A recent decision by the Eastern District of Virginia illustrates the tricky problem of relatedness in claims-made liability insurance policies. When a claim is made that relates to an earlier claim, the second claim is covered under the same insurance policy as the original claim, even if that policy has expired. However, determining when two claims are related is not always straightforward and involves a highly fact-specific analysis. As shown in Navigators Specialty Insurance Company v. Avertest, LLC, sometimes even identical allegations, describing the same allegedly negligent business practice, may not be enough to make claims related. Instead, under typical policy language, what matters is whether the claims arise from the same or related occurrences.

The Two Insurance Policies

Avertest tests biological samples for illicit drugs. It purchased general commercial liability insurance from Columbia Casualty Company for the 2020–21 policy year and from Navigators Specialty Insurance Company for the 2022–23 policy year. Both of the policies were claims-made policies, meaning they provide coverage for claims made against the insured during the policy period, regardless of when the incident leading to the clam occurred.

The Columbia policy contained a “Related Claims” provision which stated: “[a]ll related claims, whenever made, shall be considered a single claim first made during the policy period in which the earliest claim was first made.” A “related claim” was defined as “all claims arising out of a single act, error or omission or arising out of related acts, errors or omissions in the rendering of professional services.” “Related acts, errors or omissions” was defined as “all acts, errors or omissions negligently committed in the rendering of professional services that are logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or services.”

The Navigators policy contained a similar related claims clause, which read “More than one Claim arising out of a single act, error or omission or a series of related acts, errors or omissions shall be considered a single Claim. All such Claims, whenever made, shall be treated as a single Claim. Such single Claim, whenever made, shall be deemed to be first made on the date on which the earliest Claim arising out of such act, error or omission is made or with regard to notice given to and accepted by the Company pursuant to Section Claims B., Discovery Clause, on the date within the Policy Period on which such notice of potential Claim is first received by the Company.” It also excluded any claim that had been reported under a prior policy.

The Underlying Lawsuits and the Coverage Dispute

The lawsuit Gonzalez v. Avertest, LLC was filed in Missouri state court in February 2021 (and then removed to federal court). The putative class action alleged that Avertest prioritized speed over accuracy, and falsely reported that the two named plaintiffs had tested positive for illegal drugs. As a result of the false positives, the plaintiffs lost their child visitation rights. Columbia defended Avertest and the case settled in February 2022 prior to class certification.

A second lawsuit, Foulger v. Avertest, LLC was filed by the same plaintiffs’ lawyers in federal court in Missouri in August 2022. Like the previous lawsuit, it alleged that Avertest prioritized speed over accuracy and that plaintiffs suffered negative consequences — including loss of child custody — because of false positives. Some of the allegations in the Foulger lawsuit were identical to allegations in the Gonzalez lawsuit.

Avertest tendered the Foulger lawsuit to Columbia, but Columbia denied coverage because its policy had expired. Avertest then tendered the lawsuit to Navigators, who defended under a reservation of rights. Navigators then brought suit against both Avertest and Columbia. Navigators argued that the Foulger lawsuit is related to the earlier Gonzalez lawsuit and therefore is covered under the Columbia policy and excluded by the Navigators policy.

The Court’s Decision

To determine whether the two lawsuits were related, the Court compared the allegations in the two complaints. In support of them being related, the Court noted several similarities: (1) both allege that Avertest prioritized speed over accuracy, (2) both alleged false results caused others to incorrectly believe that plaintiffs took illegal drugs, (3) both alleged that plaintiffs lost child custody as a result, (4) both allege the same background facts and bring the same causes of action, (5) some of the language in both complaints is identical, and (6) both were filed by the same lawyers.

However, the Court also noted several significant differences: (1) the plaintiffs are different, (2) only Gonzalez was pled as a class action, (3) Gonzalez alleged violations of the Missouri consumer fraud statute, but Foulger alleged violations of the Arizona, Massachusetts, and Michigan consumer fraud statutes, (4) only the Foulger complaint alleges collection deficiencies, and (5) the time frames alleged in the complaints are different.

Under Virginia law, two claims are related if they have a “common nexus of facts and arose from the same occurrence of wrongful acts.” The Court held that the allegations in the two lawsuits were “not sufficiently similar to constitute related claims.” The Court explained that the factual similarities between the two complaints related only to “‘general business practices,’ not ‘the same underlying facts’ or transactions.” Critically, the circumstances around the alleged false positives were different — plaintiffs were tested at different labs by different employees using different procedures. Additionally, the two lawsuits apply the law of different states. The Court therefore ruled that the Foulger lawsuit was covered by the Navigators policy, but not the Columbia policy.

Analysis

This case shows that while two claims may appear related at first glance, they may not meet the definition for relatedness in the insurance policy. The Eastern District of Virginia drew an unusually narrow definition of relatedness. Claims are related not merely because both claims arose from the same general business practices, or even if the two complaints use identical language. Instead, under the Avertest court’s reasoning, there has to be a more concrete link between the occurrences. If the two claims are based on different factual grounds, apply the laws of different states, or allege different causes of action, the claims may be found to be unrelated.

Whether relatedness is helpful or not for a policyholder cuts both ways. In the Avertest case, the two policies were materially the same — the only question was which policy provided coverage. In such a situation, best practice is to simply notice both insurers to ensure that the claim is covered by one of the policies. Sometimes, however, only one policy will provide coverage, e.g., if one policy contains an applicable exclusion or if the first claim exhausted the earlier policy’s limits. It is therefore important that the policyholder identify allegations that would either establish or defeat relatedness, as well as to examine the coverage potentially available under each policy.

Ultimately, whether two claims are related is a highly fact-specific inquiry. The Avertest decision provides important criteria affecting that inquiry.