The United States District Court for the Central District of California has held that seven pending civil lawsuits, all of which alleged that the insured had participated in a fraudulent investment scheme, were logically and causally related such that they constituted a single claim subject to a single per-claim limit of liability. Liberty Ins. Underwriters, Inc. v. Davies Lemmis Raphaely Law Corp., No. 2:15-CV-00859 (C.D. Cal. Feb. 23, 2016).
The insured, a transactional real estate firm, purchased three successive professional liability policies for the policy periods between August 1, 2010 and August 1, 2013. The policies each stated that “[c]laims alleging, based upon, or arising out of or attributable to the same or related wrongful acts shall be treated as a single claim.” Between 2011 and 2013, seven lawsuits were filed against the insured relating to 23 transactions that occurred between December 2003 and November 2009. Each of the seven underlying actions alleged that the insured made false representations to the investor that the seller would pay all commissions relating to the transaction, when in reality the purchase price of the property was marked up to include commission payments. Each of the plaintiffs alleged that they relied upon these misrepresentations in choosing to invest, and that the insured had knowledge of the alleged misrepresentations at the time it was made.
The insured contended that the underlying actions were unrelated, and that the per-claim limit applied to each of the individual underlying actions. The insurer filed a declaratory judgment action asserting that all of the underlying actions alleged or arose out of the same or related wrongful acts and were subject to a single per-claim limit under a single policy.
The court ruled in favor of the insurer, holding that the seven underlying actions were sufficiently related such that they properly were treated as a single claim, subject to a single per-claim limit of liability under a single policy. In so holding, the court noted that, under California law, the term “related” is interpreted to include both logical and causal connections. The court further explained that California courts have concluded that multiple claims are related when they involve wrongful acts that are in service of a “single plan” or the result of a consistent business practice or policy. Accordingly, the court concluded that the underlying seven actions were related, even though they were brought by different plaintiffs, because they all arose from the same single course of conduct: a single party’s unified policy of making alleged affirmative misrepresentations to investors in order to induce them to invest in similar commercial real estate acquisitions. The court rejected the insured’s argument that a reasonable insured would not have expected the underlying actions to be treated as a single claim under the policy. The court explained that “the relationship between the claims was not so ‘attenuated or unusual’ that it should come as a shock to [the insureds] to discover that they [were] related.”