Opinion ID: 1113495
Heading Depth: 2
Heading Rank: 2

Heading: Related acts, errors, and omissions

Text: In light of its conclusion that there were two claims under the policy, the dispositive issue before the Court of Appeal then became whether they were related under the policy. Perhaps for that reason, most of the Court of Appeal's opinion dealt with the meaning of related as a policy term. Similarly, the parties' briefs in this court also emphasize that issue. We therefore address that question as well. (3a) Even if we were to view each of the attorney's two omissions as giving rise to a separate claim by Bay Cities, the per-claim limitation nevertheless would apply. The policy states, Two or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim. (Italics added.) The Court of Appeal deemed the term related to be ambiguous, construed it to mean only errors that are causally related to one another, and concluded this provision does not apply because neither of the attorney's two errors caused the other error. As we shall explain, the Court of Appeal's analysis and conclusion are flawed in several respects. The Court of Appeal assumed an ambiguity merely because, ... no definition was provided [in the policy] for the term `related,' and reasoned that The lack of definition [of `related'] allows for ambiguity with respect to the `Limits of Liability' clause. The absence from the policy of a definition of the term related does not by itself render the term ambiguous. We recently rejected the view that the lack of a policy definition necessarily creates ambiguity. ( Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265 [10 Cal. Rptr.2d 538, 833 P.2d 545]; see also Castro v. Fireman's Fund American Life Ins. Co. (1988) 206 Cal. App.3d 1114, 1120 [253 Cal. Rptr. 833].) Indeed, any rule that rigidly presumed ambiguity from the absence of a definition would be illogical and unworkable. To avoid the ambiguity perceived by the Court of Appeal, an insurer would have to define every word in its policy, the defining words would themselves then have to be defined, their defining words would have to be defined, and the process would continue to replicate itself until the result became so cumbersome as to create impenetrable ambiguity. The present case illustrates the problem. The insurer contends that related means a logical connection, rather than only a causal connection as held by the Court of Appeal. Under the Court of Appeal's view, the insurer's position could prevail only if it had defined or somehow qualified related, that is, by using the words logically related, rather than the unqualified term related. Of course, the addition of the word logically would not remove the ambiguity unless the word logically were itself defined in the policy. Every definition would require a further definition. We reject such a result. Of course, in an appropriate case, the absence of a policy definition, though perhaps not dispositive, might weigh, even strongly, in favor of finding an ambiguity, for example, when the term in question has no generally accepted meaning outside the context of the policy itself. The absence from a policy of a definition of a word or phrase does not by itself, however, necessarily create an ambiguity. The proper and settled approach is more refined. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. ( Id., § 1639.) The `clear and explicit' meaning of these provisions, interpreted in their `ordinary and popular sense,' unless `used by the parties in a technical sense or a special meaning is given to them by usage' ( id., § 1644) controls judicial interpretation. ( Id., § 1638.) ( AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822 [274 Cal. Rptr. 820, 799 P.2d 1253]; Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807 [180 Cal. Rptr. 628, 640 P.2d 764].) This reliance on common understanding of language is bedrock. Equally important are the requirements of reasonableness and context. (4) First, An insurance policy provision is ambiguous when it is capable of two or more constructions both of which are reasonable.  ( Suarez v. Life Ins. Co. of North America (1988) 206 Cal. App.3d 1396, 1402 [254 Cal. Rptr. 377], italics added.) Courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists. ( Reserve Insurance Co. v. Pisciotta, supra, 30 Cal.3d 800, 807.) (5) Second, [ L ] anguage in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.  ( Bank of the West v. Superior Court, supra, 2 Cal.4th 1254, 1265, original italics, quoting Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 916, fn. 7 [226 Cal. Rptr. 558, 718 P.2d 920].) There cannot be an ambiguity per se, i.e. an ambiguity unrelated to an application. ( California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1986) 177 Cal. App.3d 855, 859, fn. 1 [223 Cal. Rptr. 246].) (3b) Applying the foregoing principles in this case, the first question is whether the term related is ambiguous as to the specific issue in this case, that is, the question of whether the per-claim limitation applies. Related is a commonly used word with a broad meaning that encompasses a myriad of relationships. For example, a leading legal dictionary defines related to mean standing in relation; connected; allied; akin. (Black's Law Dict. (6th ed. 1990) p. 1288, col. 1.) Similarly, a legal thesaurus lists many synonyms for related. (Burton, Legal Thesaurus (1980) p. 925, col. 2.) In a coverage case (not involving a claim limitation), the court observed that related can denote a causal connection as well as the notion of similarity. ( O'Doan v. Insurance Co. of North America (1966) 243 Cal. App.2d 71, 78 [52 Cal. Rptr. 184, 33 A.L.R.3d 684].) Although related is broad enough to encompass both logical as well as causal relationships, the Court of Appeal incorrectly found an inherent ambiguity. Multiple or broad meanings do not necessarily create ambiguity. For example, assume that an insurance policy excluded coverage for any claim arising from the operation of a motor vehicle. Obviously, a motor vehicle could be either an automobile or a truck, but that does not mean it must be only one or the other, rather than both. Likewise here, the fact that related can encompass a wide variety of relationships does not necessarily render the word ambiguous. To the contrary, a word with a broad meaning or multiple meanings may be used for that very reason  its breadth  to achieve a broad purpose. We need not, however, belabor the question of whether related is ambiguous in the abstract or in some hypothetical circumstance. That is not the question. The proper question is whether the word is ambiguous in the context of this policy and the circumstances of this case. ( Bank of the West v. Superior Court, supra, 2 Cal.4th 1254, 1265.) The provision will shift between clarity and ambiguity with changes in the event at hand. ( O'Doan v. Insurance Co. of North America, supra, 243 Cal. App.2d 71, 77.) The linchpin of Bay Cities' argument is that related is ambiguous because it could have either a broad meaning, for example, meaning all services rendered by the attorney in connection with this particular matter, or, alternatively, a narrower meaning, that is, only those acts by the attorney that are causally related. The precise and narrow question is thus whether related in an attorney's professional liability insurance policy is ambiguous because the word is reasonably susceptible to both of these meanings. We find no ambiguity because the construction of related advocated by Bay Cities is not reasonable. If an attorney's error causes one or more other errors, the result is a chain of causation that leads to an injury, that is, a single claim. One of the decisions on which Bay Cities relies makes this very point. [E]ven though there have been multiple causative acts, there will be a single `occurrence' if the acts are causally related to each other as well as to the final result. ( Ariz Prop. & Cas. Ins. Guar. Fund v. Helme (1987) 153 Ariz. 129, 136 [735 P.2d 451, 458, 64 A.L.R.4th 651], italics omitted.) A single claim is, of course, subject to the per-claim limitation of the policy. Similarly, if the chain of causally related events somehow led to two claims (a result difficult to imagine), they would be treated as a single claim under Bay Cities' view of related, and would be subject to the per-claim limitation. Thus, if the related-acts limitation were applied only to causally related acts, the related-acts limitation would be duplicative of the per-claim limitation. Moreover, the causally related test ignores the nature of the injury. For example, assume an attorney makes two separate omissions during a trial. The attorney fails to object to the admission of an otherwise inadmissible document submitted by the opponent and also fails to produce a key witness on behalf of the client. Each error independently leads to an adverse judgment against the client. Under Bay Cities' analysis, however, there are two claims because neither error caused the other error. If, however, the two claims were causally related, there would be only one claim under the policy. We are not persuaded. Regardless of whether the two errors are independent or causally related, the injury to the client is the same  the adverse judgment. Moreover, when two or more errors lead to the same injury, they are  for that very reason  related under any fair and reasonable meaning of the word. The only attorney malpractice case on which the Court of Appeal relied is largely inapposite and unpersuasive in any event. Estate of Logan v. North-western Nat. Cas. (1988) 144 Wis.2d 318 [424 N.W.2d 179] involved no issue as to the amount of coverage or a per claim limitation. The underlying malpractice suit against the attorney arose out of his failure to file inheritance and estate tax returns for a decedent's estate and negligence in connection with other matters for the estate. The court held that his professional liability insurance policy provided no coverage for failure to file the inheritance and estate tax returns because he was aware when he applied for the policy that he had breached his professional duty as to the tax returns. ( Id., at p. 326 [424 N.W.2d at p. 181].) After having failed to file the tax returns, the attorney misplaced them, and he contended this error was a separate act for which he should be covered. The court squarely rejected this contention, holding that the attorney's ... initial failure to file and his subsequent misplacement of the tax returns are `a series of related acts' which must be treated as a single claim. ( Id., at p. 344 [424 N.W.2d at p. 188].) The court noted that, if the attorney had not failed to file the tax returns, he would not have been in a position later to misplace them. The court did not, however, suggest that one error had caused the other. In a brief paragraph, the Logan court, supra, 144 Wis.2d 318 [424 N.W.2d 179], also concluded that other negligent acts in connection with the estate were not related to the failure to file the tax returns. The court's reasoning is not entirely clear: [T]he claim arising out of [the attorney's] negligence in failing to file timely the tax returns and the claims arising out of [his] alleged negligence in failing to file timely the fiduciary returns, to process the auction check, to close the estate, or to manage the cash assets of the estate are not a series of related acts which must be treated as one claim. The duties encompassed in the above claims would have arisen notwithstanding [the attorney's] failure to file the state tax returns in a timely matter. ( Id., at p. 345 [424 N.W.2d at p. 189].) Based on this passage, Bay Cities contends the Logan court adopted the causally related test advocated by Bay Cities for applying the per-claim limitation. This reads far too much into the decision. It had nothing to do with a per-claim limitation, and the court never explicitly referred to or discussed a causally related test. At most, the decision might be read to suggest that each of the acts of alleged negligence was a breach of a separate duty. We need not decide whether we would agree with the Wisconsin court on the facts of that case, i.e., an estate taxation matter. Moreover, each of the attorney's errors apparently caused separate, identifiable monetary damage to the estate. That fact alone distinguishes Logan from the present case, in which the attorney's two errors related to the same debt he was retained to collect. Finally, to the extent the decision might be read broadly (probably more broadly than the court intended) to suggest that every breach of duty in connection with a particular matter necessarily gives rise to a separate insurance claim, we simply disagree. (See discussion at pp. 859-866, ante. ) In short, Logan provides scant, if any, support for Bay Cities. The other decision on which the Court of Appeal relied is more apposite but nevertheless unpersuasive. In Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, supra, 735 P.2d 451 ( Helme ), a state guaranty fund sought to limit its liability for claims against two physicians insured by an insolvent carrier. (For purposes of the coverage action, the fund was subject to the same rights and defenses as the insurer would have been under the policy.) Over a period of time, the two doctors had treated a patient who deteriorated and died. His survivors sued the doctors, alleging that they had repeatedly failed to examine the patient's X-rays or react to his worsening condition. The fund contended the doctors' alleged negligence constituted a single occurrence under their professional liability policy. (The policy was an occurrence policy, rather than a claims-made policy as in the present case.) The policy defined occurrence as being any incident, act or omission, or series of related incidents, acts or omissions resulting in injury.... ( Id., at p. 456, italics added, original italics deleted.) The question was whether the various failures of the doctors constituted a series of related incidents, acts or omissions and thus only one occurrence. The court first acknowledged that related can mean either a logical or a causal connection. The court concluded, however, that logic is a subjective notion, that causation is more objective, and therefore that the policy term related should be limited to occurrences with a causal connection. ( Id., at pp. 456-457.) For the reasons we have already discussed, we respectfully disagree with the Helme court, supra, 735 P.2d 451. Nor are we persuaded a causal connection is necessarily more precise than a logical connection, especially in view of the multiple and imprecise meanings of causation. ( Mitchell v. Gonzales (1991) 54 Cal.3d 1041, 1050-1054 [1 Cal. Rptr.2d 913, 819 P.2d 872] [noting the widespread confusion over causation].) More important, our function is not to redraft a policy term merely so that it might be more precise and easier for us to apply. To support its contention that related must mean causally related, Bay Cities notes several cases for the proposition that the number of claims is generally determined by the number of causes rather than the number of injuries. This point seems more properly directed to the issue of whether there was one claim or two in the first instance, and we have discussed some of those decisions in connection with that point, explaining why they are either inapposite or unpersuasive. (See discussion at pp. 862-866, ante. ) As important, however, those cases did not present any issue as to whether claims or occurrences were related. Thus, even in those cases which might be read as holding that the number of causes determines the number of claims or occurrences, those courts did not decide, or even discuss, whether the claims could be related under language like that in the policy before us. ( Eureka Federal S & L v. Amer. Cas. Co. of Reading (9th Cir.1989) 873 F.2d 229; Okada v. MGIC Indem. Corp. (9th Cir.1986) 823 F.2d 276; Pioneer Nat. Title Ins. Co. v. Andrews (5th Cir.1981) 652 F.2d 439; North River Ins. Co. v. Huff (D.Kan. 1985) 628 F. Supp. 1129; St. Paul Fire & Marine Ins. Co. v. Hawaiian Ins. & Guar. Co. (1981) 2 Hawaii App. 595 [637 P.2d 1146]; Hyer v. Inter-Insurance Exchange, etc. (1926) 77 Cal. App. 343 [246 P. 1055].) Several of these decisions are also distinguishable for reasons other than the absence of any discussion of the meaning of related. For example, three of the cases arose out of errors and omissions of the officers and directors of savings and loan associations that resulted in the associations' insolvency, and the question was whether various acts and omissions leading to the insolvency constituted multiple losses or, alternatively, whether the insolvency itself was the sole loss. The facts of those cases and the nature of the injuries were not similar to the facts of the present case. ( Eureka Federal S & L v. Amer. Cas. Co. of Reading, supra, 873 F.2d 229; Okada v. MGIC Indem. Corp., supra, 823 F.2d 276; North River Ins. Co. v. Huff, supra, 628 F. Supp. 1129.) Moreover, the holdings of those cases are not as broad as Bay Cities suggests. As one court explained, We thus hold that the mere existence of an aggressive loan policy is insufficient as a matter of law to transform disparate acts and omissions by five directors in connection with issuance of loans to over 200 unrelated borrowers into a single loss. We do not foreclose the possibility, however, that loans to separate borrowers may be aggregated as a single loss in an appropriate fact situation. ( Eureka Federal S & L v. Amer. Cas. Co. of Reading, supra, 873 F.2d 229, 235.) Unlike Eureka, the present case does not have five defendants committing multiple errors in unrelated loan transactions that injured two hundred clients. We have one defendant, one client, and one injury. Far more apposite and persuasive is the decision in Gregory v. Home Ins. Co. (7th Cir.1989) 876 F.2d 602 ( Gregory ), in which an attorney's liability policy contained a provision like that in the present case: Two or more claims arising out of a single act, error, or omission or personal injury or a series of related acts, errors, omissions or personal injuries shall be treated as a single claim. ( Id., at p. 604, italics omitted.) In connection with the marketing of a videotape investment program, the attorney drafted a production service agreement and promissory note for his client, the broker of the videotapes. The attorney also drafted a tax and security opinion letter that his client distributed to prospective buyers of the videotapes. The letter stated that the tapes were not securities that needed to be registered with the Securities and Exchange Commission and that buyers of the tapes would obtain certain tax advantages. The tax and securities advice proved to be incorrect and resulted in actions against the attorney by the investors and by his client. The Gregory court, supra, 876 F.2d 602, acknowledged and agreed with the observation in Helme, supra, 735 P.2d 451, that related can mean both causal and logical connections. However, we don't think the rule requiring insurance policies to be construed against the party who chose the language requires such a drastic restriction of the natural scope of the definition of the word `related' [to mean only a causal connection].... At some point, of course, a logical connection may be too tenuous reasonably to be called a relationship, and the rule of restrictive reading of broad language would come into play. ( Gregory, supra, 876 F.2d 602, 606, fn. omitted.) Having rejected the causally related test, the Gregory court held that claims against the attorney by his client and by the class of investors were a single claim because they comfortably fit within the commonly accepted definition of the concept [of `related']. ( Id., at p. 606; see also Home Ins. Co. v. Wiener (N.D.Ill. 1989) 716 F. Supp. 10, 11 (holding that independent errors committed by two attorneys in a firm gave rise to a single claim by the client).) We agree with the court in Gregory, supra, 876 F.2d 602, that the term related as it is commonly understood and used encompasses both logical and causal connections. Restricting the word to only causal connections improperly limits the word to less than its general meaning. Related is a broad word, but it is not therefore a necessarily ambiguous word. We hold that, as used in this policy and in these circumstances, related is not ambiguous and is not limited only to causally related acts. We do not suggest, however, that, in determining the amount of coverage, the term related would encompass every conceivable logical relationship. At some point, a relationship between two claims, though perhaps logical, might be so attenuated or unusual that an objectively reasonable insured could not have expected they would be treated as a single claim under the policy. In the present case, there is no attenuation or surprise to the insured. The two errors by the attorney are related in multiple respects. They arose out of the same specific transaction, the collection of a single debt. They arose as to the same client. They were committed by the same attorney. They resulted in the same injury, loss of the debt. No objectively reasonable insured under this policy could have expected that he would be entitled to coverage for two claims under the policy.