Take it to the limit, one more time

Posted on February 2, 2010 by Jody Nathan

In Professional Solutions Insurance Company v. Mohrlang, the issue was whether one limit or two applied to claims against the same attorney.  If the claims were “related” one limit applied, if not, two limits applied.  Professional Solutions Insurance Company (PSIC) provided single coverage liability of $500,000, up to an annual aggregate limit of $1 million, to one of its insureds. When appellee Bruce Mohrlang submitted a negligence claim against the insured, and appellee Harry Mohrlang submitted another alleging breach of fiduciary duties, PSIC conceded liability of at least $500,000 on each but argued that under the policy definitions, the claims were related and thus subject to the $500,000 single coverage limit. The parties eventually settled, with PSIC agreeing to pay the single coverage limit of $500,000 and pursue a declaratory judgment action to determine any further liability. The sole question was whether the two claims were related to one another so as to cap PSIC’s liability at $500,000, or whether the two claims were unrelated and thus separately covered under PSIC’s annual aggregate limit of $1 million. On a stipulated record, the district court granted summary judgment in favor of the Mohrlangs, and the Tenth Circuit affirmed.

The critical inquiry was whether the claims were “temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision.”  Bruce Mohrlang’s claim was based on the insured’s negligence in structuring a corporate stock sale, while Harry Mohrlang alleged breach of fiduciary duties based on the insured’s misrepresentations that caused him to release a deed of trust he held against the corporate entity.

First, the court found that Harry Mohrlang’s claim was not temporally connected to the sale because the insured caused Harry Mohrlang to release his deed of trust some three weeks after the sale closed. Next, the court found no logical connection between the claim and the sale because neither the deed of trust nor the promissory note it secured was incorporated into the final sale agreement and both should have remained unaffected by the sale. Finally, the court determined that no causal connection existed between Harry Mohrlang’s claim and the sale because the promissory note remained a valid, independent obligation even after the sale, and the deed of trust was not released until the insured’s unforeseeable acts severed any causal link that could have existed. Hence, the court ruled that the two claims were unrelated and PSIC was liable under the policy’s $1 million annual aggregate limit. 
The Tenth Circuit affirmed for the reasons stated by the trial court.

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Notice to one is notice to all; professional liability claims made policy

Posted on November 12, 2009 by Jody Nathan

In Berry & Murphy v. Carolina Cas. Co., the issue was whether notice to a former law partner of a claim was notice to the other law partner.  The court held it was.  Thus, because the former partner had notice of the claim before the policy was issued, the claim was not covered as to the other law partner.

Facts

The Burkhardts hired Murphy to handle a lawsuit.  Murphy was a partner at Berry & Murphy.  A year after he filed suit for the Burkhardts, he left the firm taking the case with him.  The case was dismissed for failure to prosecute and was later reinstated with new counsel.  A year after the partner left with the case, Burkhardts new counsel put Murphy on notice of a potential malpractice claim for the way he handled the lawsuit.  Murphy put his carrier on notice of the potential claim – which happened to also be Carolina Casualty.  No notice was given to Berry.  When Berry was sued along with Murphy, he tendered the claim to Carolina Casualty, which denied coverage, claiming that the alleged malpractice claim was first made against an insured (i.e., Murphy) prior to the inception of the insurance policy, thereby falling outside the claims-made coverage of the policy.

Discussion

The policy was a claims made policy, rather than an occurrence policy.  This means it covered claims only if first made during the policy period.  “A Claim shall be deemed to have been first made at the time notice of the Claim is first received by any Insured.”  The court found that Insured was defined to include an individual after he left the law firm if the claim involved that individual’s acts or omissions that occurred while at the law firm.   Thus, Murphy was an insured, and notice to him of the claim before the policy period meant that Berry was not covered under the policy.  

There is a spirited dissent, which states that since Murphy was not Berry’s agent when he had notice of the claim, notice to Murphy was NOT notice to Berry.  

The odd thing about this case is that Carolina Casualty did have notice of the claim, and had it before Berry did; and issued the policy anyway.  But, the policy as a claims made policy, was not in effect when Murphy gave Carolina Casualty notice.  Therefore, it was not a claim made within the policy period and was not covered.  An occurrence policy also requires that the event happen during the policy period.  If Carolina Casualty had insured Berry the entire time, I am not sure it could have escaped liability, as the notice from Murphy could have been notice under the Murphy policy, too. 
 

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