Insurer’s Suit for Declaration that Multiple Claims Constitute a Single Claim Must Await Resolution of Insured’s Liability

A federal district court in Alabama has dismissed as “premature and unripe” an insurer’s suit for a declaration that multiple claims against its insured pharmacist constituted a single claim because the pharmacist’s liability in each case had not yet been established. Am. Cas. Co. of Reading, Pa. v. Allen, 2015 WL 5693598 (N.D. Ala. Sept. 29, 2015).

Numerous individuals allegedly were exposed to a deadly blood infection, which was believed to have originated from medication that was compounded by a single pharmacy. Multiple lawsuits by exposed patients or, in the cases of those who died from the infection, by their survivors against the pharmacy followed.

The pharmacist was insured under a healthcare providers professional liability insurance policy, which provided for a single limit of liability of $1 million and an aggregate limit of liability for all claims of $3 million. Under the terms of the policy, “related claims” against an insured were considered a single claim, subject to the single claim limit of liability of $1 million. The Policy defined “related claims” to mean all claims arising out of a single act, error or omission or arising out of acts, errors or omissions that are logically or causally connected by any common, fact, circumstance, situation or decision.

The insurer filed suit against the insured, seeking a declaration that the multiple claims against the pharmacist constituted a single claim under the policy such that only the $1 million single claim limit of liability applied. In bringing the action and opposing the insured’s motion to dismiss, the insurer argued that, in order to fulfill its contractual duties with regard to settlement, the insurer needed to know whether to evaluate its potential exposure in terms of whether the $1 million or $3 million limit of liability applied.

The court rejected the insurer’s position, first finding that the insurer’s purported inability to negotiate a settlement of the underlying claims based on its lack of a court order that the underlying claims are, or are not, related does not constitute a legal and concrete injury. The court pointed out that the insurer could in fact consider its “potential” exposure of $3 million in settlement negotiations without the declaratory judgment action, adding that the United States Court of Appeals for the Eleventh Circuit has noted that “advisory relief is unavailable through the declaratory judgment procedure” when an insurer seeks “a hypothetical advisory opinion to assist it in its ongoing settlement negotiations.”

Next, the court held that even if there was an injury to address, the issue of whether the claims against the pharmacist were related was not ripe for resolution. In this regard, the court rejected the insurer’s argument that the relatedness issue could be determined by the pleadings alone, pointing out that although the bare allegations of the complaints may trigger the duty to defend, the duty to indemnify does not arise out of the duty to defend, and therefore must be analyzed separately. Further, the court explained that whether claims are related for the purposes of determining policy limits requires a finding of the proximate cause of the insured’s liability for each claimant’s injury. According to the court, under Alabama law, claims that are based on the same cause are “related,” but if the cause of injury is not the same for each, the claims are not related.