Professional liability insurance is necessary to any responsibly-run professional practice. The limits of coverage available under an E&O policy help to protect professionals against financial loss. However, the limits of coverage between different policies do not necessarily offer the same protection, even if the face value would appear to be same. For instance, a policy may specify that costs of defense are included in the limits of coverage, a/k/a “burning limits,” which reduces the amount available to satisfy a judgment or pay a settlement as the case progresses. Generally, a policy will state limits of coverage available for each “claim” made against the insured, as well as aggregate limits that cap the amount of damages if multiple claims are brought. Separate claims are easy to distinguish when separate lawsuits are filed by different parties involving unrelated acts. However, do separate claims exist when a single lawsuit is filed that alleges several different instances of misconduct?
The question was recently presented to the U.S. Court of Appeals for the Third Circuit. The case involved a lawsuit by a former client against his attorney, who allegedly provided negligent advice with regard to the transfer of corporate stock. At trial, the plaintiff presented an expert who testified that the attorney had committed at least five separate breaches of his professional standard of care, and the jury returned a verdict in favor of the plaintiff of $525,000. The attorney’s insurance policy provided limits of coverage of only $500,000 per claim, inclusive of defense costs, which totaled $420,000. Thus, if the lawsuit constituted only one claim, the attorney was left with only $80,000 of remaining coverage, but if it constituted two or more claims, then the attorney would have at least $580,000 of available coverage.
The professional liability carrier filed a declaratory judgment action, seeking a court determination that the lawsuit only constituted a single claim, as defined by the insurance policy. On appeal, the Third Circuit held that as long as the claims in the lawsuit arose out of a series of related acts, the lawsuit could only be considered a single claim under plain terms of the policy.
Although the Third Circuit ruled against the insured in this instance, professionals should remain cognizant of the potential to obtain additional coverage, particularly when the limits for a single claim may not be sufficient to protect against a potential loss. Where claims in a suit arise from unrelated instances of conduct, or involve separate claims by separate parties, the insured may be entitled to additional coverage by filing separate claims under their E&O policy.