An insurer’s shrewd deal structuring allowed it to take on only those liabilities of another insurer’s failing business that it intended to acquire.
Hartford Fire Insurance Company entered a series of agreements with Reliance Insurance Company, whereby Hartford Fire acquired rights to, and became a reinsurer and servicer of, certain Reliance policies. One such policy was a D&O policy owned by G-I Holdings, Inc., which covered claims made from July 1999 through June 2002. When G-I learned of Reliance’s impending insolvency in the summer of 2000, it sought protection by splitting its coverage between two new policies: (1) an amended Reliance policy with a new coverage termination date of June 30, 2000; and (2) a similar Hartford Fire policy covering claims made from that date through July 2002.
Three separate but related fraud actions brought against its directors and officers prompted G-I to tender claims under the policies, but Reliance was in liquidation and Hartford Fire denied coverage. Hartford Fire successfully defended against G-I’s coverage claim arguing that the policy’s “interrelated wrongful acts” provision governed, pursuant to which the filing date of all suits arising from the same wrongful act was the date on which the first such suit was filed. Because the first of the three fraud actions arising from the same alleged wrongful act commenced in January 2000, the court agreed that there was no coverage under the Hartford Fire policy. Moreover, the various agreements between Reliance and Hartford Fire further insulated Hartford Fire from direct liability. First, the asset purchase agreement transferred liability to Hartford Fire only for those claims made after June 30, 2000. Second, the claims servicing agreements expressly relieved Hartford Fire of any responsibility for payment of claims. Finally, the reinsurance agreement made Hartford Fire directly liable to Reliance and applied only to claims made after June 30, 2000.