Posted on: 8/28/2012
Mark E. Cohen, Zelle McDonough & Cohen
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Almost all claims-made insurance policies contain related or interrelated acts provisions. These provisions may only govern the policy's limits of liability and the self insured or deductible amounts. They may also provide that claims made during one policy period "relate back" to when an earlier related claim was first made. Additionally, related acts language sometimes appears in a policy exclusion. For example, "prior acts" and "pending and prior litigation" exclusions may preclude coverage for claims that are related to claims that were first made before the policy period.
A finding that multiple claims are related to each other can benefit either the insured or the insurer, depending on the circumstances. For example, the insurer would benefit if multiple claims are deemed related if that means that a claim relates back to an earlier policy whose limits have been substantially eroded or exhausted by a related claim or if the claim relates back to a claim that was first made before the insurer was on the risk at all. The insurer can also benefit from a finding that multiple claims are related if the per claim limits of liability are less than the aggregate limits of liability. On the other hand, the insured would benefit from a finding that multiple claims are related if that means that a single deductible or self-insured retention amount rather than multiple deductible or self insured retention amounts apply. The insured would also benefit from a finding that claims are related if a claim made during one policy period relates back to an earlier policy period and the available limits of liability for the earlier policy are larger than the policy that was in effect when the later claim is first made.
One court stated that related acts provisions in claims-made policies:
(a) . . . allow insurers to confine related wrongful acts to a single policy period and, thereby, a single liability limit, and
(b) . . . allow an insured to buy a new policy, despite facing additional liability exposure from its past acts, by having future related claims covered by the prior policy.
In re DBSL, Inc., Nos. 08-12687 (PJW), 09-52031 (PJW), 2011 WL 3022177, at *3 (Bankr. D. Del. July 22, 2011) (citing G-1 Holdings, Inc. v. Reliance Ins. Co., 586 F.3d 247, 257-58 (3d Cir. 2009).
Whether multiple claims are related is one of the most vexing and heavily litigated issues arising from claims-made policies. Although determining whether multiple claims are related is highly dependent on the facts; the policy language; and which jurisdiction's law applies, some general principles have largely been resolved by the case law. This article will discuss these general principles and examine the factors that courts have considered in determining whether claims are related. This article will also provide examples of situations in which multiple claims have and have not been found to be related.
I. Related Acts Policy Language
There are no widely-used standard form claims-made policies. Therefore, there are many different types of related and interrelated acts provisions. Many related acts provisions do not define "related." For instance, the policy might simply state: "One or more Claims arising from the same act, error, or omission or a series of related acts, errors or omissions shall be considered a single Claim." URS Corp. v. Travelers Indem. Co., 501 F. Supp. 2d 968, 976 (E.D. Mich. 2007). Other provisions might state that to be related claims have to be logically, causally and/or temporally related. As an example, the policy might state: "Related Claims" means "all Claims involving . . . multiple Wrongful Acts . . . which are logically or causally connected by reason of any common fact, circumstance, situation, transaction, event, or decision." Exec. Risk Indem., Inc. v. Chartered Benefit Servs., Inc., No. 03-C-3224, 2005 WL 1838433, at *7 (N.D. Ill. July 29, 2005). An "interrelated wrongful acts" provision might state: "interrelated wrongful acts" are any wrongful acts that are: "1. similar, repeated or continuous; or 2. connected by reason of any common fact, circumstance, situation, transaction, casualty, events, decision or policy or one or more series of facts, circumstances, situations, transactions, casualties, event, decisions or policies." Capital Growth Fin. LLC v. Quanta Specialty Lines Ins. Co., No. 07-80908-CIV, 2008 WL 2949492, at *1 (S.D. Fla. July 30, 2008).
II. Most Courts Have Found Related Acts Provisions Are Unambiguous and Encompass Both Logical and Causal Relationships.
A few, mostly older cases have found that the term, "related," when used in a related acts provision in a claims-made policy, is ambiguous. These cases held that related acts provisions in claims-made policies that did not further define "related" only applied when there was a causal connection between multiple claims. See St. Paul Fire & Marine Ins. Co. v. Chong, 787 F. Supp. 183, 187-88 (D. Kan. 1992) ("related" ambiguous and encompasses only causal relationships); Helme v. Ariz. Prop. & Cas. Ins. Guar. Fund, 153 Ariz. 129, 134-35, 735 P.2d 451, 456-57 (1987) ("Related," when not defined in the policy, is ambiguous and includes only causal, not logical relationships. "Logic, like beauty, is in the eye of the beholder and greatly depends upon the subjective mental process of the reviewer. Incidents may be "logically related" for a wide variety of indefinable reasons.).
The overwhelming majority of recent decisions, however, have held that the term, "related," even when not further defined in the policy, is unambiguous and encompasses both logical and causal relationships. E.g., N. Am. Specialty Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552, 557-58 (5th Cir. 2008) (applying Texas law) (undefined term, "related" includes matters that are logically or causally related); Westport Ins. Corp. v. Key West Ins., Inc., No. 07-12029, 2007 WL 4415209, at *2 (11th Cir. Dec. 19, 2007) (undefined term "related" is a "commonly understood term in everyday usage" and includes a broad range of connections, either logical or causal); Highwoods Props. v. Exec. Risk Indem. Co., 407 F.3d 917, 924 (8th Cir. 2005) (applying North Carolina law) ("related" is unambiguous and "covers a very broad range of connections" both logical and causal); Gregory v. Home Ins. Co., 876 F.2d 602, 606 (7th Cir. 1989) (applying Indiana law) ("The common understanding of the word 'related' covers a very broad range of connections, both casual and logical."); Vozzcom, Inc. v. Beazley Ins. Co., Inc., 666 F. Supp. 2d 1321, 1329 (S.D. Fla. 2009) ("The words 'relate' or 'related' are commonly understood terms in everyday usage. They are defined in the dictionary as meaning a 'logical or causal connection between' two events."); Westport Ins. Corp. v. Coffman, No. C2-05-1152, 2009 WL 243096, at *8 (S.D. Ohio Jan. 29, 2009) (collecting cases) (finding that related acts provision was unambiguous and explaining that "the term 'related' covers a very broad range of connections, both causal and logical"); Brown v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., No. 02-4724DWFSRN, 2004 WL 292158 (D. Minn. 2004) (to be related, matters can be either logically or causally related); In re DBSL, Inc., Nos. 08-12687 (PJW), 09-52031 (PJW), 2011 WL 3022177 (Bankr. D. Del. July 22, 2011) (undefined term, "related," in related acts provision encompasses both logical and causal relationships); Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co., 855 P.2d 1263, 1271 (Cal. 1993) ("Related is a commonly used word with a broad meaning that encompasses a myriad of relationships" and it "is broad enough to encompass both logical as well as causal relationships."); Eagle Am. Ins. Co. v. Nichols, 814 So. 2d 1083, 1086-87 (Fla. Dist. Ct. App. 2002) (undefined term "related" encompasses logically related connections); Columbia Cas. Co. v. CP Nat'l, Inc., 175 S.W.3d 339 (Tex. App. 2004) (related, when not further defined by policy, can refer to either logical or causal relationships).
As one leading treatise explains, the cases holding that the term "related" is ambiguous are based on the fallacy that because related can refer to either a logical or a causal connection, it cannot encompass both logical and causal connections. A. Windt, 3 Ins. Claims & Disputes, § 11:22D (5th ed. Mar. 2011) (the minority position "overlooks the fact that there is nothing precluding acts from being 'related' if there is either a 'causal' or 'logical' connection. It is arbitrary and unjustifiable to assume that the word 'related' must have been used to have one meaning or the other, rather than encompassing any acts that are in any way 'related' – causally or logically.").
III. Courts Have Taken Various Factors Into Consideration in Determining if Multiple Claims Are Logically or Causally Related.
If a court determines that a policy's related acts provision is unambiguous and encompasses both logical and causal connections, the court must still evaluate whether the claims at issue are logically or causally related. Different courts have emphasized different factors when determining whether multiple claims are logically or causally related.
For example, in Southbridge Capital Management, LLC v. Twin City Fire Insurance Co., No. X04CV020103527S, 2006 WL 2730312, at *9 (Conn. Super. Ct. Sept. 8, 2006), the court explained that factors courts have taken into consideration when they "have analyzed the 'relatedness' of claims" include "among many other factors, whether the parties are the same, whether the claims all arise from the same transaction(s), whether the wrongful acts are contemporaneous and . . . whether there is a common scheme or plan."
To determine whether multiple claims were related, the court in Capital Growth Financial LLC v. Quanta Specialty Lines Insurance Co., No. 07-80908-CIV, 2008 WL 2949492, at *4-5 (S.D. Fla. July 30, 2008), examined the same factors that the court in Southbridge Capital Management found to be important. The court in Capital Growth Financial noted that this approach does not require an exact factual overlap or even identical causes of action, but focuses simply on whether the claims are logically linked by a "sufficient factual nexus."
The court in Highwoods Properties v. Executive Risk Indemnity Co., 407 F.3d 917, 924 (8th Cir. 2005) (applying North Carolina law), noted that "related" has been defined to mean "connected by reason of an established or discoverable relation." The court said that to be related the matters do not have to "arise out of identical facts" but an important factor is whether they are grounded in the same transaction. Id.
In Berry & Murphy, P.C. v. Carolina Casualty Insurance Co., 586 F.3d 803, 813-14 (10th Cir. 2009) (applying Colorado law), the court found different professional errors (in that case by an attorney) were related because they involved the same client and resulted in the same loss.
The policy involved in Continental Casualty Co. v. Howard Hoffman & Associates, Nos. 1-10-0957, 1-10-1080, 2011 WL 3612291 (Ill. App. Ct. Aug. 15, 2011), contained a related acts provision that defined "related acts or omissions" to mean "all acts or omissions . . . that are temporally, logically, or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision." Id. at *3. The court found that this definition was unambiguous. Referring to Webster's Third New International Dictionary, the court noted that temporally has been defined as "with regard to time"; logically means, "interrelation or connection of sequence (as of facts or events) especially when seen by rational analysis as inevitable, necessary or predictable"; and causally means, "a person, thing, fact, or condition that brings about an effect" or "the necessary antecedent of an effect." Id. at *15.
The policy at issue in Professional Solutions Insurance Co. v. Mohrlang, No. 07-cv-02481-PAB-KLM, 2009 WL 321706, at *3 (D. Colo. Feb. 10, 2009), defined "related acts or omissions" as "all acts or omissions in the rendering of professional services that are temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision." The court found that this policy language was unambiguous. Id. at *9. The court said that "logically connected" means "connected by an inevitable or predictable interrelation or sequence of events," noting that "for two things to be logically connected, one must attend or flow from the other in an inevitable or predictable way." Id. at *11. The court stated that "causally connected" refers to "where one person or thing brings about the other." Id. The court also noted that "the common understanding of causation" requires a showing of but-for causation and "a situation where the first thing leads to the second in a direct and traceable way, and where no independent, significant thing interrupts the causal chain between the two." Id.
IV. Whether Multiple Claims are "Related" Is Highly Dependent Upon the Facts.
Although courts are now generally in agreement that "related acts" provisions are unambiguous and encompass both logical and causal relationships, determining whether one claim is related to still another depends on the specific circumstances involved in the case.
Among the cases in which courts have found that multiple claims are related are: RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384 (7th Cir. 2008) (applying Indiana law) (Two lawsuits against the insured, one involving securities fraud and the second involving ERISA violations in connection with the insured's SEC filings and management of plan assets, were found to be related. The court found it significant that the insured was a defendant in both actions, the plaintiff in the second lawsuit was also a plaintiff in the first lawsuit, and the same false reporting and manipulation was involved in both actions.); Am. Specialty Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552, 557-58 (5th Cir. 2008) (applying Texas law) (claims asserted by the same claimant alleging failure to comply with the professional standard of care were logically related, even though different negligent acts and injuries were alleged); Cont'l Cas. Co. v. Wendt, 205 F.3d 1258 (11th Cir. 2000) (applying Florida law) (insured attorney's advice regarding sale of securities which formed the basis for the first lawsuit was logically connected to second lawsuit; although the insured's conduct involved different types of acts, and different harms to different people, they all were aimed at a single goal); Gregory v. Home Ins. Co., 876 F.2d 602, 605-06 (7th Cir. 1989) (applying Indiana law) (two claims against insured law firm that provided legal services in connection with a videotape investment program, one by videotape purchasers arising from mistaken advice on the program's tax advantages and one by the broker arising out of the firm's error with respect to the promotion's status as a security and its tax advantages, were found to be related); URS Corp. v. Travelers Indem. Co., 501 F. Supp. 2d 968, 976-77 (E.D. Mich. 2007) (claim against architectural and engineering firm for its negligent design of two schools for the same client involved related acts "regardless of whether the errors were regarding different systems designed by different engineers or whether similar errors were made in two different school buildings that resulted in different quantities of damage for each building"); Gateway Group Advantage, Inc. v. McCarthy, 300 F. Supp. 2d 236 (D. Mass. 2003) (multiple claims arising out of the same scheme to market insurance franchises involved related wrongful acts which had a common nucleus of fact; insured engaged in a single course of conduct designed to promote investment in the franchise program; conduct at issue was arguably the same and at the very least related); Cont'l Cas. Co. v. Howard Hoffman & Assocs., Nos. 1-10-0957, 1-10-1080, 2011 WL 3612291 (Ill. App. Ct. Aug. 15, 2011) (multiple underlying claims arising from embezzlement by a paralegal from probate estates that the insured law firm was handling were logically and causally connected because all the claims involved a common embezzlement scheme).
In Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Insurance Co., 855 P.2d 1263 (Cal. 1993), one of the leading cases dealing with related acts provisions in claims-made policies, a general contractor sued his attorney for two failures to perfect the contractor's mechanic's lien on a single construction project. As a result of the attorney's malpractice, the contractor was unable to collect money he was owed for the project. The attorney's two acts of malpractice caused a single injury, and either act would have caused the same injury (the contractor was unable to collect payment for his work). The court noted that, "when two or more errors lead to the same injury, they are – for that very reason – 'related' under any fair and reasonable meaning of the word." Id. at 1272. The court concluded that the contractor's two claims were logically related because they: (1) arose out of the same transaction, the collection of a debt; (2) involved same client; (3) were committed by the same attorney; and (4) resulted in a single injury. Id. at 1275.
In WFS Financial, Inc. v. Progressive Casualty Insurance Co., 232 F. App'x 624 (9th Cir. 2007) (applying California law), the insured sought coverage for two separate class action lawsuits alleging that a certain business practice of the insured was discriminatory. The first claim was made during the policy period of the first claims-made policy; the second claim was made during a second claims-made policy's policy period. Id. at 625. Both policies provided that: "Claims based upon or arising out of the same Wrongful Act or Interrelated Wrongful Acts committed by one or more of the Insured Persons shall be considered a single Claim." Id. The court held that the claims involved "Interrelated Wrongful Acts." The policy defined "Interrelated Wrongful Acts" as "Wrongful Acts which have as a common nexus any fact, circumstance, situation, event, transaction or series of related facts, circumstances, situations, events or transactions." Id. The court noted that "[a]lthough the suits were filed by two different sets of plaintiffs in two different fora under two different legal theories, the common basis for those suits was the . . . business practice of permitting independent dealers to mark up WFS loans. The harms alleged in the two class action suits are causally related and do not present such an 'attenuated or unusual' relationship that a reasonable insured would not have expected the claims to be treated as a single claim under the policy." Id.
Other courts have found that multiple claims were not related. See Fin. Mgmt. Advisors, LLC v. Am. Int'l Specialty Lines Ins. Co., 506 F.3d 922 (9th Cir. 2007) (applying California law) (two lawsuits by investors who had received financial advice from the insured were not logically related; the investors were unrelated, they each had unique investment objectives, they were advised at separate meetings on separate dates and the investment packages recommended to and chosen by each client were different; more importantly, the wrongful acts alleged were different); Scott v. Am. Nat'l Fire Ins. Co., 216 F. Supp. 2d 689, 695 (N.D. Ohio 2002) (finding multiple malpractice claims against attorney "unrelated" where they arose from attorney's violation of separate duties to different clients, despite fact that claims arose from common operative facts); Pope v. Chi. Ins. Co., No. D040139, 2003 WL 21640888 (Cal. Ct. App. July 14, 2003) (two claims against the same insured by the same claimant, but involving different injuries and representations made at different times were found not to be related even though there were similarities between the representations made in the claims); Beale v. Am. Nat'l Lawyers Ins. Reciprocal, 843 A.2d 78 (Md. 2004) (five legal malpractice suits against insured attorney who had handled claimants' lead paint poisoning claims were not related, the injury to each child was different and the insured owed separate duties to each client).
Although related acts provisions are broadly worded, and whether multiple claims will be deemed related for purposes of a related acts provision in a claims-made policy is highly dependent on the circumstances, it is settled in most jurisdictions that such provisions are unambiguous and encompass both logical and causal relationships. Claims-made policies are issued for a wide variety of professions and can apply to an almost infinite number of factual situations. Therefore, it is not possible to state a general rule regarding under what circumstances multiple claims will be found to be related. However, the greater the factual similarity between the claims in terms of the parties, the legal theories, the damages and the circumstances giving rise to the claims the more likely that it is that claims will be deemed related.