Characterizing Separate Claims as Single Claims for Policy Coverage

Determining whether claims made under an insurance policy are multiple claims or a single claim is an important exercise that can have significant coverage implications relating to coverage dates, policy limits and other policy considerations.

Claims-made insurance policies are typically triggered only if a claim is first made against the insured and reported to the insurer during the policy period. Many policies state that all claims based on the same wrongful act or any related wrongful acts will be considered a single claim, and will be deemed to be made when the earliest claim is first made. Using this legal fiction, the provision offers a defined mechanism for determining when a claim is made. But the identification of separate claims as a single claim can result in interesting legal maneuvering as the parties attempt to gain or limit coverage based on how the characterization of the claims affects the policy terms.

Two recent cases highlight the significance of characterizing a claim as a single claim or separate claims and the use of such a characterization by insurers and insureds to advance their positions.

Brecek & Young v. Lloyd’s

In Brecek & Young Advisors v. Lloyds of London Syndicate 2003, No. 12-3011 (10th Cir. May 13, 2013), an insured had been involved in three arbitration claims stemming from similar facts. The first two claims occurred prior to the policy period but the third occurred during the policy period and was timely reported to the insurer. The policy provided defense coverage for arbitration claims but with a $50,000 retention per claim for the insured. The third arbitration involved 26 individual claimants and, in an effort to reduce its coverage obligations, the insurer argued that 26 claims lacked a sufficient factual nexus and therefore each claim should be treated separately, subject to its own retention.

In the alternative, the insurer suggested that if all the claims were found to be interrelated, then they would also relate to the two previous arbitrations and all three arbitrations should be considered a single claim. As a single claim, the three arbitrations would relate back to the date the first arbitration claim was made (prior to the policy period) and would not be covered by the policy.

The trial court rejected both of the insurer’s arguments, finding that the claims in the third arbitration were sufficiently related to constitute a single claim so that only a single $50,000 retention applied, and finding that the third arbitration did not relate back to the first two but was a separate claim, timely reported during the policy period.

On appeal, the insurer focused on arguing that the third arbitration related back to the first two and, as a single claim, was made prior to the policy. The 10th Circuit Court of Appeals reviewed the standard used by the trial court which suggested that “interrelated wrongful acts” provisions should be strictly and narrowly construed. The appellate court noted that both parties agreed that the term was unambiguous and, unlike many other cases, the term was defined by the policy. The court disagreed that the term should be read narrowly at the expense of the contract’s plain language and, applying the plain language, determined that the three arbitrations were connected by common facts and constituted a single claim. As a single claim made when the first arbitration claim was made, the third arbitration was pulled outside of the policy period and beyond coverage. The insurer successfully avoided coverage by characterizing the three arbitrations as a single claim made before the policy took effect.

Omeros v. Carolina Casualty

Similar legal maneuvering based upon the classification of separate claims as a single claim occurred in Carolina Cas. Ins. Co. v. Omeros Corp., No. C12-287RAJ (W.D.Wash. Mar. 11, 2013). In the case, an employee filed an anti-retaliation claim against his former employer. The company sought coverage from its insurer and properly reported the claim during the policy period. After the policy period, the employee amended his complaint to include a qui tam action.

The insurer argued that no coverage was available for the second action because it was reported after the policy expired. The company countered that the claim related back to the initial claim and, as a “single claim,” the two claims were timely reported during the policy period when the first claim was made.

Asserting an alternative argument, the insurer suggested that if the claims were found to be a single claim then they should be treated as a single claim across all the policy’s provisions and exclusions. The insurer maintained that because the policy excluded the initial anti-retaliation claim, the qui tam action, as part of the single claim, must also be excluded.

The court found that the two claims stemmed from interrelated wrongful acts and were effectively a single claim that was timely reported with the first claim during the policy period. Addressing the insurer’s alternative argument, the court held that “although wrongful related acts are deemed a single claim for purposes of determining if the claim was made within the policy period, they are not a single claim for purposes of applying policy exclusions that are unrelated to the claims-made nature of the policy.”

The court reasoned that the single claim label is a product of specific policy language applying only to the notice provision and allowing for a clear mechanism for determining if the claim is made within the policy period. But the rest of the policy does not necessarily accommodate this characterization. Despite the insurer’s creative argument, the exclusion of the anti-retaliation claim did not mandate the exclusion of the qui tam claim.

Whether a claim can be characterized as a single claim is an important and difficult issue. Insurers and insureds often use the legal fiction of the “single claim” to avoid coverage, manipulate coverage dates, implicate policy limits or retentions and affect other policy provisions. Insurers and insureds should be mindful of single claim clauses and the impact such a characterization can have on insurance coverage and obligations.