October 28, 2021
In a victory for policyholders, a federal district court ruled that Duke University can pursue coverage under an excess combined directors and officers (D&O) and employment practices liability (EPL) policy for an antitrust class action alleging that Duke conspired with other North Carolina universities to suppress faculty wages.
In Duke University v. Endurance Risk Solutions Assurance Co.,1 the Eastern District of North Carolina rejected Endurance’s request for an interlocutory appeal to overturn the Court’s ruling that Duke could pursue defense and indemnity coverage for an action filed against the university in 2020. In doing so, the Court reaffirmed its earlier decision that the 2020 action “relates” to a prior action filed in 2015, involves wrongful acts that happened at least in part during the 2015 policy period, and that the Endurance policy covers damages continuing after the end of the 2015 policy period.
The Duke decision shows that policyholders may overcome insurers’ limit-protecting interpretations of interrelated claim provisions and retroactive dates to obtain the insurance coverage to which they are entitled.
The Class Actions
In 2015, Dr. Danielle Seaman filed an antitrust class action against Duke and the University of North Carolina at Chapel Hill alleging that the schools had conspired since 2012 to suppress wages for medical faculty. The Seaman action settled in 2019. Then, in 2020, Professor Lucia Binotti filed a second proposed antitrust class action against Duke with allegations similar to the Seaman action on behalf of all faculty, rather than just medical faculty.
Duke sought insurance coverage under an extensive insurance program including the Commercial Excess Liability Policy that Endurance sold Duke for the policy period of January 1, 2015–January 1, 2016. The Endurance policy sits at the fifth excess layer of coverage, providing $25 million of coverage above $55 million. The Endurance policy follows form to the primary policy in the coverage program, which provides separate coverage for both D&O and EPL.
The insurance program’s primary policy D&O section contains an interrelatedness provision that states: “All Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts shall be deemed to constitute a single Claim and shall be deemed to have been made at ... the time at which the earliest Claim ... is first made.”
The Endurance policy, in its Claims Made Coverage Endorsement, provides that it is “subject to the same terms, conditions, definitions and warranties as contained in” the Primary Policy, except for the Retroactive Date exclusion. The Endurance policy separately provides that “All Claims for Damages resulting from a Wrongful Act which are alleged by the same person or organization . . . will be deemed to have been made at the time the first of those Claims is made against any insured.”
The Retroactive Date exclusion states that the Endurance policy “does not apply to any Loss resulting from a Wrongful Act which occurs before the Retroactive Date [January 1, 2015] or after the end of the policy period [January 1, 2016].”
The Coverage Dispute
Duke sued Endurance seeking a declaratory judgment that Endurance must cover Duke’s defense costs related to the Seaman and Binotti actions, and any liability that arises from the Binotti action.
Endurance argued that there was no coverage for the Binotti action. According to Endurance, the separate “relation back” wording in its policy controlled its coverage obligations, not the relation-back provision of the Primary Policy to which the Endurance policy follows form. The interrelated provision in the Endurance policy purports to limit “related” Claims to those “alleged by the same person or organization.” Endurance argued that there was no coverage for the Binotti action because the Binotti action was not brought on behalf of the same person or organization as the Seaman action. Notably, there was no dispute that the two actions would be “related” under the wording of the primary policy to which the Endurance policy follows form.
Endurance also argued that its policy excludes alleged wrongful acts that happened before, and damages that arose after, 2015 under the Retroactive Date exclusion.
The Court’s Ruling
The Court rejected Endurance’s arguments. The Court reasoned that Duke had sufficiently alleged that the Claims Made Coverage Endorsement included in the Endurance policy “expressly and explicitly changed defendant’s policy” so that the Endurance policy followed form to the primary policy for “claims-made lawsuits such as Binotti.” Thus, the Court concluded that the broader interrelated Claim provision in the primary policy controlled. As noted by the Court, “in the event of conflict with policy language, the language of an endorsement generally prevails.”
The Court further held that the Retroactive Date exclusion, by its plain terms, does not exclude coverage for a loss that occurred in part by acts before 2015, and in part by acts that occurred during the policy period. Similarly, the Court found that the Retroactive Date exclusion only addresses the timing of wrongful acts, and does not bar coverage for later losses resulting from acts within the coverage period. As explained by the Court, to “the extent there is any ambiguity in the exclusion, it will be construed against the insurer and in favor of the insured.”
The Court also noted that it considered Endurance’s conduct in construing the terms of the policy: “As defendant has argued, the Seaman case and the Binotti case both allege the same antitrust conspiracy, which was formed in some part prior to the Retroactive Date. Despite this, defendant did not contend that the Retroactive Date exclusion would bar the Seaman claim.”2
The Duke decision shows that careful analysis of conflicting policy language and ambiguous policy language, married to an analysis of the facts and evidence of the claim, helps courts recognize that insurers too often seek to use the interrelated claims provision and retroactive dates in policies as both a sword and shield. At the least, factual issues like this one should not preclude the insurer’s obligation to defend and pay defense costs. Policyholders should not allow insurers to avoid their defense obligations by raising such fact-based issues.
1 Duke Univ. v. Endurance Risk Sols. Assurance Co., No. 5:20-CV-672-BO, 2021 WL 4597069 (E.D.N.C. Oct. 5, 2021), denying motion to certify appeal of No. 5:20-CV-672-BO, 2021 WL 2345014 (E.D.N.C. June 8, 2021).
2 See id. at *3-*4.