One Lawsuit Equals One Claim, Regardless of the Number of Causes of Action
The United States District Court for the Eastern District of Pennsylvania has held that a lawyer’s professional liability policy’s per-claim limit of liability, rather than its aggregate limit of liability, applied to an underlying lawsuit because the suit’s multiple causes of action were all related and therefore constituted a single claim under the policy. Westport Ins. Corp. v. Mylonas, 2016 WL 4493192 (E.D. Pa. Aug. 25, 2016).
The claimant retained the insured, a lawyer, to advise the claimant on forming a corporation. The claimant alleged that the insured negligently transferred and endorsed stock, which froze the claimant out of the corporation and converted the corporation’s bank account and assets. The claimant sued the insured for legal malpractice and asserted three causes of action against the insured in his complaint: (1) negligence and/or gross negligence; (2) breach of fiduciary duties of loyalty, honesty, and candor, undue influence, and conflict of interest; and (3) breach of contract. The insured tendered the complaint to the insurer under his professional liability policy and the insurer provided a defense. The jury found in favor of the claimant and awarded damages in the amount of $525,000. The policy, however, contained a per-claim limit of liability of $500,000 and an aggregate limit of liability of $1 million. The policy defined “claim” to mean “a demand made upon any insured for loss, … including … service of suit … against any insured.” The policy also provided that two or more claims arising out of a single wrongful act or a series of related or continuing wrongful acts constituted a single claim. The insurer took the position that the per-claim limit of liability applied, while the insured argued that there were multiple claims asserted such that the entire judgment was covered by the $1 million aggregate limit of liability.
In the coverage litigation that followed, the court concluded that the three causes of action in the claimant’s complaint were all related, and that the policy’s per-claim limit of liability applied. The court noted that the underlying suit involved “only one plaintiff suing one defendant, which resulted in only one recovery.” The court explained that the number of counts in a legal malpractice suit is not dispositive of the number of claims under an insurance policy. Rather, the various errors committed by an insured are related if they are committed by the same attorney, as to the same client, arising out of the same transaction, and resulting in the same injury. The court found that, although the legal services performed by the insured contained several components, they were all related to the representation of the claimant with respect to the corporation. The claimant’s legal malpractice claim stemmed from those legal services. Therefore, the causes of action in the suit were related and continuous, and constituted a single claim under the insurance policy triggering only the per-claim limit of liability of $500,000.