Risk Management

When One Insurance Claim Is Better than Many

If there are multiple claims, a policyholder may have to pay multiple deductibles.
Eric Jesse and Catherine SerafinApril 3, 2017

“Copycat” lawsuits are a common problem for corporations. For example, multiple lawsuits often are filed after the price of a company’s stock drops, each claiming that alleged misconduct or neglect of management contributed to the loss.

When they’re faced with multiple claims or lawsuits that seem to contain common or similar allegations, corporate policyholders need to understand the insurance implications of characterizing those multiple claims as “related.” Most claims-made liability insurance policies treat all “related” claims (or claims alleging “interrelated wrongful acts”) as if they were one claim, which is considered made when the earliest claim was asserted.

The issue of whether multiple claims are related under the policy language will have significant financial consequences. For example, if many claims are treated as one claim, only one deductible must be paid before coverage kicks in.

Conversely, if there are multiple claims, a policyholder may have to pay multiple deductibles. A policyholder facing hundreds or thousands of relatively low-dollar claims that do not exceed the deductible may effectively have no coverage if the claims are treated individually. But they may have enough coverage if the claims are “related” and only one deductible must be paid before the policy limits can be accessed.

Further, multiple claims each have a separate “per claim” limit of liability up to any aggregate limit of liability so if claims are “related, only one “per claim” limit is available to cover the loss. Also, if a current claim is deemed “related” to a claim under an earlier policy, and that earlier policy’s limits have been exhausted, the policyholder may have limited coverage even though it has fresh limits in the current policy period.

Thus, the need to relate, or not to relate, will be a fact-sensitive inquiry into the policyholder’s particular coverage and claim circumstances.  Here’s what corporate insureds need to know to maximize their insurance coverage when they’re faced with multiple claims that may (or may not) be treated as one.

Policy Language

A combination of policy provisions must be analyzed to determine how coverage works. Generally, the places to look are the policy’s “Definitions” and “Limits of Liability” sections. In the “Definitions” section, the policies may contain a broad definition of “Related Claims” like this:

“Related Claims [are] all Claims, whether made against more than one Insured or by more than one claimant, arising out of a single Wrongful Act … or a series of Wrongful Acts … that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of causally connected facts, circumstances, situations, events, transactions or causes.”

Other policies may provide essentially the same language if the policy uses the defined term “Interrelated Wrongful Acts” instead of the “Related Claims” term.

Not all policies use “common nexus” language. They may simply refer to “related” claims without definition. Others define related claims as claims “involving the same or related facts . . .”, or interrelated wrongful acts as “any causally connected Wrongful Act or series of the same, similar, or related Wrongful Acts.”

The exact policy language is critical. Courts have come to differing conclusions about whether the above formulations are plain or ambiguous, and about exactly what the language means in practice.

Next, check the “Limits of Liability” section of the policy. There should be a provision stating that all related claims (or claims alleging interrelated wrongful acts) are treated as one claim that was made at the time of the first such claim, similar to the following:

“All Related Claims shall be deemed a single Claim … and such Claim shall be considered first made on the date the earliest such Related Claim is first made against an Insured, regardless of whether such date is before or during the Policy Period.”

Interpreting the Policy

Courts often cite dictionary definitions to interpret insurance policy language. Many courts have found that a common “nexus” unambiguously means what Merriam-Webster’s dictionary says it means: a “relationship or connection between people or things,” and a “connection, link; also: a causal link; a connected group or series; center, focus.”

Such courts often find that the language requires a focus on similarities, not differences, among claims, and that claims have enough in common when they involve the same underlying circumstances. Other courts have focused on the word “any” in these definitions to find that the definition is very broad.

What does this mean in practice? Because the determination of whether claims are “related” (regardless of whether or how that is defined) is a very fact-specific inquiry, the cases are all over the map. This may make it hard to find a case precisely on point from a factual perspective. But there may be cases applying applicable law in similar circumstances that can be useful.

Thus, policyholders must determine whether any court has interpreted the particular “related claims” provision at issue under the applicable law, and then whether there are any cases involving that language from that jurisdiction (or others) that are close enough factually that arguments for or against “relating” claims can be made by analogy.

To Relate or Not to Relate?

Policyholders often face significant financial consequences depending on whether claims are related. As noted, the number of claims may affect the number of deductibles that the policyholder must pay, the limits available to the insured, and whether it even will have coverage.

For example, if claims are related, and the first such claim was made in a year where policy terms were not favorable, or the coverage has been exhausted by other claims, the policyholder would end up with little or no coverage. Conversely, if that earliest policy had the best terms and its limits were intact, but later policies contained more narrow terms, it would be advantageous for a policyholder to argue that the claims were related.

Building a Case for Coverage

Once the policyholder decides to argue that claims are related, or not related, how should it go about winning the case? In any coverage dispute, one important issue is whether the insurance policy language is clear. If the policy language is ambiguous, that favors the policyholder, and the court would interpret the language to favor coverage under the facts of the particular case. Thus, it’s important to know whether, under applicable law, courts find the policy provision clear or cloudy.

Another area to investigate is whether the insurer already has taken a position on what the language means. Most policies are standard forms and insurers litigate across the country. The chances are fair that any reasonably large insurer will have taken a position on the meaning of a particular definition.

With the advent of electronic dockets and computerized research, it’s easier than ever to access briefs filed by insurance companies. Often policyholders are surprised to learn that their insurers are arguing language that means one thing in one case, and a different thing in another. Confronting an insurer (or a court) with such inconsistent positions can go a long way toward proving the point.

Finally, a policyholder must marshal its facts for this fact-sensitive inquiry. If the policyholder argues that claims are sufficiently linked to be related, scour the complaints for similarities, particularly if the “related claims” policy language focuses on commonalities.

A policyholder must also must be prepared to explain why any differences are minor or irrelevant, and do not serve to override the commonalities. Conversely, if arguing that claims are not related, highlight the differences and be prepared to explain why these differences are paramount and any similarities are insignificant to the analysis.

Catherine Serafin is a partner, and Eric Jesse is counsel, with Lowenstein Sandler’s Insurance Recovery Group.