Tolling Agreement Held as Trigger Under Claims Made Policy – Plain Policy Language Provides Safe Harbor for Insurer

For insurers concerned about the effect of tolling agreements between an insured and a third party, the United States District Court for the Eastern District of Louisiana recently confirmed that the proper policy language will ensure that such an agreement tolls only the statute of limitations and does not affect the coverage period or notice obligations. In XL Specialty Insurance Company v. Bollinger Shipyards, Inc., et al, 12CV2071 (E.D. La. Jan. 3, 2014) (Vance, J.), the Court was asked to determine whether a Directors, Officers, and Private Company Liability Insurance Policy (D&O policy) covered claims made by the United States against Bollinger Shipyards, Inc. in related litigation. The United States’ claims against Bollinger arose from Bollinger’s performance of subcontract work to convert 110-feet patrol boats into 123-foot patrol boats. Upon delivery, the “lengthened” vessels suffered structural failures.

Pursuant to settlement negotiations, on December 23, 2008, the United States entered a tolling agreement with Bollinger, postponing the beginning of any statute of limitations. On July 29, 2011, the United States filed suit against Bollinger, alleging that Bollinger misled the Coast Guard into entering the vessel-lengthening contract by falsifying data related to the structural strength of the converted vessels. The United States asserted claims under the False Claims Act as well as for common law fraud, negligent enrichment and misrepresentation. Bollinger immediately notified National Union Fire Insurance Company of Pittsburgh, Pennsylvania and National Union’s claims administrator, Chartis Claims, Inc., of the suit, seeking coverage under a “claims made” Director & Officer Liability (D&O) policy. On August 30, 2011, Chartis denied coverage. Bollinger filed suit against National Union and Chartis, and the coverage dispute was removed from state court and consolidated with the subject litigation.

Bollinger sought partial summary judgment against National Union and Chartis, arguing that there were no applicable exclusions, the claim was made during the coverage period and, at a minimum, it was entitled to defense costs. The Court denied Bollinger’s motion, finding the policy language completely unambiguous. Under the policy language, the claim against Bollinger was not made during the policy period but was first made two and a half years earlier, upon execution of the tolling agreement. The lynchpin at the summary judgment stage was the policy language

  • limiting coverage to “Claim[s] first made against the Company . . . during the Policy Period. . . ”

and defining the term “claim” as

  • a written demand for monetary or non-monetary relief (including any request to toll or waive the statute of limitations); or
  • a civil, criminal, administrative, regulatory or arbitration proceeding for monetary or non-monetary relief commenced by service of a complaint or similar pleading, return of an indictment, information or similar document, or receipt or filing of a notice of charges.

Noting the plain language of the policy and reaffirming the Fifth Circuit’s position that “the making of a claim can be something less than the filing of a lawsuit,” the Court not only denied summary judgment for Bollinger but ordered Bollinger to show cause why summary judgment should not be granted in favor of the insurers. That deadline for Bollinger to do so is January 17, 2013. While it seems unlikely that Bollinger has a chance at defeating summary judgment for the insurers, query whether the outcome would be different if the relevant policy language did not include the parenthetical expressly referencing “any request to toll or waive the statute of limitations” as an example of a written demand for relief.