Some liability insurance policies provide coverage on a “claims made” basis, which means they are triggered when an injurious event is reported, regardless of when it occurred. Some of these policies contain “related claims” clauses, which purport to link two or more claims based on shared or similar facts.

Such clauses treat the related claims as a single one, which is deemed to have been made when the first claim was filed. Since the initial claim may have been made during an earlier policy period, these clauses can sometimes act to exhaust coverage under the earlier policy and to exclude coverage under the new policy. On the other hand, they might also be used by insureds to aggregate multiple related claims so as to avoid repeatedly paying retentions or deductibles.

“Related claims” clauses — typically found in directors’ and officers’ (D&O) policies — are designed to manage and control the potential for multiple claims arising from a single underlying event or circumstance. However, they can give rise to coverage disputes in the following aspects:

  1. Aggregation of claims — Considering multiple claims as a single claim made at the time of the very first one can be contentious, especially if the claims span different policy periods. This can be a tool for the insured to gain coverage or as a tool for the insurer to exclude it.
  2. Policy period ambiguity — Determining the timing of when a claim is deemed to be made can be complex. Disputes may arise if the clause fails to specify which policy period will govern the related claims.
  3. Allocation of limits — “Related claims” clauses can impact the allocation of policy limits. If multiple claims are treated as one, they may collectively exhaust the policy limit more quickly, leaving less coverage for subsequent claims. This can lead to disagreements between the insured and the insurer regarding the fair allocation of limits among the claims presented.
  4. Policy wording variations — Different insurance policies may have variations in the wording of “related claims” clauses. A clause may refer to “a single or related series of actual or alleged acts, errors, omissions or misfeasance” but the term “related” is undefined and is capable of being broadly or narrowly construed.

To mitigate potential coverage disputes, insurers and insureds should carefully review and understand the language of the “related claims” clauses in their policies. It is possible to draft a clause that is focused on the insured’s needs at the time a policy is issued, so as to provide fair coverage consistent with the parties’ intent. This is ultimately beneficial to the insurer as well, since it can avoid a great deal of coverage litigation stemming from unclear policy wording.

Pullin, Fowler, Flanagan, Brown & Poe in Charleston, West Virginia has a history spanning more than 30 years of helping businesses defend themselves against liability claims. Call us at 304-344-0100 or contact us online to set up a consultation.