Lawsuits Concerning Same Housing Development Project Are Related Claims

Wiley Rein LLP

The California Court of Appeal, applying California law, has held that two lawsuits arising from work performed by the same insured engineering firm on a housing development constitute related claims under the firm’s professional liability policies, and were thus subject to a single policy limit. D.R. Horton Los Angeles Holding Co. v. Certain Underwriters at Lloyd’s London Subscribing to Policy No. 146/LDUSA0700832, 2020 WL 7417409 (Cal. Ct. App. Dec. 18, 2020).

A homebuilder hired the insured firm to prepare and implement a soil grading plan for a residential housing development. In 2003, owners of houses adjacent to the development filed an action against the homebuilder and the firm for property damage due to slope movement caused by the firm’s soil grading activities. The firm’s insurer defended and indemnified the firm under its 2002-2003 policy. In 2007, homeowners in the development also filed an action for property damage due to slope movement against the homebuilder, which filed a cross-complaint against the firm. The 2002-2003 insurer and the firm agreed that the 2007 action was “related” to the 2003 action, so the insurer tendered the remaining limits of the 2002-2003 policy. At the trial of the 2007 action, the trial court found the firm liable to the homebuilder for approximately $3.2 million in damages. The homebuilder then sought to recover from the firm’s 2007-2008 insurer pursuant to an assignment of the firm’s rights under its 2007-2008 policy. The trial court entered judgment in favor of the 2007-2008 insurer, and the homebuilder appealed.

The appellate court affirmed. The court concluded that there was no coverage for the 2007 action under the 2007-2008 policy because it was related to the 2003 action. Both policies expressly provided that “Each Claim” subject to the policies’ limits of liability included those claims “aris[ing] out of the same or related Wrongful Acts,” regardless of the number of claims or claimants. The policies further provided that any additional, subsequent claims “aris[ing] out of the same or related Wrongful Acts” would be subject to the same limit of liability. Given the plain meaning of the term “related,” the court determined that, even if there were multiple wrongful acts by the firm that gave rise to the two lawsuits, those wrongful acts were related—i.e., they arose from the same project for the same client, and they resulted in the same problem causing property damage. Accordingly, the separate lawsuits constituted a single claim subject to a single policy limit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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