9th Circuit Takes Hard Line on Insurer's Duty to Defend

The 9th Circuit recently addressed the meaning of the interrelated claims provision and ruled in favor of a policyholder in a decision captioned Eastwood Ins. Servs., Inc. v. U.S. Specialty Ins. Co., No. 09-55384, 2010 WL 3069698, at *1 (9th Cir. Aug. 4, 2010) (unpublished). Insurers typically deny coverage on the basis of this provision by contending that an underlying claim for which coverage is sought allegedly “relates back” to a different set of events that arose during a prior policy period, and therefore falls outside the coverage period of the policy in which the claim was made.

In Eastwood Ins. Servs., Inc. v. U.S. Specialty Ins. Co., the 9th Circuit held that the provision did not operate to bar coverage for an underlying lawsuit involving allegations of sexual harassment and sex discrimination. Eastwood had sued its insurer, U.S. Specialty Insurance Co., for failing to defend it from claims brought against Eastwood by a former employee, Elizabeth Ayala for wrongful termination and violations of the Family Medical Leave Act and the California Family Rights Act. Id. at *1.