Your Insurer Applied Two Retentions. Should the Claims Count as One?

A small engineering firm receives two demands from clients on the same project, each alleging overlapping errors in the same set of drawings. Its professional liability insurer accepts both but applies a separate $50,000 retention to each. The firm’s first reaction is that it should pay only one retention, since both demands arise from the same work.

That argument may be right. However, it may also cost more than it saves.

Start With How the Policy Groups Claims

A retention is the amount the policyholder must pay before the insurer’s obligations begin. A related claims provision, in turn, may group several demands into a single claim when they arise from connected acts, errors, transactions, or circumstances. Because the wording controls, the details matter: some policies require a common cause, while others require only a logical or causal connection.

The analysis therefore begins with the definition itself: does it require a common cause, a logical connection, or another specified relationship? It also matters whether the retention provision uses that same grouping rule. Notably, different customers or separate demand letters do not necessarily establish separate claims.

The opposite is also true. Two complaints involving the same professional or the same type of service are not automatically related. Instead, the question is how the particular work, alleged errors, timing, and claimed injuries compare with the policy’s test.

Running the Numbers Both Ways

Once the test is clear, it helps to run the numbers both ways. Assume, solely for illustration, that two covered settlements total $180,000, the policy applies a $50,000 retention per claim, and no other limits or conditions affect payment. If the matters are separate, the two retentions would total $100,000; if they are grouped as one claim, a single retention would total $50,000. However, defense expenses may also count toward the retention or reduce the limit, and the policy may impose different rules on a series of claims.

In either case, the insurer should be asked to explain its classification in writing, identifying the policy language and the facts it relies on.

One Claim Can Mean a Smaller Limit

Yet grouping claims can save a retention while cutting total available coverage. In Continental Casualty Co. v. Howard Hoffman & Associates, 2011 IL App (1st) 100957, for example, a nonlawyer employee of a law firm embezzled funds from more than a dozen probate estates the firm represented. The policy defined related claims as those arising from a single act or omission, or related acts or omissions, in the rendering of legal services. Because the estates’ claims arose from one embezzlement scheme, the Illinois Appellate Court held that they were related, so a single $100,000 each claim limit applied instead of the $300,000 aggregate limit the firm sought.

That decision does not mean every group of professional errors forms one claim. Still, it illustrates how grouping can reduce a retention while also reducing total available coverage. For that reason, a policyholder pushing for one retention should first check what happens to the limit.

Which Policy Year Gets the Claim

Grouping can also change which policy year responds. Professional liability policies are usually claims-made, and many treat related claims as first made when the earliest of them was made. As a result, grouping can move a later demand into an earlier policy period, with that period’s limits, retention, and notice requirements. Moreover, if the earlier claim wasn’t reported properly, grouping could create a coverage problem that didn’t exist before.

For all of these reasons, a chronology of the engagement, complaints, demands, policy periods, and reporting dates, along with copies of the earlier policies, should come before any related claims argument. In the end, the best answer is the one that produces the most total coverage, not just the smallest retention.

We help professionals and businesses assess related claims classifications, disputed retentions, available limits, and the policy periods that may respond. Contact us to discuss your matter.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our insurance recovery services. Coverage depends on the policy wording, the facts, and applicable law. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.