Coverage Barred Because Causally Related Claims Deemed a Single Claim Under Earlier Policy

Applying California law, a federal district court has held that an original and an amended complaint arising out of a series of related wrongful acts were deemed a single claim under an earlier policy, such that coverage was barred under a policy issued later.  General Ins. Co. v. INB Ins. Servs. Corp., 2019 WL 1318252 (N.D. Cal. Mar. 22, 2019).

The insured, an insurance broker firm, procured property insurance coverage for its client.  In providing this service, the insured completed an online quote system and affirmed that the client’s property had sprinklers.  The property insurance issued to the client thus included an exclusion for loss or damage caused by or resulting from fire if the sprinkler system was not maintained.  The client suffered loss from a fire in 2016 and sued the insured after its property insurer denied coverage based on the sprinkler exclusion.  The insured tendered the matter to its E&O carrier, which accepted the insured’s tender of defense under a policy it issued to the insured for the 2016-2017 policy period.

The insured’s client then suffered another fire in 2017, but its property insurer again denied coverage due to the sprinkler exclusion.  The client thus amended its complaint against the insured to include allegations regarding the insured’s failure to request the removal of the sprinkler exclusion after the first fire.  The insured sought coverage for the amended complaint under its 2017-2018 policy.  Both of the policies provided, however, that “[t]wo or more covered claims arising out of a single wrongful act or arising out of any series of related wrongful acts will be considered a single claim . . . .  If the first of such claims is made prior to the effective date of this policy, no coverage shall apply to any subsequent claims made during this policy period which are based upon the same or related wrongful acts.”  The insurer thus asserted that no coverage was available under the later policy because the amended complaint was based on the same or related wrongful acts giving rise to the complaint filed during the 2016-2017 policy.  The insurer filed a declaratory judgment action and moved for summary judgment.

The court granted the insurer’s motion, holding that the policies’ related claims provision required that the claims be treated as a single claim under the 2016-2017 policy because they were causally related.  The court explained that the insured allegedly was negligent as to claims based on the first fire because its representation regarding the client’s sprinkler system led to the exclusion in the client’s first policy, and as to claims based on the second fire because it failed to remove the exclusion.  The insured argued that there could be no causal relationship because the alleged negligence occurred years apart and involved different staff.  The court rejected this argument, holding that but for the insured’s negligence in the application, the exclusion would not have been part of the policy and there would have been nothing for the insured to amend after the first fire.  The court concluded that the claims were causally related because they arose from a “series of related wrongful acts,” even though the client sought separate damages for each fire.  Therefore, the court held that coverage was unavailable under the 2017-2018 policy.

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