Class Action Relates Back to Earlier-Filed Suit, Florida Appeals Court Decides

A Florida appellate court has ruled that a class action filed against an insured mortgage broker after the expiration of its claims-made professional liability insurance policy related back to a claim filed during the policy period. Therefore, the appellate court ruled, the class action claim was covered by the policy. 

The Case

In October 2007, Berman Mortgage Corporation (“BMC”), a mortgage broker, was sued by a private investor who had participated in a number of BMC’s mortgages. The suit alleged that BMC had negligently brokered and serviced mortgages. 

In December 2007, a receiver was appointed for BMC’s assets to protect its creditors; the October 2007 lawsuit was stayed as a result of the receivership.

In May 2009, the receiver and another investor in BMC’s mortgage transactions filed a class action complaint against the principal officers of BMC on behalf of approximately 640 similarly situated investors who had financed mortgages brokered by BMC.

In response to the class claim, the insurance company that had issued BMC a “claims-made” professional liability insurance policy with effective dates from May 10, 2007 to May 10, 2008 filed a declaratory judgment action, seeking a declaration that no coverage was owed under the policy for the class claim.

The trial court granted the insurer’s motion for summary judgment, and the dispute reached an appellate court in Florida.

The Appellate Court’s Decision

The appellate court reversed.

In its decision, the appellate court explained that the coverage issue should have been analyzed under the policy’s “multiple claims” provision, which provided coverage for claims made subsequent to the policy period that related back to a prior claim brought by a third party during the policy period against the insured. According to the appellate court, the multiple claims provision required only that a subsequent claim be based on the same or similar facts, circumstances, and transactions as a prior claim brought during the policy period.

When so analyzed, the appellate court ruled, the class action claim related back to the October 2007 claim and, therefore, the class action claim was covered by the policy. The appellate court reasoned that, in terms of BMC’s alleged negligence, the members of the class were investors in the same situation as the investors who made the October 2007 claim; most of the specific projects listed in the October 2007 claim were included in the class claim; and the October 2007 claim and the class claim were based on the same alleged course of conduct by BMC, particularly its alleged failure to conduct due diligence, maintain proper accounting,  and detect and report prior encumbrances on the properties which provided collateral for the loans.

Accordingly, the appellate court concluded, the class claim was covered under the policy because it was related by common facts, circumstances, transactions, events, and decisions to the October 2007 claim and, therefore, related back to that claim under the multiple claims provision of the policy.

The case is Gidney v. Axis Surplus Ins. Co., No. 3D12-1250 (Fla. Ct. App. April 9, 2014).