Insurance policies often contain a clause stating “related claims” will be considered as a single claim for the purpose of insurance coverage. When there is more than one claim at issue under a single insurance policy, the question often arises: what is a “related claim?” To answer this question, courts increasingly rely on the language within the policy. “Related” is a broad word, but it is not necessarily an ambiguous word.”i The trend of California courts deferring to the plain language of a contract in interpreting a party’s rights and obligations is apparent in the court’s interpretation of “related claims” provisions. Depending on the language of the policy, the facts, parties, and allegations involved in a claim do not need to be identical for the claim to be a “related claim.” Instead, claims will be deemed related if they arise out of related facts, circumstances, transactions, or events.
Cases Interpreting the Phrase “Related Claims”
In Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co., a contractor filed a legal malpractice claim against its former attorney who failed to serve a stop notice on the project’s construction lenders and failed to file a complaint to foreclose the mechanic’s lien.ii The attorney’s professional liability insurance policy contained a provision limiting coverage to a maximum of $250,000 “for each claim” and further provided, “[t]wo or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim.”iii As such, defendant’s insurance company argued only one claim was being asserted, even though the contractor alleged two instances of legal malpractice.iv Both the trial court and the appellate court concluded the two acts of legal malpractice constituted separate claims, but the California Supreme Court reversed.v “These two acts of legal malpractice deprived the client of only one primary right. Plaintiff had one primary right—the right to be free of negligence by his attorney in connection with the debt collection for which he was retained. He allegedly breached this right in two ways, but it nevertheless remained a single right.vi
In Friedman Professional Management Co., Inc. v. Norcal Mutual Insurance Company, an insured surgery center and its owner brought action against an insurer for reimbursement for settlement of a patient’s 1996 sexual battery and invasion of privacy lawsuit.vii The insurer had defended against patient’s 1994 medical malpractice lawsuit arising from the same incident under a 1993 policy and the insurer continued defending the second suit under the 1993 policy until policy limits were exhausted. The court examined whether the allegations of sexual battery and invasion of privacy were “related” to the prior allegation of medical malpractice against the center. The Fourth District Court of Appeal held the test for whether lawsuits were related, for purpose of coverage, was whether lawsuits were either logically or causally related to each other. In determining whether multiple lawsuits are related for purposes of insurance coverage under a claims made policy, it is the actual language of the insurance contract that is considered.viii
In Previti v. National Union Fire Insurance Company of Pittsburgh, PA, the United States Court of Appeals for the Ninth Circuit addressed the “Related Wrongful Acts” provision in a Directors and Officers liability insurance policy issued by National Union Fire Insurance Company of Pittsburgh (National Union).ix The National Union policy defined “Related Wrongful Acts” as wrongful acts which are the “same, related or continuous,” or wrongful acts which “arise from a common nucleus of facts.”x In Previti, the insureds submitted a claim to its Directors and Officers liability insurance policy because the claimant alleged preferential and fraudulent transfers of money from the debtor companies to non-debtor affiliates. The carrier agreed to advance defense costs. After the trustee filed a lawsuit, 27 lawsuits were subsequently filed against the insureds alleging misrepresentation of the financial condition of companies to lure investors as well as improper transfer. The insureds sought coverage for the additional lawsuits claiming the 27 lawsuits triggered coverage under later policy years.xi The Central District in California granted partial summary judgment for the carrier, dismissing the insured’s argument the actions were unrelated because they “allege[d] various claims against numerous different parties.”xii The insured appealed, arguing the District Court’s interpretation of “Related Wrongful Acts” was overbroad. The Ninth Circuit upheld the summary judgment explaining the insured’s interpretation of the term “Related Wrongful Acts” was not consistent with the language of the contract.xiii As held by the court, the term “Related Wrongful Acts” encompasses a broad range of acts clearly extending to the 27 lawsuits.xiv
In Liberty Insurance Underwriters, Inc. v. Davies Lemmis Raphaely Law Corporationxv, the insurer brought action against a transactional real estate law firm and its attorneys seeking a declaratory judgment that the underlying actions should be considered a single claim.xvi The underlying actions claimed defendant law firm and its attorneys made misrepresentations to potential investors of its clients. The subject policy was a claims-made policy which required claims arising out of, or attributable to, the same related acts be treated as a single claim. The policy defined a “wrongful act” as any actual or alleged act, error, omission, or personal injury which arises out of the rendering or failure to render professional legal services.xvii The Court found the underlying actions were a single claim.xviii In reaching its decision, the court reasoned while the underlying actions were brought by different plaintiffs, they all arose from a single course of conduct: a unified policy of making alleged affirmative misrepresentations to investors to induce them into investing in commercial real estate acquisitions.xix
Claims-made insurance policies often contain provisions noting “related claims” will be considered a single claim. However, when more than one claim is submitted and the claims span several years, the question arises whether the later claims relate back to an earlier claim. The scenario is further complicated when there is more than one policy at issue. A close read of the insurance policy and a clear understanding the of facts, parties, and allegations will assist in determining coverage as well as deductibles and policy limits.
i Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 868.
iv Id. at 858.
v Id. at 873.
vi Id. at 860.
vii (2004) 120 Cal.App.4th 17
ix 639 F. App’x 416 (9th Cir. 2016)
xii Id. at 418
xiii Id. a 418
xv 162 F. Supp. 3d 1068 (C.D. Cal. 2016)
xviii Id. at 1070
xix Id. at 1070