By, Esther A. Zucarro, Esq.

Berkley Assurance Co. v. Expert Grp. Int’l Inc., 779 F. App’x 604 (11th Cir. 2019) addressed an insurance coverage dispute as to whether insurer Berkley Assurance Company (“Berkley”) owed a duty to defend and/or indemnify its insured, Expert Group International, Inc., doing business as “Expert Au Pair” in light of the subject policy’s prior knowledge exclusion. Berkley sought a declaratory judgment that it had no duty to defend or indemnify Expert Au Pair for a former client’s claims. The United States Court of Appeals for the Eleventh Circuit, affirming the United States District Court for the Middle District of Florida, ultimately concluded that the policy’s prior knowledge exclusion applied.

Expert Au Pair is a federally designated sponsor for the J-1 Au Pair Program, operated by the U.S. Department of State. Sponsors of J-1 visas, such as Expert Au Pair, manage the program on behalf of the Government, where they perform screening, training, placement, and supervision of the program’s au pairs and host families. 

In the underlying action, a former au pair client filed suit against Expert Au Pair in October 2016, alleging that Expert Au Pair negligently misrepresented minimum-wage laws. Expert Au Pair timely reported the claim to Berkley, its errors and omissions liability insurance carrier. However, Berkley refused to defend Expert Au Pair and then filed an action for declaratory relief, alleging that Expert Au Pair’s claim was not covered due to its knowledge of the basis for the lawsuit before the policy’s inception date.

Berkley’s argument cited a 2014 federal class action lawsuit (the “Beltran case”), where an au pair participating in the J-1 Program filed suit against Expert Au Pair and all other federal sponsors, alleging that Expert Au Pair violated the Sherman Act by engaging with other sponsors in illegal price fixing to set au pair minimum wages below the requirements of federal and state minimum wage laws. A second amended complaint in the Beltran case was filed in October 2016 adding additional named plaintiffs and further claims. One of the newly named plaintiffs, Nicole Mapledoram, participated in the J-1 Program, and was sponsored by Expert Au Pair from April 2014 to April 2016. In the second amended complaint, Mapledoram pleaded a claim for negligent misrepresentation against Expert Au Pair, among asserting other claims.

Expert Au Pair provided notice of the initial complaint on February 2, 2015 to Colony Insurance Company, its former errors and omissions (“E&O”) carrier. Two days later, Expert Au Pair applied for “claims made” E&O liability insurance with Berkley. On the application, Expert Au Pair’s founder answered “no” when asked if he was “aware of any fact, circumstance, situation, incident, or allegation of negligence or wrongdoing, which might afford grounds for any claim such as would fall under the proposed insurance?” Thereafter, Berkley issued an E&O policy to Expert Au Pair effective from February 14, 2015 to February 14, 2016, and afterward issued a renewal policy effective from February 14, 2016 to February 14, 2017.

In response to Expert Au Pair’s request that Berkley provide a defense and indemnification to Mapledoram’s claims, Berkley denied coverage due to the policy’s prior knowledge exclusion, then filed an action for declaratory relief. The District Court heard cross motions for summary judgment, ultimately entering summary judgment in favor of Berkley, finding Expert Au Pair had sufficient prior knowledge of Mapledoram’s claims, given the current status of the Beltran class action lawsuit. Accordingly, the prior-knowledge exclusion applied, and no coverage was available. Expert Au Pair’s appeal to the Eleventh Circuit followed.

In the appeal, Expert Au Pair claimed that Berkley owed a duty to defend the claim, as the negligent misrepresentation claim fell within the scope of the E&O policy’s coverages. Further, Berkley argued that the prior knowledge exclusion did not apply, since the Beltran claim dealt with intentional conduct, while Mapledoram’s claim addressed negligence. Expert Au Pair also maintained that the prior knowledge exclusion should be strictly interpreted and the Middle District’s broad interpretation served to render the policy’s coverage illusory.

Expert Au Pair argued that its coverage should be interpreted as one continuous policy, concluding that the “inception date of this policy” was February 2015, when the initial Berkley policy became effective. Berkley instead maintained that Expert’s initial and renewal policies with Berkley were separate and distinct contracts, thus the inception date was February 2016. The Eleventh Circuit agreed with Berkley, explaining that the initial and renewal policies “clearly contemplate that each policy is distinct for purposes of determining coverage” as each policy has its own policy number, policy period, coverage limits, and premium. Accordingly, the phrase “inception date of this policy” references the specific policy subject to coverage. The Court then reasoned that the relevant policy period was the renewal policy, since Mapledoram’s claims were first made against the insured in October 2016, when such policy was in effect.

Next, the Eleventh Circuit determined whether Expert Au Pair’s prior knowledge as of the renewal policy’s effective date, February 14, 2016, barred coverage by virtue of the renewal policy’s prior knowledge exclusion. The subject renewal policy provided coverage to Expert so long as “no insured had any knowledge of any circumstance likely to result in or give rise to a ‘claim’ nor could have reasonably foreseen that a ‘claim’ might likely be made” as of the policy’s inceptions date.

The Eleventh Circuit ultimately found in favor of Berkley, explaining that the negligent misrepresentation claims against other program sponsors and the possibility of additional plaintiffs joining the Beltran class action were reasons that Expert Au Pair could reasonably anticipate a negligence claim might be filed against it, even if it could not anticipate the particular plaintiff:

The question under the prior-knowledge exclusion in this case is whether Expert Au Pair “could have reasonably foreseen that a ‘claim’ might likely be made,” not whether such a claim would be likely to succeed. Notwithstanding that Expert Au Pair may have had reasons to believe that its practices differed from other sponsors, it also knew that, as we’ve already explained, it was alleged to have committed essentially the same conduct as the other defendants to the negligent-misrepresentation claim. Any reasonable insured in these circumstances “could have foreseen that a similar claim might likely be made” against it as well, even if they believed such a claim unfounded.

Id. at 612. Moreover, the Court reasoned that the prior knowledge exclusion did not operate to render all coverage illusory, as its application was limited to the facts of the instant case.