Southern District of New York Holds Multiple Lawsuits Alleging Different Instances of Fraud Constitute Single Related Claim

A New York federal court, applying New York law, has held that a series of lawsuits alleging multiple different instances of fraud constituted a single, related “claim” subject to a single limit of liability under a law firm’s professional liability policy.  Lonstein Law Office, P.C. v. Evanston Ins. Co., 2022 WL 311391 (S.D.N.Y. Feb. 2, 2022).

The insured law firm was retained by a TV service company to identify, investigate, and bring claims and/or civil actions against businesses that illegally acquired the company’s services by purchasing TV service packages meant for residential use, rather than commercial use.  The businesses later sued the law firm and the TV service company, alleging that the two entities had conspired to sell residential TV packages to commercial entities with the intent of later bringing claims against those same entities for improperly using those same TV packages.  In total, there were four groups of lawsuits against the law firm and the TV service company.

The insured provided notice of the suits to its professional liability insurer.  The insurer advanced defense costs incurred in connection with the suits, but declined to continue advancing such costs once they had exhausted the $1 million per Claim limit of liability on the ground that the different suits were “related” and therefore constituted a single claim.  The law firm filed a declaratory judgment action in response, arguing that each lawsuit constituted a separate claim and that the insurer was required to continue paying defense costs until the policy’s aggregate limit of liability was reached.

In the coverage action, the court granted the insurer’s motion to dismiss, holding that the lawsuits were “related” and constituted a single claim.  In so concluding, the court noted that “Related Claims” were defined as claims “arising out of . . . a series of related Wrongful Acts,” which the court found to be unambiguous.  The court concluded that the underlying actions constituted “Related Claims” because they alleged related “Wrongful Acts.”  Although the underlying actions were brought by different claimants, for different individual instances of fraud, and under slightly different causes of action and/or statutes, the court noted that “each of the Actions allege[d] a single overarching scheme by [the law firm] . . . over an overlapping period from 2010 to 2015, to defraud small-business owners using the same means through the identical or nearly identical misrepresentations,” and that “[t]he Actions are based on a single retention of [the firm] by the same single client pursuant to which [the firm] engaged in a single prearranged course of conduct involving the same types of victims through the same misrepresentations and illegal conduct.”

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