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.