In Brecek & Young Advisors v. Lloyds London, BYA told Lloyds about some claims (Wahl Arbitration) that fell within the 2006-2007 policy issued by Lloyds to BYA.  Lloyds first claimed that the Wahl Arbitration was related to another claim under a previous policy issued by Fireman’s Fund. Under the policy,“Interrelated Wrongful Acts” are “considered a single Claim.” Lloyds said it wasn’t responsible for indemnifying or defending BYA for claims made during the policy period which are interrelated with claims made prior to the policy period. Lloyds also claimed that 26 claims in the Wahl arbitration were not interrelated, and thus each claim was subject to a separate $50,000 retention. Lloyds and BYA ultimately paid approximately $385,000 and $932,000, respectively, to defend and settle the Wahl Arbitration. BYA reserved its right to contest the separate retentions. When BYA sued Lloyds on this issue, each party sought summary judgment.  In a footnote in its motion, Lloyds said that if the Wahl claims were interrelated, then the Wahl claims were also interrelated to the previous claim, so it had no coverage at all. Summary judgment was granted to BYA, and Lloyds appealed.

In the first appeal, Lloyds abandoned the separate retention claim, and argued solely that the Wahl arbitration was interrelated to other previous claims so there was no coverage at all. The Tenth Circuit agreed the claims were all interrelated, but found that BYA should be allowed to present its estoppel defense, as it had shown prejudice. On remand, it was determined that Lloyds was estopped from denying full coverage to BYA.  Thus, Lloyds owed BYA  $931,859.59, plus prejudgment interest, and Lloyds appealed again. The trial court’s ruling was affirmed.

BYA’s reliance on Lloyds representations regarding coverage of the Wahl Arbitration was reasonable and that BYA demonstrated prejudice. Lloyds told BYA that it determined the previous claim and the Wahl claims were not interrelated.  And, before the Wahl arbitration settled, both insurers agreed as to which of the two insurance companies were on the hook for the claims, so BYA had no claim against Fireman’s Fund — until Lloyd’s changed its position, and then it was too late.   Lloyds’ control of the defense of Wahl and its contribution to the settlement “was more than adequate to show prejudice under New York law, at least with respect to the $385,000 already paid by Lloyds as part of the Wahl Settlement.”

Because BYA had back-to-back claims-made policies, either the Lloyds Policy or the [Fireman’s Fund policy] would provide coverage for the Wahl Arbitration, but not both. [Ms.] Haag testified that it would have been to BYA’s advantage if Wahl had been covered under the [Fireman’s Fund policy], because that would have saved BYA from paying the $50,000 each claim deductible. Once Lloyds settled the Wahl Arbitration, however, BYA was prejudiced because it could not reverse the character and strategy of the defense to allow Fireman’s Fund to defend it and participate in the Settlement.

The settlement of the Wahl Arbitration created coverage defenses that otherwise would not have existed under the Fireman’s Fund policy, specifically, voluntary payments and failure to obtain consent to settlement provisions under the policy, as well as laches, statute of limitations, and other defenses related to the delay in pursuing the coverage claim. Prejudice can be demonstrated based on a lost opportunity under New York law. Since BYA demonstrated reasonable reliance and prejudice, Lloyds was estopped from changing its position, and the judgment to BYA was affirmed.