Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003, 688 F. App'x 523

Background

Lloyds issued a claims-made professional liability policy to Brecek & Young Advisors, Inc. (BYA) covering 12/1/2006–12/1/2007; BYA had an earlier policy with Fireman’s Fund for 12/1/2005–12/1/2006.
BYA faced three arbitrations: Knotts and Colaner (earlier, reported to Fireman’s Fund) and Wahl (2007, 26 claimants). Lloyds agreed to defend Wahl under a reservation of rights.
Lloyds consistently maintained during the Wahl defense that the 26 Wahl claims were not interrelated (thus subject to separate retentions) and told BYA that Lloyds’ and Fireman’s Fund’s coverage counsel concluded Wahl did not relate back to Colaner.
After settlement of Wahl (Lloyds paid ≈$385,000; BYA paid ≈$932,000), Lloyds later asserted on appeal a new relation‑back defense: if Wahl were interrelated, it related back to Knotts and Colaner, eliminating Lloyds’ coverage obligation entirely.
On prior appeal (Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003), the Tenth Circuit held all three arbitrations were interrelated and remanded for the district court to determine whether BYA detrimentally relied on Lloyds’ representations (equitable estoppel/prejudice question).
On remand after a bench trial, the district court found BYA reasonably and detrimentally relied on Lloyds’ representations (causing BYA to forgo seeking Fireman’s Fund coverage) and entered judgment for BYA; the Tenth Circuit affirms.

Issues

Issue	Plaintiff's Argument (BYA)	Defendant's Argument (Lloyds)	Held
Whether Lloyds is equitably estopped from denying coverage because it defended Wahl with knowledge of a coverage defense	Lloyds repeatedly represented Wahl was covered (subject to retention); BYA relied on that and forwent pursuing Fireman’s Fund coverage, so Lloyds is estopped	Lloyds argues it did not make an affirmative, binding representation on the relation‑back issue and may raise coverage defenses later	Court held Lloyds estopped under New York law because it accepted defense with knowledge of potential coverage defenses and BYA reasonably relied
Whether BYA reasonably relied on Lloyds’ coverage position	BYA: reliance reasonable given Lloyds’ written agreement to defend and a November 2007 email stating Wahl did not relate back to Colaner; all parties agreed on that position	Lloyds: BYA should have independently pursued Fireman’s Fund once coverage questions arose; mere silence is insufficient for estoppel	Court found reliance reasonable; factfinder credited BYA’s in‑house counsel and other contemporaneous positions of insurers/counsel
Whether BYA showed prejudice from its reliance (detrimental reliance element)	BYA: settlement precluded reversing defense strategy or obtaining Fireman’s Fund participation; lost opportunity to use prior policy limits and avoid multiple $50,000 retentions	Lloyds: no prejudice because appointed counsel’s defense and settlement strategy were satisfactory; BYA offered no proof Fireman’s Fund would have covered Wahl	Court held prejudice established as a lost opportunity: settlement and Lloyds’ control prevented pursuing Fireman’s Fund coverage and created new defenses that otherwise would not exist
Scope of recovery (whether BYA entitled to additional recovery beyond amounts Lloyds already paid)	BYA sought recovery of amounts it paid above a single $50,000 retention, arguing estoppel bars Lloyds’ later relation‑back defense	Lloyds sought recoupment of all sums paid if relation‑back applied; argued BYA wasn’t entitled to more because its reliance was unreasonable and not prejudicial	Court affirmed judgment awarding BYA additional recovery ($931,859.59 plus interest) based on equitable estoppel and prejudicial reliance

Key Cases Cited

Hartford Ins. Group v. Mello, 437 N.Y.S.2d 433 (N.Y. App. Div. 1981) (insurer who defends with knowledge of a coverage defense may be estopped from later denying coverage)
Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003, 715 F.3d 1231 (10th Cir. 2013) (prior Tenth Circuit decision finding interrelatedness and remanding to evaluate detrimental reliance)
Clark v. State Farm Mut. Auto. Ins. Co., 433 F.3d 703 (10th Cir. 2005) (abuse of discretion standard for reviewing exercise of equitable powers)
Estate of St. Clair, 819 F.3d 1254 (10th Cir. 2016) (bench-trial findings: legal conclusions reviewed de novo; factual findings for clear error)
Keys Youth Serv., Inc. v. City of Olathe, 248 F.3d 1267 (10th Cir. 2001) (factfinder’s permissible choice between two views cannot be clearly erroneous)
Federated Dep’t Stores, Inc. v. Twin City Fire Ins. Co., 807 N.Y.S.2d 62 (N.Y. App. Div. 2006) (prejudice requires insurer’s control of defense to be such that character and strategy of lawsuit can no longer be altered)
Tide Water Oil Co. v. Am. S.S. Owners Mut. Prot. & Indem. Ass’n, 281 N.Y.S. 729 (N.Y. Sup. Ct. 1935) (prejudice may be shown by loss of opportunity to defend)
Boston Old Colony Ins. Co. v. Lumbermens Mut. Cas. Co., 889 F.2d 1245 (2d Cir. 1989) (threat of exposure to additional liability can be prejudicial even without economic harm)