Hunton Insurance Recovery Blog

A recent decision in federal court in Montana provides another example of different standards applied to assessing “related claims” under directors and officers (D&O) liability insurance policies. In this instance, the district court found that two class action lawsuits were related because they involved the same “general course of conduct.” Because the two claims were related, they were treated as a single claim first made in an earlier policy period. As a result, the Montana policyholder lost out on $5 million in potential coverage under a second policy in place when the second claim was asserted.

A typical claims-made liability policy covers claims first made against the policyholder during the policy period. However, if two claims are “related,” they are considered a single claim that was first made at the time of the earlier claim, even if the second claim was made during a subsequent policy period. Most policies use very broad and amorphous “related” claim definitions and provisions, leaving courts to fill in gaps when asked to assess relatedness. Given the material differences in state common law, states have taken very different, and at times seemingly conflicting, approaches, so whether two seemingly similar claims are in fact related often depends on what state’s law governs.

Case Background

In Boyne USA, Inc. v. Federal Insurance Co., No. CV 24-70-H-TJC (D. Mont.), Boyne was a defendant in two class actions and sought coverage from its insurer. Boyne is a property developer and rental manager. The first class action filed in 2021 alleged that Boyne forced property owners at a Montana condominium it developed to exclusively use Boyne as a rental manager. The second class action, filed three years later, made similar allegations in connection with three condominiums in Michigan.

At the time of both lawsuits, Boyne was insured under a D&O policy. Both policies contained a clause that provided that all “related claims” would be deemed a single claim made during the policy period that the first claim was made.

The policies defined “related claims” using fairly typical language: “Related Claims means all Claims for Wrongful Acts based upon, arising from, or in consequence of the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances, situations, transactions or events.”

Both the 2021 policy and the 2024 policy had $5 million limits of liability. This meant that, if the two lawsuits were related, they were subject to a single $5 million limit. But if they were not related, Boyne would be entitled to up to $10 million in coverage. The insurer moved for summary judgment that the claims were related and that it only had to provide a maximum of $5 million in coverage under a single policy.

The Court’s Decision

The federal district court agreed with the insurer. The court first noted that the Montana Supreme Court had never addressed the meaning of “related claims,” so it would need to make an Erie guess. The court then rejected Boyne’s argument that “related claims” was ambiguous, agreeing with the majority of courts that have considered that argument.

Citing a bankruptcy court in Delaware and federal courts in Illinois and California, the district court determined that two claims were related if they involved a “single course of conduct.” The court noted that two claims can be related “even if they allege different types of causes of action and arise from different acts.” The fact that the claims were brought by different plaintiffs in different states alleging different legal theories does not automatically mean the claims are not related.

The court found that the two claims were related because “Boyne’s mandatory rental management program is at the center of both lawsuits.”

In support of its finding, the court pointed out that many of the allegations in the two complaints were nearly identical.

There were some differences between the two complaints, but not enough to make them not related. Boyne argued that the two claims were unrelated because they involved “different time periods, different locations, different plaintiffs, different master deeds, different management agreements and different HOA agreements.” The court was unconvinced, explaining: “Taken as a whole, the underlying complaints allege the same general course of conduct — Boyne imposes a rental management program on owners of properties it has developed, and uses the program to enrich itself at the expense of owners through various mechanisms. Both cases also allege that Boyne’s exclusive rental management program violates securities laws and constitutes an unregistered security.”

Analysis

The Montana federal court’s related-claims analysis was fairly straightforward — the two complaints use the same language and the allege the same wrongful act at their core, so they are related. But a federal court predicting how the Montana Supreme Court would decide the issue is still a guess, and Montana’s high court ultimately may adopt a different test.

In all cases, whether two claims are related is a fact-intensive analysis that depends on the parties, time periods, wrongful acts, damages, and underlying facts giving rise to the dispute. Given all of these factors, related-claims outcomes are difficult to predict, especially when viewed through potentially different standards in a different state or venue. Policies may include choice of law or choice of venue clauses or arbitration clauses, which shift what law and forum apply — these could ultimately be determinative of whether claims are related.

Courts have adopted multiple interpretations of “related claims.” The Montana federal court in Boyne and the Eleventh Circuit used the “single course of conduct” test. Delaware courts apply the “meaningful linkage” test. The Tenth Circuit has asked whether two claims were “connected by an inevitable or predictable interrelation or sequence of events.” And a Virginia federal court recently applied a “common nexus of facts” test. While these phrases seem the same, the results can be wildly different. For instance, in the Eastern District of Virginia decision using the “common nexus” test, the court applied an unusually narrow definition of “related” to find that two claims were not in fact related. Ultimately, whether two claims are related may depend upon which court hears the coverage matter.

“Related claims” language is also unpredictable because it is not always pro-insurer or pro-policyholder. Whether it is advantageous to a policyholder for claims to be related or not depends on the context. A policyholder may argue that claims are related to avoid multiple retentions or deductibles or if only the second policy includes an exclusion that bars coverage. In contrast, an insurer may argue that claims are related if the first policy has already been exhausted or, like in Boyne, to avoid paying multiple limits. If the policyholder switched carriers, the later-in-time carrier will likely argue that claims are related to push coverage back onto the earlier-in-time carrier, and the earlier-in-time carrier will argue the opposite.