Excess Insurer Was Not Bound by Primary Insurer’s Interpretation of “Prior Acts” Exclusion, Maryland’s Top Court Rules

Maryland’s highest court, the Maryland Court of Appeals, has enforced a prior acts exclusion in a primary insurance policy and ruled that an excess insurer was not bound by the primary insurer’s interpretation of that language.

The Case

A class action lawsuit filed against Cristal USA, Inc., on April 12, 2010, alleged that Cristal had conspired with other manufacturers, beginning as early as March 2002, to artificially raise the price of titanium dioxide in violation of federal antitrust law.

Cristal notified its primary and excess liability insurance carriers of the action. It received full policy limits under its primary policy to defend the class action.

Cristal’s excess insurer, however, determined that the class action was “precluded entirely from coverage” by operation of the prior acts exclusion in the primary insurance policy, which barred coverage for Cristal’s “Wrongful Acts” or “Interrelated Wrongful Acts” that occurred prior to May 15, 2007.

Cristal sued, alleging that the excess insurer was obligated to provide coverage under the excess policy, which followed the primary policy. Cristal stated that the excess insurer had “refused to honor its obligations” under its policy even though it knew that the primary insurer had provided coverage for the same claims and had paid its full policy limits in defense of the class action.

The trial court granted summary judgment for the excess insurer, finding that the prior acts exclusion applied to the actions alleged in the class action and, therefore, excused the excess carrier from providing coverage to Cristal under the excess policy.

Cristal appealed to the Maryland Court of Appeals.

The Maryland Court of Appeals’ Decision

The Maryland Court of Appeals affirmed.

In its decision, the court first ruled that the insurance contract’s prior acts exclusion could “only be interpreted reasonably to exclude acts before May 15, 2007” by Cristal.

Examining the very last clause of the exclusion – “prior to May 15, 2007 for [Cristal]” – the court said that it was “clear” that the word “for” referred to the prior acts cut-off date for Cristal and that “any wrongful acts” committed by Cristal prior to May 15, 2007 were excluded from coverage.

Then, the court held that the excess insurer was free to interpret the contract language contained in the primary policy in a way that departed from the primary insurer’s interpretation of the same language.

The Maryland Court of Appeals explained that where a court interpreted the policy language of a primary policy, it could not give the same language a different meaning for purposes of an excess policy. In this case, the Maryland Court of Appeals noted, the trial court had interpreted the primary policy language and applied it in the same manner to the primary insurer and the excess insurer, while expressing its disagreement with the primary insurer’s interpretation of the language of the exclusion.

The Maryland Court of Appeals concluded that, where a primary insurer had interpreted the policy language on its own, without judicial review, a follow form insurer was “not automatically bound by the coverage determinations of the primary policy insurer.”

The case is Cristal USA Inc. v. XL Specialty Ins. Co., No. 2494 (Md. Feb. 24, 2017).