A recent Third Circuit ruling rejecting PNC Bank's more than $100 million coverage bid for an underlying judgment against a subsidiary highlights a small but potentially impactful provision precluding coverage for wrongful acts that occur prior to an acquisition.

In a March 21 decision, the panel affirmed a lower court decision that PNC Bank NA's insurers owed no coverage for the more than $106 million in defense costs the bank paid on behalf of National City Corp. because of the "changes in exposure" provision, signaling to professionals the major repercussion from a seemingly minor provision.

The panel determined that the "changes in exposures" provision unambiguously limited coverage to acquired entities for wrongful acts committed post-acquisition, an outcome that carrier-side experts celebrated but that policyholder experts said was a forced reading for unclear policy terms.

"I don't think a plain reading of the provision says what the insurance companies argued in this case," said Raymond A. Mascia Jr., policyholder attorney for Anderson Kill PC. "They wrote it in a way that made it susceptible to multiple interpretations, and at the end of the day they should have had to live with the consequences of that drafting, not PNC."

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Mascia told Law360 that the provision could reasonably be read to only limit coverage for suits brought against the acquired entity rather than against PNC, and under long-standing and widespread insurance policy interpretation rules, ambiguous terms should be read in favor of coverage.

"The argument was that this provision says that we will not cover claims for wrongful acts committed by the acquired company before the acquisition occurred — the language just doesn't say that," he said.

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