Fifth Circuit Finds Failure To Provide Notice Of An Initial Claim Under 'Claims Made And Reported' Policy May Preclude Coverage For Timely-Reported, Subsequent, Interrelated Claims

(February 2020) - In ADI Worldlink, LLC. v. RSUI Idemnity Co., 932 F.3d.369 (5th Cir. 2019), the Fifth Circuit affirmed the judgment of the District Court for the Eastern District of Texas, finding that an "interrelatedness provision" of a claims made and reported policy, when read in conjunction with the policy's notice requirement, precluded coverage for all wage claims against an insured, including those which were timely reported under a subsequent policy.

This case arises out of a coverage dispute between ADI Worldlink, LLC (ADI) and RSUI Indemnity Company (RSUI) related to claims filed against ADI for failure to pay overtime wages to nonexempt employees. In July of 2014, two ADI field engineers filed complaints before the American Arbitration Association (AAA), alleging that ADI failed to pay them overtime for at least three years and had improperly categorized them as "exempt" under the Fair Labor Standards Act (FLSA). ADI received notice of the initial AAA wage claims in August of 2014 (2014 Claims). Beginning in April of 2015, additional field engineers employed by ADI in other jurisdictions similarly initiated arbitration proceedings against ADI for failure to pay overtime wages under FLSA (2015 Claims).

On September 16, 2015, more than a year after the filing of the 2014 Claims, ADI notified RSUI of all the wage claims, seeking coverage under two directors and officers (D&O) liability insurance policies issued to it in 2014 and 2015. All claims were reported after the expiration of the 2014 D&O policy and during the 2015 policy period.

Both D&O policies were claims made and reported policies, which generally provide coverage only to those claims which are both made against the insured and reported to the insurer during the policy period.

The policies contained what was referred to by the district court and Fifth Circuit as an "interrelatedness provision," which stated:

All Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events, or the same or related series of facts, circumstances, situations, transactions or events, shall be deemed to be a single Claim for all purposes under this policy, shall be subject to the Retention stated in Item 4 of the Declarations Page, and shall be deemed first made when the earliest of such Claims is first made, regardless of whether such date is before or during...