Lonstein Law Office, P.C. v. Evanston Insurance Company

Background

Lonstein Law Office, P.C. (LLO), Julie C. Lonstein, and Wayne D. Lonstein sued Evanston Insurance Company (EIC), Markel Service Incorporated, and AT&T Services, Inc. The dispute concerns professional-liability insurance issued by EIC to LLO. The policy covered amounts the insured became legally required to pay because of claims arising from professional legal services, subject to a $1 million limit for each claim and a $3 million aggregate limit.

LLO had represented DIRECTV in investigating and bringing claims involving alleged unauthorized use of DIRECTV programming. During that relationship, plaintiffs were named in four lawsuits: the Roberson Action, the Joaquin Action, the Perez Action, and the US Nails Action. Plaintiffs notified EIC of those lawsuits, and EIC provided a defense. In July 2020, EIC stated that the policy’s $1 million limit had been exceeded and refused to pay certain additional defense invoices. Plaintiffs alleged breach of contract and breach of the duty of good faith and fair dealing, and sought declarations and other relief concerning EIC’s duty to defend and indemnify them.

Motions and arguments

EIC and Markel moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. EIC argued that the four underlying lawsuits arose from related wrongful acts and therefore constituted one claim under the policy’s related-claims provision. Because EIC had paid up to the $1 million limit, EIC argued that plaintiffs could not state a claim for additional coverage. Plaintiffs argued that each lawsuit involved distinct wrongful acts and therefore should receive a separate $1 million limit, subject to the $3 million aggregate limit.

AT&T’s separate motion to compel arbitration had previously been granted, and the action had been stayed as to AT&T. The opinion addressed the motion by EIC and Markel.

Court’s analysis

The court held that the related-claims provision was unambiguous. It provided that multiple claims arising from a single wrongful act or a series of related wrongful acts would be treated as one claim, even if the claims were made at different times or by different people. The court explained that the relevant question was whether the claims arose from a single or related set of wrongful acts, not whether they relied on identical legal theories or involved the same claimants.

After comparing the allegations in the four underlying lawsuits, the court found substantial factual overlap. Each lawsuit alleged that LLO, in connection with its work for the same client and under the same retainer relationship, pursued a similar scheme involving small-business owners, residential rather than commercial DIRECTV accounts, and similar threatening communications seeking money or commercial subscriptions. The court found that differences in the claimants, filing dates, legal theories, and requested relief did not make the lawsuits unrelated.

The court also rejected plaintiffs’ argument that the result improperly made the $3 million aggregate limit meaningless. It explained that the lawsuits were related because, as alleged, they arose from a single prearranged course of fraudulent conduct affecting multiple people. The court further noted that an insurer’s duty to defend can arise from facts known to the insurer beyond the complaint, but plaintiffs relied only on the underlying complaints and identified no such information showing a reasonable possibility that the related-claims provision did not apply.

Disposition

The court granted the motion to dismiss. It dismissed the breach-of-the-duty-of-good-faith-and-fair-dealing claim with prejudice because that claim was based on the same facts as the contract claim and was therefore duplicative. It also dismissed the claims against Markel with prejudice because Markel did not issue the EIC policy, plaintiffs did not allege conduct by Markel supporting a claim, and plaintiffs did not defend those claims in opposition to the motion.

The court dismissed the breach-of-contract claim against EIC without prejudice. The plaintiffs were given 30 days from the date of the opinion and order to file an amended complaint. If they did not do so, the court stated that it would dismiss the case with prejudice.