The United States District Court for the Southern District of New York, applying New York law, has ruled that a single suit gave rise to multiple claims, many of which overlapped with prior litigation involving the policyholder, and has held that a prior litigation exclusion only applied to some of the claims in the current suit. Pereira v. Nat'l Union Fire Ins. Co., 2007 WL 2509757 (S.D.N.Y. Sept. 5, 2007).

Although never cited by the court in its decision, the relevant policies define "claim" to include both "a written demand for monetary or non-monetary relief" and "a civil . . . proceeding for monetary or non-monetary relief which is commenced by . . . service of a complaint or similar pleadings. . . ." An excess insurer moved for summary judgment based upon the following prior litigation exclusion: "[The insurer] shall not be liable to make any payment for loss in connection with any claim made against any of the Insureds based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving: (a) any prior and/or pending litigation as of July 6, 1998; or (b) any fact, circumstance or situation underlying or alleged in any prior and/or pending litigation as of July 6, 1998."

The policyholder's bankruptcy trustee brought an adversary proceeding alleging various wrongdoing, including excessive pay to its directors and officers and improperly paying dividends to some shareholders but not others when the company was insolvent. Nearly all of these allegations were also at issue in an earlier suit filed by a shareholder in 1996, prior to the policyholder's bankruptcy.

After all but the primary carrier refused coverage for the adversary proceeding, the trustee obtained a judgment against the directors and officers and then pursued coverage under the policies. The similarity of the adversary proceeding and the prior shareholder suit led the excess carrier to move for summary judgment based upon the prior litigation exclusion.

As an initial matter, the court rejected the contention of the trustee that the "based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving" prefatory language of the exclusion was ambiguous. The court reasoned that the exclusion merely lists a number of ways in which "possible relationships" between the suits could exist, while using "the critical conjunction 'or.'" As such, the court ruled that the exclusion unambiguously applied if any of the listed relationships existed.

Application of the exclusion, however, required the court to consider what constituted a "claim," such that it could be compared to the prior litigation. In determining what constitutes a "claim," the court never referenced the policies' definitions. Instead, the court cited New York common law and opined that a "claim" is "a demand made against the insureds for money damages." The court then reasoned that because the adversary proceeding had proceeded to a judgment, "each itemized amount . . . listed in the final judgment . . . constitutes a separate 'loss in connection with [a] claim.'" Without ever addressing the policies' definitions of "claim," the court opined that "a single lawsuit may contain several 'claims'" and decided that a proper analysis would compare "the facts underlying the damages awards . . . with the facts alleged in" the prior suit.

Following this analysis, the court held that most of the damage awards were based upon facts that were also at issue in the prior suit. In this regard, the court concluded that it was not necessary for the insurer "to demonstrate a complete overlap between the claims and the alleged facts in order to preclude coverage." Some of the "claims," however, were deemed not based on facts at issue in the prior litigation and, thus, not precluded by the prior litigation exclusion.