Too Much Risk: The Impact of Class Action Lawsuits on Claims Made Insurance Policies: H & R Block, Inc. V. American International Specialty Lines Insurance Co
Smith, Sean A., Missouri Law Review
Class action lawsuits arise in a variety of contexts. While no firm data exists on the total number of class actions filed nationally per year or the types of class actions filed, (2) the breadth of activity that may give rise to a class action lawsuit means that most major American corporations face the prospect of a class action lawsuit. Some of the most commonly asserted types of class action lawsuits are consumer, securities, employment, environmental and products liability class actions. (3) These types of claims are typically insured against by major American corporations. For the indefinite future, a certain class of consumer and securities class action lawsuits are likely to be increasingly filed: suits against financial service companies for misrepresentation, negligence, or breach of fiduciary duty.
In the fourth quarter of 2008, in the wake of the credit market collapse and the ensuing economic recession, class action claims against financial service companies rose sharply. (4) These class action lawsuits are likely to continue to be filed given the length of time it typically takes class action lawsuits arising from a national practice of a company or companies to be filed on behalf of all potential claimants nationwide (5) and in light of the current national culture, which, similar to the culture during the Great Depression, views those who work for financial service companies as villains. (6) Be cause these suits involve claims of wrongdoing, the financial companies against whom they are brought will invoke their liability insurance policies for coverage.
During the 1990s, H & R Block, Inc., a financial tax preparer (7) and Kansas City's largest corporation, (8) already faced the types of claims many financial service companies are now facing or are likely to face in the near future. The suits against H & R Block engulfed the company in a dispute with its insurance providers, who provided H & R Block with a "claims made" insurance policy. (9) A "claims made" insurance policy is a commonly issued insurance policy that "insures against claims that are made during the policy period notwithstanding when the occurrence occurred and the harm resulting from the occurrence may have happened." (10) Claims made insurance policies are structured in a variety of ways. (11) H & R Block's insurance policies contained a general provision limiting coverage to claims made when the policy was in effect for acts occurring during the policy period. (12) The policy extended coverage in a specific "[p]rior [a]cts" provision to acts that occurred prior to the enactment of the policy as long as the insured did not have knowledge of the wrongful acts or should have reasonably foreseen that a future claim would be brought against the company. (13)
The dispute between H & R Block and its excess policy insurers presented the united States Court of Appeals for the Eighth Circuit with an issue of national first impression: does the existence of a series of class action lawsuits prior to the enactment of a claims made insurance policy make it reasonably foreseeable that similar future claims will be filed? (14) The Eighth Circuit's ultimate decision in H & R Block, Inc. v. American International Specialty Lines Insurance Co. will impact insurance coverage of major corporations nationally, in both the narrow context of the upcoming wave of lawsuits against financial service companies and the broader context of any class action lawsuit that invokes liability insurance, such as consumer, securities employment, environmental, and products liability class action lawsuits. This Note argues that the United States Court of Appeals for the Eighth Circuit correctly concluded that knowledge of prior class action lawsuits bars coverage under a claims made insurance policy.
II. FACTS AND HOLDING
In the late 1980s, the Internal Revenue Service developed and encouraged the online filing of federal income tax returns. …