaint expanded National Semiconductor's theories of recovery, the allegations in the amended cross complaint shared "a common nexus of fact, circumstance, situation, event or transaction" with the original cross complaint such that they both involved "Interrelated Wrongful Acts" and constituted a single claim.  As such, the court held that coverage was not available for the amended cross complaint because National Semiconductor's claim was initially made before Illinois Union's policy incepted.  Accordingly, the court affirmed the summary adjudication for Illinois Union.