Eleventh Circuit Holds that Referencing Sealed Documents is Not Proper Notice

The Eleventh Circuit upheld a win for the insurer under a claims-made-and-reported policy in Crowley Mar. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. 18-10953, 2019 WL 3294003 (11th Cir. July 23, 2019), finding that the insured did not provide timely notice. In so holding, the court rejected the insured’s argument that it provided timely notice by sending a letter to the insurer referencing an affidavit which the insured claimed alleged wrongful conduct against the insured, but was sealed, preventing the insurer from confirming the insured’s claim for coverage.

At issue in the Crowley case was a policy issued to Crowley Maritime Corporation with an initial policy period of November 1, 2007 to November 1, 2008, and an extended discovery period through November 1, 2013. The policy covered certain claims made against company executives and reported to the insurer during the initial policy period or extended discovery period.

The coverage dispute in the Crowley case arose out of a grand jury investigation into Crowley’s subsidiary and one of its executives, Thomas Farmer, alleged to have been involved in setting artificially high prices for shipping between the U.S. and Puerto Rico. On April 17, 2008, a search warrant was executed at Crowley’s headquarters in connection with the investigation, and Farmer received subpoenas to appear before the grand jury.

The day before the search warrant was executed, an FBI agent delivered an affidavit supporting the search warrant to a federal magistrate judge. The affidavit described the antitrust investigation and asserted that Farmer was involved in the criminal activity. However, the affidavit was sealed to protect the ongoing investigation, and the search warrant and subpoenas served on Crowley and Farmer did not disclose Farmer’s alleged conduct.

On April 25, 2008, Crowley provided notice to its insurer of the claim, requesting coverage for Farmer’s defense costs. The insurer denied coverage because the affidavit was under seal, preventing it from reviewing the allegations to determine whether coverage was afforded, and the search warrant and subpoena did not name Farmer as a target of the investigation as required for coverage under the policy.

Over the next several years, Crowley incurred legal fees of roughly $2.5 million on behalf of Farmer, before the government issued a written plea offer to Farmer on February 11, 2013, at which point the insurer agreed to treat the investigation as a claim under the policy and defend Farmer. However, the insurer refused to reimburse Crowley for the defense costs incurred prior to February 11, 2013, when it received notice of the written plea offer. Ultimately, Farmer rejected the plea offer, and proceeded to trial, which resulted in an acquittal.

Based upon the content of the affidavit, which was unsealed on April 24, 2015, during the course of the trial, Crowley provided the unsealed affidavit to the insurer in July 2015, and demanded reimbursement for the $2.5 million in defense costs incurred on behalf of Farmer from April 2008 until February 2013. When the insurer refused, Crowley filed suit in the Middle District of Florida. The district court granted summary judgment in favor of the insurer, and Crowley appealed.

On appeal, Crowley argued that the content of the affidavit gave rise to a claim under its policy, and that such claim was “first made against” Farmer and “reported to” the insurer in April 2008 (during the initial policy period), even though the affidavit was under seal and the contents were not disclosed to Crowley or the insurer at that time. The Eleventh Circuit held that the affidavit gave rise to a claim under the policy and assumed arguendo that the claim was “first made against” Farmer when the affidavit was executed in April 2008.

However, the court held that the claim was not timely reported to the insurer during the policy period or discovery period (November 1, 2007 to November 1, 2013) as required by the policy. In so holding, the court held that Crowley had not provided notice of the claim to the insurer in April 2008 (when it first provided notice of the claim, but the affidavit was sealed), and Crowley’s notice to the insurer in July 2015 (following the unsealing of the affidavit), was untimely because it came over a year after the expiration of the extended discovery period. In relation to the April 2008 notice, the court held that “Crowley had to do more than simply point to the sealed Affidavit and ask [the insurer] to take its word for it that a Claim in fact existed.”

As a result, the court affirmed the district court’s denial of coverage, holding that Crowley was not entitled to reimbursement for the $2.5 million in defense costs incurred on behalf of Farmer from April 2008 to November 2013.