Court Rejects Assumption that Wrongful Acts are Related Based on Inclusion in Single Complaint

The United States District Court for the Central District of California, applying California law, has held that, based on the initial pleadings, it could not determine in the insurer’s favor whether wrongful acts alleged after a policy’s retroactive date were related to wrongful acts alleged prior to the policy’s retroactive date under the policy’s interrelated wrongful acts provision. Gilderman v. Argonaut Ins. Co., 2023 WL 5506019 (C.D. Cal. July 10, 2023).

After he was appointed Trustee of the Miranda St. Trust (the Trust), the insured purchased a professional liability policy for actions taken in his capacity as Trustee. The policy provided coverage for claims first made and reported during the policy period “arising out of a Wrongful Act committed before the end of the Policy Period and on or after the Retroactive Date.” “Wrongful Act” was defined as “any actual or alleged act, error, omission or breach of duty by any Insured in the rendering of or failure to render Professional Services.” “Professional Services” were defined as “[p]roviding trustee services for [the Trust].” The policy contained an interrelated wrongful acts provision stating that “[t]wo or more Claims arising out of a single Wrongful Act, or any series of related Wrongful Acts, will be considered a single Claim” and that “[e]ach Wrongful Act, in a series of related Wrongful Acts, will be deemed to have occurred on the date of the first such Wrongful Act.”

During the policy period, the insured was sued individually and in his capacity as Trustee in a lawsuit brought by a Trust beneficiary alleging that, prior to the Trustee’s appointment, he exerted undue influence over the creator and former trustee of the Trust, which led to his appointment as Trustee and wrongful conduct once he became Trustee. After the expiration of the policy, two additional lawsuits were filed against the Trustee alleging he engaged in wrongful conduct in his capacity as Trustee.

The insurer denied coverage for the lawsuits because the allegations concerning the insured’s alleged exercise of undue influence prior to his appointment as Trustee did not constitute “Professional Services” and occurred prior to the retroactive date. Further, the insurer asserted that the allegations regarding the insured’s conduct in his capacity as Trustee (which occurred after the retroactive date) were related to the allegations regarding his conduct prior to his appointment as Trustee (and prior to the retroactive date) and thus were deemed to have occurred before the policy's retroactive date under the policy’s interrelated wrongful acts provision. Additionally, the insurer contended that the two subsequent lawsuits were also deemed related to the conduct predating the retroactive date and were excluded on the same basis.

In coverage litigation, the insurer moved for judgment on the pleadings. In denying the insurer’s motion, the court found that it could not rule in the insurer’s favor based on the pleadings, as it was not clear whether the allegations of wrongful conduct occurring prior to and following the retroactive date were a “series of related” actions under the policy’s interrelated acts provision. The court noted that it would “not take it as a given that all of the allegations of breach of fiduciary duty and wrongful takings are related simply because they are in one petition.” The court observed that “[d]etermining whether actions are “related” under the terms of a liability insurance policy requires a fact-intensive analysis,” and, in the court’s view, the insurer had “not engaged in the kind of analysis” required and therefore did not carry its burden. As to the two subsequent lawsuits, the court found that the “key question of relatedness” to the conduct in the original lawsuit remained to be determined.