Real Estate Firm’s D&O Not Available for Defense in RealPage Antitrust Lawsuit

A property management firm’s excess insurers are not obligated to defend it in multi-district price-fixing litigation involving use of the real estate software RealPage.

A federal district judge in Massachusetts found that the terms of Windsor Property Management Co.’s primary policy for directors’ and officers’ liability written by Federal Insurance Co. (Chubb) relieve the excess insurers of any duty to defend Windsor, one of the landlords named in a U.S. Justice Department antitrust lawsuit involving RealPage.

A professional services exclusion in the Chubb primary policy states that loss on account of any claim “based upon, arising from, or in consequence of performing or the failure to perform any professional service” is expressly excluded from the scope of directors’ and officers’ liability coverage.

Also, the primary policy includes a set of general terms and conditions which, among other things, delineates the parties’ duties should any claim be made under the primary policy. This section states that “it shall be the duty of the insured and not the duty of the company to defend claims” and the “insured shall have the sole obligation to retain defense counsel.”

Since Chubb offered no defense coverage, Windsor sought coverage from excess carriers Argonaut Insurance Co. and Zurich American Insurance Co. These carriers in turn sought a court declaration that they also were not obligated to provide defense for Windsor.

The primary policy limits Chubb’s aggregate liability for covered losses to $5 million. Windsor obtained a first excess insurance policy from Argonaut for $5 million excess to the $5 million covered by Chubb and a second excess insurance policy from Zurich for $5 million excess to the $10 million covered by Argonaut and Chubb. The Argonaut and Zurich excess insurance policies follow the form of the Chubb primary policy.

Windsor’s argument for a judgment in favor of excess coverage hinged on the underlying assumption that the primary policy encompasses a duty to defend, such that the common law “potential coverage” standard applies. The insured contended that the professional services exclusion was at least “ambiguous with respect to its applicability” in the antitrust litigation and thus the excess insurers had a duty to defend, or at the very least, advance defense costs, for the litigation.

The federal court disagreed, finding no ambiguity in the primary policy that “expressly disclaims any duty to defend” claims and its language clearly placing that responsibility on the insured. The court found that nothing else in the policy altered the plain text of this disclaimer.

Windsor pointed to policy language explaining how defense costs would be advanced as a sign that coverage was potentially available. But the court rejected that argument, noting the language does not create any freestanding duty to advance defense costs but instead delineates the payment mechanism that will apply when defense costs are advanced, either because the insurer voluntarily assumes the duty, or because some other provision creates an entitlement to them.

The court explained that the policy is written with conditionals: If the insurer, in its discretion, undertakes to advance funds for a defense, it may, “at its sole option,” dictate the terms and conditions. But Chubb never offered to enter such an agreement with Windsor and thus as with any condition precedent, “if the condition is not fulfilled, the contract, or the obligations attached to the condition, may not be enforced,” the court concluded.

Boston-based Windsor, which says it is the 17th largest apartment owner in the country, is a named defendant in a class action brought by the federal government in November 2023 and currently pending in the Middle District of Tennessee. See In re RealPage, Inc. Rental Software Antitrust Litigation.

The government alleges unlawful price-fixing schemes among landlords using the RealPage software algorithm to raise rents in multifamily housing units and artificially inflate rents for student housing. RealPage, the government alleges, unlawfully combines competing landlords’ real-time housing data and prices to generate “forward-looking, unit-specific pricing and supply recommendations” for all participating landlords.

The Justice Department contends that RealPage puts significant “pressure” on landlords to implement RealPage’s prices, and, as a result, landlords adopt RealPage’s recommendations 80-90% of the time.