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Key Takeaways:
- Policyholders should be skeptical of insurers’ increasing disclaimers of coverage based on “related claims” provisions in liability policies.
- Review the policy language carefully, as slight differences in wording may determine whether claims are deemed “related,” and if so, how that impacts coverage.
- Policyholders should talk to their brokers during policy renewal negotiations to seek narrower, coverage-affirming “related claims” provisions.
Liability insurance policies are typically written on either an “occurrence” basis or a “claims made” basis. Under an occurrence-basis policy, the liability will be covered if the injury or damage occurred during the policy period. Under a claims-made policy, the coverage is triggered if the claim against the insured was made (and reported to the insurer) during the policy period, irrespective of when the injury or damage occurred.
Many claims-made liability insurance policies include a so-called “related claims” provision pursuant to which two or more claims arising out of the same or similar facts are treated as a single “claim” deemed to have been made when the first such “claim” was made. Insurers frequently rely on such provisions as defeating coverage for a claim actually made and reported during the current policy period when that claim is allegedly “related” to one that was made during an earlier policy period (and thus deemed to have been made before the current policy took effect). For this reason, many courts have held that such “related claims” provisions are exclusionary, even if they do not appear in the exclusions section of the policy. See, e.g., Borough of Moosic v. Darwin Nat’l Assur. Co., 556 Fed. Appx. 92 (3rd Cir. 2014) (related claims provision in the Conditions section of the policy treated as an exclusion, as to which insurer bore burden of proof, because the clause limited coverage).
However, related claims provisions are not always exclusionary in nature. They also can be used by policyholders to aggregate multiple related claims for purposes of exceeding a policy retention or deductible, or to bring a claim within the coverage of an earlier policy when coverage would not be available under the current policy (perhaps because the current policy’s limits are exhausted). See, e.g., Papalia v. Arch Ins. Co., 2017 U.S. Dist. LEXIS 121520 (D. N.J. Aug. 1, 2017). These provisions can be written with specific policy language that precludes them from operating in an exclusionary manner, as evidenced by the three cases discussed below.
The fact that a related claims provision can cut either way for an insurer, depending on the circumstances, has led some insurers to construe their own policy language differently from one case to the next. Papalia, 2017 U.S. Dist. LEXIS 121520 at *24-25, 27-29, 32 n.8 (noting Arch’s proposed narrow interpretation of “common nexus” in its related claims wording is exact opposite of the position it took in prior cases when Arch sought to maximize the exclusionary effect of that provision). One suspects that virtually every major insurer has been on both sides of the issue at some point – at times seeking a narrow interpretation of the wording and at other times seeking the broadest possible construction, depending on the insurer’s interests. Accordingly, policyholders facing a denial of coverage based on purported “related claims” pre-dating the policy period should carefully research the positions that insurer has taken in prior cases concerning the meaning of its related claims wording. Policyholders also may seek to discover such information through formal discovery in litigation.
*********The primary topic of this article is a specific wording change that policyholders can and should request that – as two recent decisions have made clear – unambiguously clarifies that the related claims provision is a tool for policyholders to gain coverage for future related claims, not a weapon by which insurers can defeat coverage for claims actually made during the current policy period. The policy wording change is a simple one, and relatively subtle. In fact, it is subtle enough that some policyholders who could have availed themselves of arguments based on this language have failed to do so, resulting in adverse court decisions upholding an insurer’s “related claim” disclaimer when that outcome could have been avoided. See, e.g., Hanover Ins. Co. v. R.W. Dunteman Co., 51 F.4th 779 (7th Cir. 2022). To illustrate the change and its subtle nature, we set forth below two different examples of “related claims” wording, one of which incorporates the policyholder-friendly wording for which we advocate here.
1. “Two or more CLAIMS arising from a single or related series of actual or alleged acts, errors, omissions or misfeasance, shall be considered as a single CLAIM for the purposes of this Policy, irrespective of the number of claimants or ASSUREDS and/or acts, errors or omissions. All such multiple CLAIMS shall be deemed to have been made at the time of the first CLAIM.”
2. “Two or more CLAIMS arising from a single or related series of actual or alleged acts, errors, omissions or misfeasance, shall be considered as a single CLAIM for the purposes of this Policy, irrespective of the number of claimants or ASSUREDS and/or acts, errors or omissions. All such multiple CLAIMS shall be deemed to have been made during the POLICY PERIOD in which the earliest CLAIM was first made.”
Can you spot the difference between these two sample related claims provisions? In the first sample, the two or more related claims are deemed to have been made at the time of the first claim. But in the second sample, the two or more related claims are deemed to have been made during the “POLICY PERIOD” in which the earliest claim was made.
In most claims-made policies, the term “Policy Period” is a defined term with a specific meaning, usually identified as the period between the inception date of the policy and its expiration, per the policy’s “Declarations.” In other words, the “POLICY PERIOD” in this second clause has a singular, fixed meaning – it is the policy period in effect for the current policy. Defined accordingly, a related claims provision that deems all related claims to have been made during the “Policy Period” when the first of the claims was made clearly does not permit any construction that would deem the related claims to have been made before the current “Policy Period,” and thus, outside of the scope of coverage. A related claims provision written on these terms can only apply prospectively to bring later related claims within the scope of coverage of the current policy if the first of the related claims was made during the “Policy Period.”
The United States Court of Appeals for the Ninth Circuit so held in Attys. Ins. Mut. Risk Retention Grp., Inc. v. Liberty Surplus Ins. Corp., 761 Fed. Appx. 756, 2019 U.S. App. LEXIS 4661 (9th Cir. Feb. 15, 2019). At the time Liberty Surplus was decided, it was the only decision this author was aware of that focused on the related claims provision’s use of the defined term “Policy Period” and the necessary implications of that wording choice. But in late 2022, a Delaware Superior Court reached the same conclusion, interpreting very similar policy language, in Seritage Growth Props., L.P. v. Endurance Am. Ins. Co., 2022 Del. Super LEXIS 1453 (Del. Super. Ct. Dec. 19, 2022).
Attys. Ins. Mut. Risk Retention Grp., Inc. v. Liberty Surplus Ins. Corp., 761 Fed. Appx. 756, 2019 U.S. App. LEXIS 4661 (9th Cir. Feb. 15, 2019)
In Liberty, an attorney who had recently switched firms was sued (along with his former and current firm) by a family alleging negligence in the attorney’s performance of certain estate-related legal services. The family had previously filed a probate action during an earlier policy period in which the attorney had been named as a defendant. When the attorney requested that the former firm and its insurer (Liberty) defend and indemnify him in the newly-filed civil action, Liberty disclaimed coverage, arguing that, pursuant to the “related claims” provision in its policy, the new civil action was deemed to be a claim made at the time of the earlier probate case and thus did not fall within the “claims made” coverage of the 2010-2011 policy at issue. Id. at 757. The insurer for the attorney’s new firm (AIMRRG) continued to defend the civil action and, upon its conclusion, sued Liberty for contribution.
The “related claims” provision on which Liberty relied provided, in pertinent part:
Claims alleging, based upon, arising out of or attributable to the same or related acts, errors or omissions shall be treated as a single Claim regardless of whether made against one or more than one Insured. All such Claims, whenever made, shall be considered first made during the Policy Period or any Extended Reporting Period in which the earliest Claim arising out of such acts, errors or omissions was first made, and all such Claims shall be subject to the same Limits of Liability.
The Liberty policy defined the capitalized and bolded term “Policy Period” by reference to the period set forth in the Declarations, which was July 31, 2010 to July 31, 2011. The District Court held that “the Single Claim Provision is not reasonably susceptible to Liberty’s interpretation because it is contrary to the clear and precise definition of Policy Period in the 2010-2011 Liberty Policy.” Attys. Ins. Mut. Risk Retention Grp., Inc. v. Liberty Surplus Ins. Corp., No. CV 15-4756 FMO, 2017 U.S. Dist. LEXIS 46618, *19 (C.D. Cal. Mar. 28, 2017). More specifically, the Court held:
In order to adopt Liberty’s interpretation, however, the court would have [to] read Policy Period in a manner that conflicts with the way in which it is defined in the 2010-2011 Liberty Policy; that is, Policy Period would mean the policy period applicable to an unspecified insurance policy. In other words, Liberty seeks to replace the defined term Policy Period, with a more generic term, a policy period. It would have the court rule that in this one instance in its Policy, Policy Period actually means a prior policy period. This the court cannot do.
Id. at *20.
The court was not persuaded by Liberty’s argument that a strict construction of the defined term “Policy Period” would render the “Single Claim Provision” meaningless. Id. at *21-23. Nor did the court find any persuasive value in other cases cited by Liberty construing differently worded “related claims” provisions and holding that such related claims were deemed made during an earlier policy period when the first claim was made. None of those cases involved policy provisions like Liberty’s which specifically provided that the related claims shall be deemed made during the defined “Policy Period.” Id. at *23-27. In sum, “[t]he court sees no way around the Single Claim Provision’s use of the term, Policy Period, which is a clearly and precisely defined term. Adopting Liberty’s interpretation would require the court to give different meanings to the same term used in the same policy, which would run afoul of the rules of contract interpretation.” Id. at *27-28.
In a succinct opinion, the Ninth Circuit agreed, holding that:
the definition of “Policy Period” necessitates that the “Multiple Insureds, Claims and Claimants” provision be read to mean any relevant claims will be “considered first made during the Policy Period,” i.e., during the period from July 31, 2010 until July 31, 2011. . . . Although Liberty’s chosen definition of “Policy Period” may create an ambiguity in the meaning of the multiple related claims provision as a whole, the district court did not err because ambiguities in an insurance policy are resolved against the insurer.
761 Fed. Appx. at 758.
Seritage Growth Props., L.P. v. Endurance Am. Ins. Co., 2022 Del. Super LEXIS 1453 (Del. Super. Ct. Dec. 19, 2022)
In Seritage Growth, the insured real estate investment trust (Seritage) and certain of its officers and directors sought coverage under their directors and officers liability policies for an adversary proceeding complaint filed against them in the bankruptcy proceeding of Seritage’s parent company, Sears Holding Corporation. The adversary proceeding, filed in April 2019, challenged a 2015 rights offering and sale-leaseback transaction between Seritage and Sears (among other transactions), which also had been the subject of a 2015 derivative action by Sears shareholders against Seritage, its officers and directors, and various officers and directors of Sears. Id. at *2-4. Seritage’s insurers for the policy period June 2018 to June 2019 first accepted coverage for the 2019 adversary proceeding, but they later reversed course and denied coverage on the grounds that the adversary proceeding and the 2015 derivative action were “Related Claims” deemed to have been made in 2015, before the June 2018 inception of their policies. Id. at *5-6.
The policies at issue defined a “Related Claim” as “all claims based upon, arising out of or resulting from the same or related, or having a common nexus of, facts, circumstances or Wrongful Acts.” The policies further provided that “[a]ll Related Claims shall be deemed a single Claim first made during the Policy Period in which the earliest of such Related Claims was either first made or deemed to have been first made in accordance with Section VI. REPORTING.” Id. at *21-22.
The Court began its analysis by reviewing decisions of Delaware and New York courts regarding “related claims” provisions and by analyzing the similarities and differences between the 2015 derivative action and the 2019 adversary proceeding. Id. at *22-26. Indeed, the Court even noted that a prior decision by the Supreme Court of New York had analyzed the underlying facts of the 2019 adversary Proceeding and 2015 derivative action (though under a different insurance policy, with different policy language), and determined that the claims were related. Id. at *26-27. The Court likewise found that the two actions constituted “Related Claims” under the Seritage D&O policies at issue. Id. But that did not end the inquiry. The Court still needed to evaluate the separate policy wording addressing the treatment of “Related Claims” under the policies – i.e., when are such Related Claims “deemed made.”
The Court observed that, in many policies, the “related claims” provision operates in an exclusionary manner, taking a claim that was actually made during the policy period and deeming it to have been made before the policy period. Id. at *28-29. But the policy language at issue here was different. The Seritage policy “does not state that a related claim is not covered under the insurance policy, nor does it point to any policy period other than the defined Policy Period (in bold and capitalized). Item 2 of the [primary] Policy defines Policy Period as being from June 8, 2018 to June 8, 2019.” Id. at *29. Accordingly, the Court held as follows:
The Court finds the QBE Policy language is not exclusionary. The policy language is not ambiguous. The defined term—Policy Period—makes the operation of the Treatment of Related Claims section clear. The policy will provide coverage for future claims that are related to claims deemed first filed under the policy. In effect, the provision is prospective, not retrospective. The use of the defined term, Policy Period, prevents the Adversary Proceeding from relating back to a time period before June 8, 2018. Thus, even though the Adversary Proceeding and 2015 Derivative Action qualify as Related Claims under the policy language, the Treatment of Related Claims provision permits the Adversary Proceeding to be deemed first made within the 2018-2019 Policy Period. The Court finds coverage cannot be denied on the basis that the Adversary Proceeding and 2015 Derivative Action are Related Claims.
Id. at *29-30. Neither the Court nor the parties appear to have cited the Ninth Circuit’s decision in Liberty Surplus. It is evident, however, that the holding in both Seritage Growth and Liberty Surplus was essentially the same.
Hanover Ins. Co. v. R.W. Dunteman Co., 51 F.4th 779 (7th Cir. 2022)
The Seventh Circuit’s decision in Dunteman – and Judge Hamilton’s concurring opinion – is highly interesting for a number of reasons.[1] But for purposes of this article, we are highlighting the case for what appears to have been a missed opportunity by the policyholder to take advantage of favorable “related claims” language virtually identical to that which existed in the policies in Liberty Surplus and Seritage Growth.
In Dunteman, four brothers who were the majority shareholders and officers and directors of two family-owned construction companies were sued by the estate of the family matriarch, who had a minority interest in the companies. The estate alleged that the mother’s interest had been wrongfully diluted after her divorce. The suit was filed in August 2017, originally naming only one of the companies as the sole defendant and seeking a declaratory judgment establishing the estate’s percentage interest in the company. In July 2018, however, the estate amended the complaint to add specific allegations and claims for damages against the four brothers and the other family-owned company. All six codefendants were insured under consecutive claims-made liability policies issued in 2017 and 2018 by The Hanover Insurance Company to R.W. Dunteman Company, an affiliated family business. Dunteman, 51 F.4th at 781-83.
The insureds first notified Hanover of the suit after the amended complaint was filed in July 2018. Hanover promptly denied coverage because the claim had been first made in 2017 and had not been timely reported during that policy period. Hanover then sought a declaratory judgment that it owed no coverage and the district court entered judgment in its favor. The Seventh Circuit affirmed. Id. at 782.
Both the district court and the Seventh Circuit found that the original complaint was a reportable “claim,” even though it did not seek any money damages that would have been covered under the 2017 policy. And because that original “claim” and the amended complaint in July 2018 concerned “Related Wrongful Acts” and were “Related Claims,” the Court held “the policy’s aggregation provisions treated them as a single claim reportable when first made in 2017.” Accordingly, the insureds’ 2018 notice of the amended complaint was too late, even though the “claim” for damages had been first made during the 2018 policy period. Indeed, the 2018 amended complaint was the first time that any claim had been made against the four brothers and the other family-owned company. Id. at 784-85, 787-88. Nevertheless, they were denied coverage based on the company’s failure to notify Hanover of the original complaint during the 2017 policy period.
The relevant policy wording defined “Related Claims” broadly and provided that “Related Claims will be considered as a single Claim made in the Policy Period … in which the earliest of such Related Claims was first made or first deemed to have been made” and “[a]ll Related Claims are subject to the Limits of Liability, Retention and other terms and conditions applicable to the earliest Related Claim.” Based on that provision, the Seventh Circuit concluded: “Simply put, all related claims arising from the common series of events surrounding the dispute over Jane’s share of the family business are considered ‘first made’ in 2017 and subject to the 2017 policy’s reporting obligation.” Id. at 788. But that holding overlooked the fact that the Related Claims provision specified the “Policy Period” (a bolded and defined term) as the period during which all Related Claims would be deemed made. The policy defined “Policy Period” as the period of time shown in item 2 of the Declarations – i.e., March 31, 2018 to March 31, 2019. Notably, the policy treated “Related Wrongful Acts” very differently, providing that “all Related Wrongful Acts will be deemed to have occurred at the time the first of such Related Wrongful Acts occurred whether prior to or during the Policy Period.” (underline emphasis added) Clearly, then, the insurer knew how to specifically provide that a Related Claim could be deemed made prior to the Policy Period if that had been the parties’ intent.
The Court’s opinion did not comment on the significance of the policy’s use of the bolded and defined term “Policy Period” to define when Related Claims would be deemed made. And review of the parties’ appellate briefs suggests the insured never argued that use of that defined term made it impossible to construe the policy’s Related Claims provision as requiring (or even permitting) all Related Claims to be deemed made before the Policy Period. If the insured had presented that argument, it is difficult to conceive of any basis on which the Court could have denied coverage to the insureds on the grounds that the 2018 amended complaint was a Related Claim deemed first made before the Policy Period. Indeed, under the plain language of the policy’s Related Claims provision, the Court’s holding should have mirrored the holdings of the Ninth Circuit and the Delaware Superior Court in Liberty Surplus and Seritage Growth, respectively.
Lessons Learned from Liberty Surplus, Seritage Growth and Dunteman
In the world of insurance coverage, it cannot be over-emphasized that the policy language matters! Insurer and policyholder advocates alike have become so accustomed to “related claims” provisions operating in an exclusionary manner that we tend to assume that the consequence of a claim being related to an earlier pre-policy period claim is that there will be no coverage for the later claim. But as Liberty Surplus and Seritage Growth demonstrate, that is not always the case. Some policies’ “related claims” provisions are written in a more policyholder-friendly manner such that they are not exclusionary; rather, they operate only prospectively to bring later claims within the policy’s coverage.
Policyholder advocates can learn two principal lessons from these cases:
First, when a policyholder is faced with a disclaimer of coverage based on a “related claims” / pre-policy period claim argument, do not simply accept that disclaimer as the natural consequence of the relatedness of the claims. Carefully examine the policy language to determine whether it truly does require all related claims to be “deemed made” at the time of the first claim, even if that is before the policy period. If not, and instead the policy deems the related claims to have been made “during the Policy Period” (bolded and defined) of the first claim, the provision is not exclusionary, as the courts in Liberty Surplus and Seritage Growth held, and as the court in Dunteman should have held.
Second, even before any claim arises for which coverage is sought, policyholders should examine the “related claims” wording in their existing policies and talk to their brokers about seeking policyholder-friendly changes to that language. If your current policy includes a “related claims” provision that is exclusionary – i.e., it could deem a claim to have been made before the policy period – ask your broker during the next renewal to seek a change conforming the language to that used in Liberty Surplus and Seritage Growth. If such language can be incorporated into your policies going forward, it may make all the difference in whether or not the next claim against you is covered, as it did for the policyholders in Liberty Surplus and Seritage Growth, and as it should have for the insureds in Dunteman.
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[1] See, e.g., “Lessons on Notice from 7th Cir. Claims-Made Policy Ruling,” published in Law360 on December 6, 2022. (https://www.law360.com/insurance-authority/articles/1555350/lessons-on-notice-from-7th-circ-claims-made-policy-ruling)
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