289 F. Supp. 3d 335
United States District Court2018Background
- UBS Trust and UBS Financial Services of Puerto Rico (UBS PR) managed and sold closed-end funds heavily invested in Puerto Rico bonds; UBS PR faced SEC, FINRA, shareholder litigation and many investor arbitrations arising from those funds.
- Prior matters before the policy period included a 2009 SEC investigation, a 2012 SEC order resolving that investigation, and the Union shareholder lawsuit; those matters alleged market manipulation, undisclosed conflicts, artificial liquidity, and unsuitability.
- UBS bought a primary ($10M) and two excess ($5M each) management-liability policies (Jan 15, 2012–Jan 15, 2014) from XL, AXIS, and Hartford; the policies contained (1) a broad specific litigation exclusion barring coverage for any claim "based on, arising out of ... or in any way involving" the listed prior matters or facts underlying them, and (2) an interrelated-claims aggregation clause treating interrelated wrongful acts as a single claim made when the earliest claim was made.
- During and after the policy period UBS was subject to new disputed matters (Casasnovas, Fernandez, a 2013 SEC investigation leading to a 2015 SEC order, a 2014 FINRA investigation/settlement, and hundreds of FINRA arbitrations) that the insurers declined to cover, invoking the specific litigation exclusion.
- UBS sued the insurers for breach of contract; cross-motions for summary judgment were filed. The district court found the exclusion and interrelated-claims provision unambiguous and concluded the disputed matters involved the same facts/circumstances as the prior matters, granted defendants' summary judgment, and dismissed UBS’s action with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the specific litigation exclusion bars coverage for the disputed matters | The policies must be construed narrowly for the insured; even if some allegations overlap, at least some claims in a complaint may be covered | The exclusion is broad: any Claim that is based on, arises out of, or "in any way involves" the prior matters or underlying facts is excluded | Exclusion applies; disputed matters involve the same facts/circumstances and are barred |
| Whether disputed matters can be aggregated as interrelated claims and deemed made during the policy period | UBS contends some proceedings occurred during the policy and that independent issues within complaints should trigger coverage | Insurers invoke interrelated-claims clause to aggregate and also to show overlap with prior matters; UBS cannot both aggregate for coverage and disaggregate to avoid exclusion | Interrelated-claims clause applies; aggregation does not save coverage where exclusion applies |
| Proper interpretation of "Claim" (whether individual allegations survive an exclusion) | UBS argues insurers must prove every claim in every complaint is excluded; cites duty-to-defend standards and cases favoring insured | Defendants argue "Claim" is defined in the policy as a proceeding or investigation; exclusion operates at claim (case/investigation) level, not at the level of individual causes of action or allegations | Court enforces the policy definition of "Claim"; insurers need not show every allegation—if the Claim (proceeding) involves excluded prior facts, coverage is barred |
| Relevance of duty-to-defend precedents and W Holding decisions | UBS relies on duty-to-defend caselaw and W Holding to argue ambiguities should be resolved for the insured and that some suits could be covered | Insurers point out this dispute concerns indemnity (no duty to defend assumed) and that W Holding involved different, narrower exclusion language and ambiguity not present here | Court rejects duty-to-defend analogies; distinguishes W Holding and enforces the unambiguous exclusion as written |
Key Cases Cited
- AJC Int'l, Inc. v. Triple-S Propiedad, 790 F.3d 1 (1st Cir. 2015) (applies Puerto Rico law on interpreting insurance policies and exclusions)
- Raytheon Co. v. Federal Ins. Co., 426 F.3d 491 (1st Cir. 2005) (overlap between complaints can support exclusion despite areas of non-overlap)
- Clark Sch. for Creative Learning, Inc. v. Philadelphia Indem. Ins. Co., 734 F.3d 51 (1st Cir. 2013) (enforcing a clear and broad exclusion phrased "in any way involving")
- W Holding Co. v. AIG Ins. Co., 748 F.3d 377 (1st Cir. 2014) (distinguishes duty-to-defend context and ambiguous exclusions; resolved ambiguities for insured)
- Celotex Corp. v. Catrett, 477 U.S. 317 (Supreme Court 1986) (summary judgment burden-shifting framework)