In an unpublished decision, the Ninth Circuit affirmed the Central District of California’s interpretation of the related acts provision in a professional liability policy, holding that related acts reported in a prior policy period were not excluded from coverage in a subsequent period because that policy defined “Policy Period” to mean only the current policy period, not any policy period. Attorneys Insurance Mutual Risk Retention Group, Inc. v. Liberty Surplus Ins. Co., No. 17-55597 (9th Cir., Feb. 15, 2019). As a result, the related acts clause, which incorporated this term, could not be read to aggregate claims first made under prior policy periods with those made in the current period. The case reinforces the importance of reviewing the particular language of an insurance policy rather than relying on case law interpreting similar language. Small differences in policy language can lead to significant changes in the available coverage.
[The factual summary is adapted from the unpublished district court decision, Attorneys Insurance Mutual Risk Retention Group, Inc. v. Liberty Surplus Ins. Co., 2017 WL 6048221 (C.D. Cal., March 28, 2017).]
Attorneys Insurance Mutual Risk Retention Group, Inc. (“AIMRRG”) sued Liberty Surplus Insurance Corporation (“Liberty”) for contribution of defense costs arising from a pair of related malpractice suits brought against an insured attorney. The attorney was an insured under 2009-10 and 2010-11 professional liability policies issued by Liberty, as well as under professional liability policies issued by AIMRRG. 2017 WL 6048211at *3. The Liberty policies are claims made and reported policies with policy periods beginning on July 31 each year. Liberty was the insurer for the attorney’s former law firm; AIMRRG insured his new firm. Id. at *1, 3.
The first suit (the “probate action”) was filed in February 2010 and named the attorney as respondent. Id. at *3. The attorney tendered a claim for defense and indemnity to AIMRRG. AIMRRG agreed to defend the suit under a reservation of rights. Id.
Approximately seven months later, after the renewal date on the Liberty policies, a second suit (the “civil action”) was filed against the attorney, his current firm, and his former firm, among others. Id. The firms and the attorney tendered the second action both Liberty and AIMRRG. AIMRRG agreed to defend the attorney pursuant to a reservation of rights. Id. Liberty accepted the defense for the attorney’s former firm, but denied coverage for the attorney, asserting that the civil action was related to the probate action, that the probate action was a claim first made in a prior policy period (2009-10), and that as a result, no coverage was available the then-applicable policy (2010-11). Id. at *4.
The parties agreed that the probate action and the civil action each constituted a claim under the Liberty and AIMRRG policies. The parties further stipulated that the probate action and the civil action were “based upon, ar[o]se out of or [were] attributable to the same or related acts, errors or omissions.” Id.
Given this stipulation, whether Liberty’s 2010-11 provided coverage turned on the interpretation of the “related acts” clause in that Liberty policy and in particular whether the claim could be considered “first made” during an earlier policy period. If the claim could be aggregated with the previously-noticed probate action and thus considered “first made” during the earlier period, no coverage would be available because Liberty did not receive notice of the claim during the earlier period, as required by the terms of the claims-made-and-reported policy. On the other hand, if the claim could be considered first made during the 2010-2011 period, coverage would exist, and Liberty would be obligated to contribute to the attorney’s defense.
The clause at issue provided relevant part:
“Claims alleging, based upon, arising out of or attributable to the same or related acts, errors, or omissions shall be treated as a single Claim regardless of whether made against one or more than one Insured. All such Claims, whenever made, shall be considered first made during the Policy Period or any Extended Reporting Period in which the earliest Claim arising out of such acts, errors or omissions was first made, and all such Claims shall be subject to the same Limits of Liability.”
Liberty argued that the second sentence of that provision limited coverage such that multiple claims arising from the same acts, errors or omissions were to be treated as a single claim first made during the policy period when the claim was first made. According to Liberty, policy period could be the current period or a prior period.
AIMRRG disagreed. AIMRRG observed first that with respect to the 2010-11 Liberty Policy, “Policy Period” was defined as “the period from Inception Date of this Policy to the Policy Expiration Date as set forth in the Declarations page,” i.e., July 31, 2010 to July 31, 2011. From this, it argued that adopting Liberty’s reading of the policy required ignoring this definition entirely. It asserted that, contrary to Liberty’s position, the clause reasonably meant “all Claims, whenever made, shall be considered first made during the July 31, 2010 to July 31, 2011 time period.” Id.at *8.
The district court held in favor of AIMRRG. It concluded that Liberty’s proposed interpretation required it to give different meanings to the same term (“Policy Period”) in different parts of the policy, something it could not do. Id.at *10. It also further noted that any ambiguity in the scope of coverage must be resolved against the insurer, in favor of coverage. Id.
The Ninth Circuit affirmed the district court’s decision and reasoning. Attorneys Insurance Mutual Risk Retention Group, Inc. v. Liberty Surplus Ins. Co., No. 17-55597 at 2 (9th Cir., Feb. 15, 2019). It concluded that the definition of “Policy Period” could not be reconciled with Liberty’s reading of the policy, and reiterated that any ambiguity in the policy language must be resolved against the insurer. Id. at 3.
This case serves as a reminder to policyholders to carefully review the particular terms of their policies when analyzing the scope of coverage. Indeed, Liberty’s proposed interpretation of the policy was consistent with the scope and purpose of related claims provisions contained in other, very similar policies. For example, in another case cited by the district court the related acts provision at issue stated: “All ‘Claims’ arising out of the same ‘Wrongful Act’ or ‘Related Wrongful Acts’, whenever made, shall be considered made when the earliest such ‘Claim’ was first made or deemed to be first made.” See Attorneys Ins. Mut. Risk. Retention Grp., 2017 WL 6048221 at *9-10 (citing ProCentury Ins. Co. v. Ezor, Case No. CV-10-7293 PA (FFMx) (C.D. Cal.)) (internal quotations omitted). That clause did not incorporate the definition of “Policy Period” into its related acts provision; according to the district court, that language was “broader [and] more generic” than the language in the Liberty policy. Id. Had the Liberty policy used the broader language, it is likely that no coverage would have been available.
But Liberty’s policy did not use the broader language, and both the District Court and Ninth Circuit concluded that the interpretation Liberty urged could not be reconciled with the policy’s use of the defined term “Policy Period” in the related acts clause. The district court and Ninth Circuit’s close analysis of the policy language led them to find in favor of coverage.
Policyholders should remain wary of assuming that coverage is available (or not) based only on high-level considerations that do not analyze the specific policy provisions at issue.