The Eighth Circuit Court of Appeals, applying Minnesota law, recently held multiple wrongful acts to several plaintiffs were subject to single claim limit of a professional liability policy. In Kilcher v. Continental Casualty Company, — F.3d –, 13-1986, 2014 WL 1317296 (8th Cir. Apr. 3, 2014), Continental Casualty appealed the trial court’s grant of summary judgment to Plaintiffs, members of the Shakopee Mdewakanton Sioux Community (“Community”). Members of the Community become eligible to share in the gaming profits upon reaching the age of majority. The Plaintiffs invested gaming profits with Helen Dale, who, over the next several years, advised them to purchase unnecessary life insurance policies with low yields, high fees, and high surrender costs. Dale also recommended disability insurance products the Community provided to them free of charge. After an independent advisor advised Plaintiffs that Dale oversold and churned their investments for her benefit, they brought suit.
The Plaintiffs settled with Dale’s insurer, which agreed to pay its single claim limit of $1 million, and agreed to allow Plaintiffs’ to file a declaratory judgment action to decide whether Dale’s acts involved the same interrelated “wrongful acts” as defined by the policy. In the event the court determined Plaintiffs they submitted more than one “claim,” Continental agreed to pay an additional $1 million, its aggregate policy limit.
The policy provided “[m]ore than one Claim [for money damages] involving the same Wrongful Act or Interrelated Wrongful Acts shall be considered one Claim[.]” The Policy defined Interrelated Wrongful Acts as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction or event.” A Wrongful Act, in turn, means “any negligent act, error or omission of … the Insureds in rendering or failing to render Professional Services.”
U.S. District Court Judge Ann Montgomery held the policy language was not ambiguous and the Plaintiffs had submitted more than one claim against Dale. The court reasoned Plaintiffs have parallel claims, but those claims do not necessarily connect with each other. The court found the individualized nature of Dale’s services and recommendations to each Plaintiff, and the different resulting claims, were sufficiently distinct to be more than one claim. Continental appealed.
The Eighth Circuit reversed, holding Plaintiffs’ claims were sufficiently interrelated to be one claim. Plaintiffs’ decision to join their claims in a single action further compelled the conclusion that their legal claims share sufficient connections to deem them one “claim” under the policy. The court reasoned it is not the number of allegedly wrongful acts, but whether the “method or modus operandi” was sufficiently interrelated to each wrongful act. Each wrongful act followed the same method for the same purpose: to oversell products to Plaintiffs and retain high commissions.
This case is significant for its interpretation of related claims under professional liability policies. The Court’s broad interpretation of a single “claim” provides a strong basis to limit exposure to the single claim limit in “related” claim actions. We will continue to monitor this and other decisions impacting insurance coverage. If you have any questions about this, or any other matter, please contact us.