In Westport Ins. Corp. v. Coffman, Case No. C2-05-1152 (S.D. Ohio Jan. 29, 2009), the federal district court for the Southern District of Ohio held that an underlying class action lawsuit filed against an insured attorney and his clients, and the subsequent malpractice claim filed by the clients against the insured attorney, constitute a single claim and are therefore subject to a single per-claim limit of liability.
A class action lawsuit was filed against D.B.S. Collection Agency (“DBS”), Kathy Dickerson ("Dickerson") and their attorney by the named plaintiffs, the Fosters, whose bank account was illegally attached, and other class members, based on allegations that (1) the insured attorney failed to register transfers of ownership of DBS and the right to use its name with the secretary of state, (2) the insured attorney regularly signed and filed pleadings on behalf of DBS to commence civil actions to collect consumer debts allegedly owed to DBS, and (3) the defendants (Dickerson, DBS and their attorney) failed to voluntarily dismiss collection actions despite not having obtained assignments from the original creditors. DBS and Dickerson subsequently filed cross-claims against the insured attorney for malpractice. The parties settled the class action, and DBS and Dickerson voluntarily dismissed their cross-claim against their former attorney without prejudice. Westport, the insured’s professional liability carrier, contributed $450,000 towards that settlement under a policy that was in effect from 2000 to 2001 when the class action was filed.
Subsequent to the settlement, DBS and Dickerson sued their former attorney, the insured, for malpractice in state court, alleging that the insured attorney (1) failed to register the transfer of ownership of DBS and the right to use its name with the secretary of state, (2) failed to advise Dickerson to obtain assignment from creditors prior to filing suit, and (3) failed to inform Dickerson of the potential for conflict of interest in representing both Dickerson and DBS in the transfer of ownership of the company.
The insured subsequently sought coverage under a Customized Practice Coverage policy issued by Westport in effect from 2001 to 2002, when the cross-claim was filed. Westport, however, contended that the malpractice claim and class action constituted a single claim and were subject to the 2000-2001 policy’s $500,000 per-claim limit of liability. Westport’s position was based on the policies’ “Multiple Insureds, Claims and Claimants” provisions, providing that “Two or more CLAIMS arising out of a single WRONGFUL ACT…or a series of related or continuing WRONGFUL ACTS, shall be a single CLAIM. All such CLAIMS whenever made shall be considered first made on the date on which the earlier CLAIM was first made arising out of such WRONGFUL ACT…and all such CLAIMS are subject to one ‘Per Claim Limit of Liability’ and deductible.” The insured, on the other hand, contended that the malpractice claim and the class action should be considered separate claims under the “separate duty and distinct harm approach.”
The court sided with Westport. Relying on precedent from the Sixth Circuit Court of Appeals applying Ohio law, as well as decisional law from other jurisdictions, the court held that the term “related” in the Multiple Insureds provision of the policy is unambiguous under Ohio law, and is to be construed according to its “commonly accepted meaning.” In that regard, the court held that “term ‘related’ covers a very broad range of connections, both causal and logical, but does not cover connections that would be objectively unreasonable to treat as related because they are so attenuated or unusual.” Accordingly, the court ruled that the class action and the malpractice claim against the insured attorney were “related” as they were both based on the “same event: the legal malpractice of failing to register DBS.” As the court put it, “If [the insured] had properly performed his legal services, then there would have been no basis for the Class Action complaint because the debt collection actions would have been legal.”