Opinion ID: 1113495
Heading Depth: 2
Heading Rank: 1

Heading: Meaning of claim under the policy

Text: The attorney's liability policy states, `Claim' whenever used in this policy means a demand, including service of suit or institution of arbitration proceedings, for money against the insured.  (Italics added.) By any reasonable understanding, Bay Cities' suit against Curotto is a demand for money. Bay Cities does not contend otherwise. Rather, the dispute is centered on the policy's Limits of Liability section. It states, The liability of the company under subsection 1 of the section of this policy entitled `The Coverage' for each claim FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD shall not exceed the amount stated in the Declarations for `each claim. ...' (Italics added.) (1a) Bay Cities contends it is asserting two separate claims, each of which is subject to the per-claim limit of $250,000, because each of Curotto's two omissions resulted in a separate injury to Bay Cities. Lawyers' Mutual contends there is a single claim. The parties have stipulated that the pertinent portion of the policy is paragraph 3 of the policy's Limits of Liability section. It states: The inclusion herein of more than one Insured or the making of claims or the bringing of suits by more than one person or organization shall not operate to increase the Company's limit of liability. 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.) As we shall explain, Lawyers' Mutual has the better view. Bay Cities has a single claim under the policy. In concluding two claims are presented, the Court of Appeal rejected Lawyers' Mutual's argument there is only one claim because there is only one lawsuit. The court's premise was that, There are two distinct causes of action and the fact that they are included within one lawsuit should not be the deciding factor. We agree with the Court of Appeal's view that including multiple claims within a single action does not render them a single claim. That conclusion, however, begs the question of whether there is more than one claim in the first instance. The Court of Appeal erred on that threshold question by starting with the underlying premise that Bay Cities was asserting two causes of action. We do not suggest that the number of claims is determined by rules of pleading. A correct understanding, however, of the nature of a cause of action does shed light on the question before us. (2), (1b) Bay Cities was not asserting two causes of action. Bay Cities had a single injury and thus a single cause of action against its attorney. [1] California has consistently applied the `primary rights' theory, under which the invasion of one primary right gives rise to a single cause of action. ( Slater v. Blackwood, supra, 15 Cal.3d 791, 795; Big Boy Drilling Corp. v. Rankin (1931) 213 Cal. 646, 649 [3 P.2d 13]; 4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 23, pp. 66-67.) Bay Cities had one primary right  the right to be free of negligence by its attorney in connection with the particular debt collection for which he was retained. He allegedly breached that right in two ways, but it nevertheless remained a single right. Similarly, [T]he `cause of action' is based upon the harm suffered, as opposed to the particular theory asserted by the litigant.... Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. ( Slater v. Blackwood, supra, 15 Cal.3d 791, 795, italics added.) Bay Cities suffered a single injury as a result of its attorney's omissions  the inability to collect the amount owed to Bay Cities for its work on the construction project. In Big Boy Drilling Corp. v. Rankin, supra, 213 Cal. 646, 649, we considered the concept of a cause of action in connection with a contractor's efforts (through its assignee) to recover money owed for work done on real property. Whether plaintiff accomplishes this purpose by the foreclosure of mechanics' liens or by way of a personal judgment, or both, is immaterial. Both demands having arisen out of the same transaction, there is but one cause of action with two forms of relief. The seeking of different kinds of relief does not establish different causes of action.... The `cause of action' is to be distinguished from the `remedy' and the `relief' sought, for a plaintiff may frequently be entitled to several species of remedy for the enforcement of a single right. ( Big Boy Drilling Corp. v. Rankin, supra, 213 Cal. 646, 649 [citations omitted].) The reasoning as to proper pleading, though not controlling, is illustrative in the present case. Bay Cities contends it had two sources of payment of its construction work: (1) foreclosure of the mechanic's lien, and (2) serving a timely stop notice on the project's construction lenders. These two procedures, however, arose from the same transaction  Bay Cities' work on the project  and were merely different remedies for nonpayment of the amount owed to Bay Cities. Thus, Bay Cities had a single right  the right to payment for its construction. The loss of that right as a result of the attorney's two omissions resulted in a single injury. We find it difficult to imagine how the loss of or damage to a single right could give rise to more than one claim under an attorney's professional liability policy. We need not speculate, however, as to whether or how such an unusual circumstance might arise because the least that can be said is that  when, as in this case, a single client seeks to recover from a single attorney alleged damages based on a single debt collection matter for which the attorney was retained  there is a single claim under the attorney's professional liability insurance policy. Other factors, primarily the policy language and context, lead to the same conclusion. As noted above, the relevant policy language states that, The inclusion herein of more than one Insured or the making of claims or the bringing of suits by more than one person or organization shall not operate to increase the Company's limit of liability. Two or more claims arising out of a single act, error or omission ... shall be treated as a single claim. Under this language, if an attorney's single error harmed two clients and gave each of them a separate claim, those two claims would be treated as a single claim under the policy's limitation of liability. It would be anomalous to limit liability in that circumstance but to disregard the limitation when, as in this case, a single client suffers a single injury as a result of multiple errors. Under Bay Cities' view, the greater the number of an attorney's negligent acts, the greater the number of claims under the policy, even if all the acts cause only a single injury. Such a rule would have the plainly undesired result of providing the attorney who has made one error with an incentive to then make as many additional errors and omissions as possible, so as to increase the amount of insurance coverage. Moreover, allowing a client to assert multiple claims under the policy would create a serious potential of prejudice to the attorney and to other clients. The professional liability policy in this case, like most such policies, has two independent coverage limitations. One is the per-claim limitation. The other is an aggregate limitation that applies regardless of the number of claims submitted during the policy period. If a particular client could obtain increased coverage by creating multiple claims for a single injury, less coverage would remain for other clients with claims against the attorney. That result could prejudice those clients. Conversely, the attorney could also be prejudiced because of an increased risk that the attorney's personal, noninsurance assets would have to be used to pay those clients' claims. The multiplication of claims could prejudice the attorney in another material respect. This and other professional liability policies contain a deductible, that is, a requirement that the insured bear a portion of the liability [w]ith respect to each claim.  (Italics added.) The amount of the deductible can be significant. If a client could assert multiple claims based on a single injury, the attorney would be responsible for multiple deductibles, corresponding to the number of claims. Indeed, in some cases, insurers have contended that multiple claims were being presented, so as to increase the amount of the insured's deductible and thereby decrease the amount owed by the insurer. ( Combined Communications Corp. v. Seabord Sur. Co. (9th Cir.1981) 641 F.2d 743, 744.) Such result is obviously not favorable to the insured. It also works to the disadvantage of the insured's client because the insurer is responsible for a smaller portion of the damages, and the client must therefore attempt to obtain satisfaction from the attorney's other assets. [2] Courts have generally rejected insurers' attempts to apply multiple deductibles to single claims or related claims by third parties against insureds. ( Beaumont-Gribin-Von Dyl Management Co. v. California Union Ins. Co. (1976) 63 Cal. App.3d 617 [134 Cal. Rptr. 25]; Haerens v. Commercial Cas. Ins. Co. (1955) 130 Cal. App.2d Supp. 892 [279 P.2d 211]; see generally Annot., Liability Insurance: What Is Claim Under Deductibility-Per-Claim Clause (1988) 60 A.L.R.4th 983, 987.) By parity of reasoning, the artificial multiplication of claims should not result in increased coverage. To construe a policy provision narrowly so as to find only one claim and thus limit the deductible, but to construe the same language expansively so as to find multiple claims and thereby increase coverage, would be a result-oriented approach we decline to follow. Bay Cities contends, [I]t is almost the universal rule that in analyzing coverage issues, the courts look to the number of causes of damage as opposed to the number of injuries sustained. Such a principle is often stated. ( Michigan Chemical Corp. v. American Home Assur. Co. (6th Cir.1984) 728 F.2d 374, 379.) Its application and effect, however, do not support Bay Cities. When there is a single cause of multiple injuries (or a number of causes that result in a greater number of injuries), courts often look to the cause rather than the injuries in determining the amount of insurance coverage. In such a case, the result is a finding of only one claim, i.e., the court looks to the single cause rather than to the multiple injuries. Under Bay Cities' view, the converse of this rule should apply so that, when there are multiple causes of a single injury, the number of causes should determine the number of insurance claims. In other words, Bay Cities proposes we convert a principle that generally limits coverage into one that expands coverage. We decline to do so, at least in the circumstances before us. The rule proposed by Bay Cities would have little logical or practical consistency and would be unworkable. For example, assume a policy with a $250,000 per-claim limitation, and that the client retains the attorney, as in the present case, to collect a debt of $1 million from a third party. The attorney commits a single error that results in loss of the debt. The client has been damaged in the amount of $1 million, and under Bay Cities' view, is limited to recovery of $250,000 because there was a single cause of the injury. If, however, a different client (or even the same client) lost a debt in the same amount ($1 million) because the attorney committed three errors, the recovery would be $750,000 (three errors times $250,000). The point is obvious. Under Bay Cities' rule, clients with the same injuries in the same amount would receive different recoveries based solely on the fortuity of how many errors the attorney commits. A brief review of the primary cases on which Bay Cities relies further demonstrates why Bay Cities' proposed rule does not apply in this case. In Michigan Chemical Corp. v. American Home Assur. Co., supra, 728 F.2d 374, a chemical manufacturer, which produced both a livestock feed supplement and a toxic flame retardant, had erroneously shipped the flame retardant rather than the feed supplement to a feed distributor. (Apparently the bags were mislabelled.) The distributor mixed the toxin with regular feed and sold the resulting product to farmers. Thousands of head of livestock became ill and had to be destroyed. The farmers filed suit. The manufacturer contended that each action against it constituted a separate occurrence under its liability insurance policies. The insurers contended there was only one occurrence, the accidental shipment of the wrong chemical. Applying Illinois law, the court agreed with the insurer, explaining, [T]he number of occurrences must be determined by examining the cause of the property damage, i.e., the mis-shipment or mis-shipments of PBB [the toxin]. ( Id., at p. 382.) The court remanded the action to the trial court to determine the number of misshipments. Similarly, in Home Indem. Co. v. City of Mobile (11th Cir.1984) 749 F.2d 659, more than 200 claims were filed against a city for flood damages incurred during 3 rainstorms. The claimant property owners alleged the city had been negligent in its planning, construction, and operation of its water drainage system. The city contended each claim against it constituted a single occurrence in applying its insurance policy's per-occurrence limitation. The insurer contended each storm was a separate cause of the damage and that there were only three occurrences. Applying Alabama law, the court agreed with the insurer that the number of causes, not the number of injuries, was determinative and that each discrete act or series of acts causing damage was a separate occurrence under the policy. ( Id., at p. 663.) [3] Michigan Chemical Corp. v. American Home Assur. Co., supra, 728 F.2d 374, and Home Indem. Co. v. City of Mobile, supra, 749 F.2d 659, illustrate why Bay Cities' proposed rule does not properly apply in this case. First and foremost, those cases were decided under occurrence polices rather than claims-made policies. Bay Cities asserts without analysis that the type of policy should make no difference in our analysis. Not so. The language of the occurrence policies at issue in those cases was significantly different from the relevant provision in this case. [4] Indeed, after noting the general rule that a per-occurrence limitation is determined on the basis of the number of occurrences, i.e., the number of causes, rather than on the number of injuries, the Michigan Chemical court, supra, 728 F.2d 374, explained: The definitions of `occurrence' in the present insurance policies reflect this approach. First, these provisions in essence refer to an `accident' which results in injury during the policy period. The language makes the accident constituting the occurrence logically distinct from the injuries which later take place. Second, the insurance policies under review afford coverage on an `occurrence' rather than on a `claim' basis. The use of the former term `indicates that the polic[ies were] not intended to gauge coverage on the basis of individual accidents giving rise to claims, but rather on the underlying circumstances which resulted in the claim[s] for damages.' ( Id., at p. 379, italics added and bracketed material in original, quoting Champion International Corp. v. Continental Casualty Co. (2d Cir.1976) 546 F.2d 502, 505-506.) We agree that the respective foci of occurrence and claims-made policies are different in the present context. [5] Bay Cities also relies on Transamerica Ins. Co. v. Keown (D.N.J. 1978) 451 F. Supp. 397, in which an attorney acting as the trustee of an estate had been found liable to its beneficiaries for having breached the trust agreement by investing in real estate. The beneficiaries contended each year the attorney held the real estate gave rise to a separate claim. His insurer contended there was a single claim. The court agreed and noted that other decisions had been based on whether the court focuses on cause or effect. ( Id., at p. 403.) The Keown court then explained there was a single cause in that case. Based on that alone, Bay Cities cites the decision as supporting the cause v. injury test it espouses. Bay Cities reads too much into Keown. Properly understood, it supports our view. The Keown court, like us, looked to the injury. The effect is also singular; one piece of real estate lost value to the detriment of a single estate. ( Ibid. ) The same logic applies here. To paraphrase Keown, The effect is singular; one debt was lost to the detriment of one client. As shown, the cases on which Bay Cities relies are largely distinguishable because they were decided under different policy language (in most cases, occurrence policies), different states' approaches to insurance policy construction, and different fact situations. Moreover, the cause approach resulted in a restriction of coverage, not the expansion Bay Cities seeks. For all the foregoing reasons, we hold that Bay Cities has a single claim against its attorney within the meaning of the professional liability insurance policy issued by Lawyers' Mutual.