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Court of Appeal, First District, Division 3, California.

BAY CITIES PAVING & GRADING, INC., Plaintiff and Respondent, v. LAWYERS' MUTUAL INSURANCE COMPANY, Defendant and Appellant.

No. A049722.

Decided: August 30, 1991

Aaron M. Greenberg, Phillips, Greenberg, Dolven & Strain, San Francisco, for defendant and appellant. Arthur R. Abelson, San Leandro, for plaintiff and respondent.


Respondent Bay Cities Paving & Grading, Inc. (hereinafter Bay Cities), retained attorney Robert Curotto to render legal services in connection with construction work it was performing on a project called Seaport Village North in Redwood City.   Thereafter, Bay Cities filed a complaint for legal malpractice against Curotto, alleging negligence in his failure to file a complaint to foreclose on a mechanic's lien within the statutory time period and his failure to serve a stop notice on the construction lenders within the statutory time period.   Curotto tendered the defense of the action to appellant Lawyers' Mutual Insurance Company (hereinafter Lawyers' Mutual), his malpractice insurance carrier.   Prior to the filing of the lawsuit Bay Cities had asserted these claims through correspondence.

Pursuant to a stipulation among the parties, Curotto was dismissed from the action and Lawyers' Mutual was designated as the defendant.   The parties stipulated that coverage under the Lawyers' Mutual policy allowed $250,000 per claim and an annual limit of $750,000.   During the proceedings below and now on appeal, Bay Cities contends that it has asserted two separate claims against Curotto, within the meaning of the policy and that the limits of his malpractice coverage are $500,000.   Lawyers' Mutual argues that only one claim has been asserted.   The critical language of the policy is as follows:  “Multiple Insureds, Claims and Claimants:  The inclusion herein of more than one Insured or the making of claims or the bringing of suits by more than one person or organization shall not operate to increase the Company's limit of liability.   Two or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim․”

Lawyers' Mutual agreed to pay Bay Cities $250,000 as part of the stipulation and the matter went to trial on the issue of whether, under the language of the policy, Bay Cities was entitled to recover on a basis of there being two claims, up to a maximum of an additional $187,000.

The trial court ruled that Curotto had committed two acts of legal malpractice and they were not related under the terms of the policy.   The two acts were failing to file a timely action to foreclose on a mechanic's lien and failing to file a stop notice.   Bay Cities was awarded $169,000.   Lawyers' Mutual appeals.


Single Claim or Multiple Claims

 Lawyers' Mutual submits that Bay Cities presented only one claim to Curotto.   Lawyers' Mutual argues that as Bay Cities made only one demand for payment and instituted only one lawsuit against Curotto, only one claim was presented and therefore the $250,000 limitation on liability applies.   As Lawyers' Mutual reasons, Bay Cities is merely asserting two theories of liability in its complaint against Curotto and this does not convert a single demand into two claims.   Its argument is that failure to properly enforce a mechanic's lien and stop notice are but two remedies to collect one construction bill.

It is a well-established principle that an insurance policy must be construed as a whole, with each clause lending meaning to the other.   (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 916–917, 226 Cal.Rptr. 558, 718 P.2d 920.)   Reviewing the policy with this principle in mind, we have determined that Bay Cities presented two claims to Curotto as a result of two separate and independent errors or omissions.

In a portion of the policy titled “Definitions,” it reads:  “(a) ‘Claim’ whenever used in this policy means a demand, including service of suit or institution of arbitration proceedings, for money against the Insured.  [¶] (b) A claim shall be considered ‘made’:  (1) when it is first reported to the Company or (2) when the Insured, having become aware that the Insured has committed an act, error or omission which may give rise to a claim, reports to the Company:  [¶] (i) Such specific act, error or omission;  (ii) [¶] The injury or damage which has or may result from such act, error or omission;  and [¶] (iii) The date and circumstances by which the Insured first became aware of such act, error or omission.”

Further, under the portion titled “Limits of Liability,” the policy provides that “[t]wo or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim․”  (Emphasis added.)

“Claim” is not synonymous with lawsuit both under the law (see Phoenix Ins. Co. v. Sukut Construction Co. (1982) 136 Cal.App.3d 673, 677, 186 Cal.Rptr. 513) and under the terms of the policy at hand.   As demonstrated by the language of the policy we have emphasized, Lawyers' Mutual recognized the possibility that two claims could arise from two related errors or omissions and attempted to protect itself from that risk.

Additionally, it is evident that Lawyers' Mutual understood Bay Cities had presented two claims against Curotto:  one for his negligence in failing to file a timely complaint to foreclosure on a mechanic's lien and one for his negligence in failing to serve a timely stop notice on the construction lenders.   In its correspondence with Curotto and Lawyers' Mutual, Bay Cities made it clear that it had two separate claims against Curotto.   Lawyers' Mutual's argument that there is only one claim because only one lawsuit was filed, is unpersuasive.   There are two distinct causes of action and the fact that they are included in one lawsuit should not be the deciding factor.

Each error alone created a separate claim.   Once Curotto failed to file a timely complaint to foreclose on the mechanic's lien there was no other act which needed to be committed by him for this error to constitute a claim.   The same may be said about Curotto's failure to file a stop notice.   Either the mechanic's lien foreclosure error or the stop notice error alone comprised a complete claim.

Alternatively, Lawyers' Mutual urges that even if two claims were presented, the trial court erred in not limiting liability to $250,000 pursuant to the clause that “two or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim.”  (Emphasis added.)   Lawyers' Mutual submits that if there are two claims here, they arose out of a series of related errors or omissions.

Courts analyzing similar language in professional liability policies have concluded that a related act, error or omission must have a causal connection with another act, error or omission.   In Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme (1987) 153 Ariz. 129, 735 P.2d 451, the Arizona Supreme Court noted that the term “related” was not defined within the policy, nor was there a generally accepted legal definition of the term.   Accordingly, the high court applied the term in its commonly accepted dictionary sense.   “Relate” according to Webster's Third New International Dictionary (1965) page 1916, means “ ‘show[ing] or establish[ing] a logical or causal connection between.’ ”  (Id., 735 P.2d at p. 456.)   Reasoning that the determination of whether two acts have a “logical connection” would require a subjective analysis, the court concluded that “causal connection” was the more appropriate definition in this instance.   The Helme court noted that a review of opinions in other multiple-act cases revealed that “ ‘series of related acts or omissions' ” was consistently interpreted in terms of causation.  (Id., 735 P.2d at pp. 456–457.)

In Estate of Logan v. Northwestern Nat. Cas. (1988) 144 Wis.2d 318, 424 N.W.2d 179, the Wisconsin Supreme Court considered whether a series of negligent acts by an attorney in the probate of an estate must be considered a single claim.   The court determined that the two acts, the failure to file timely tax returns and the subsequent misplacement of the returns were interdependent upon each other.   If the attorney had not initially failed to file the returns, he would not have been in a position to misplace the tax returns.   Conversely, the Estate of Logan court reasoned that the attorney's failure to file the tax returns and his failure to file fiduciary returns, to process an auction check, to close the estate, and to manage the estate's cash assets were not a series of related acts which must be treated as one claim.  “The duties encompassed in the above claims would have arisen notwithstanding [the attorney's] failure to file the state tax returns in a timely manner.   Moreover, regardless of the timeliness of the filing of the tax returns, [the attorney's] ability to file the fiduciary returns in a timely manner, process the auction check, and manage the cash assets of the estate appropriately was not affected.”  (Id., 424 N.W.2d at pp. 188–189.)

Gregory v. Home Ins. Co. (7th Cir.1989) 876 F.2d 602, relied upon by Lawyers' Mutual, is distinguishable from the instant case.   In Gregory, the court considered whether the two alleged errors of an attorney insured under a professional liability policy must be considered as a single claim.   The attorney purportedly erred in two aspects of an opinion letter prepared in connection with an investment package being promoted by his client.   The opinion letter mistakenly stated that the product marketed gave certain tax advantages to investors and that the product could not be considered a security requiring registration with the Securities and Exchange Commission.   A class action suit was filed by the investors alleging negligence as to the opinion letter's misstatements concerning the tax consequences.   Another claim was filed by the marketers of the investment package alleging errors in the opinion as to the tax benefits to purchasers as well as the requirement of Securities and Exchange Commission registration.  (Id., at pp. 603–605.)   Like the policy in the case at bench, the attorney's liability policy contained a provision that “[t]wo or more claims arising out of ․ a series of related acts, errors, omissions or personal injuries shall be treated as a single claim.”  (Id., at p. 604.)

The Gregory court analyzed the Helme opinion, concluding that the court there required “a causal connection in the sense that one error caused the other, not that the opportunity to commit the errors arose out of the same cause.”  (Gregory v. Home Ins. Co., supra, 876 F.2d at p. 605.)   However, Gregory did not rely on the Helme opinion in concluding the claims here were in fact related.   The Gregory court determined it unnecessary to rely on the Helme court's restrictive definition of “ ‘related.’ ”  (Id., at pp. 605–606.)

 We are in agreement with the Helme court's reasoning and that of the majority of courts that “related” as used in the policy at issue should be defined as requiring a causal connection.  (Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, supra, 735 P.2d at pp. 456–457.)   Like the policy in Helme, no definition was provided here for the term “related.”   The lack of definition allows for ambiguity with respect to the “Limits of Liability” clause.   Accordingly, we apply the well-settled rule that any ambiguity in an insurance policy will be construed against the insurer and in favor of the insured.  (United States Elevator Corp. v. Associated Internat. Ins. Co. (1989) 215 Cal.App.3d 636, 263 Cal.Rptr. 760.)

 Applying these principles to the instant case, we conclude that the alleged errors of Curotto did not arise out of a series of “related” errors or omissions within the meaning of the policy.   Curotto's negligence in failing to file a complaint to foreclose on the mechanic's lien has no causal connection to his failure to file a stop notice.   The two remedies for recovery of his client's funds are not dependent upon each other.   Each remedy seeks funds from a different source;  the foreclosure seeks to obtain funds from the sale of the property and the stop notice seeks to obtain funds from the construction lender.   Curotto's error with respect to the foreclosure did not create the opportunity for him to err with respect to the stop notice and vice versa.   There is nothing about the nature of these two errors which is interdependent.

Curotto had a duty to foreclose on the mechanic's lien which was separate and independent of his duty to file the stop notice.   Curotto's failure to file a timely complaint to foreclose did not preclude or in any way affect his ability to file a timely stop notice.   The fact that both negligent omissions occurred with respect to the Seaport Village project is not determinative of whether the claims should be treated as a single claim.   Under the terms of the policy it is the “acts, errors or omissions” that must be related.

Not to be deterred, Lawyers' Mutual further contends that in any event the errors or omissions are related because they arose out of the same time frame.   However, this position is not supported by the record.   Curotto's last day to file the stop notice was September 30, 1981, but he had until the middle of December of that year to file an action to foreclose on the mechanic's lien.   Thus, there were two separate and distinct time periods.

Computation of Prejudgment Interest

The final argument asserted by Lawyers' Mutual is that an excessive amount of prejudgment interest was awarded to Bay Cities.   The trial court here awarded prejudgment interest from the date of the tort, September 30, 1981, the last date it determined Curotto could have filed a timely stop notice.   Lawyers' Mutual submits that if this court holds there were two unrelated claims, prejudgment interest should have been awarded from June 23, 1987, the date of Bay Cities' demand upon Curotto for two separate claims or from November 12, 1986, the date Curotto's negligence became irremediable.1  In our view, the trial court did not err in computing the time from which prejudgment interest should be awarded.

The contention that interest should have commenced from the time of Bay Cities' demand upon Curotto is founded upon the argument that the award here is based upon contract principles.   Lawyers' Mutual submits that its obligation to pay for Curotto's negligence is based upon contract principles, specifically a question of coverage under the professional liability policy.   Of course, this argument ignores the critical fact that Bay Cities' complaint against Curotto alleged negligence liability.   It was only Lawyers' Mutual's intervention in the action which introduced contractual questions into the case.   The basis of Curotto's underlying liability in the case was negligence.

Civil Code section 3287, subdivision (a) provides in part:  “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day․”  Civil Code section 3288 provides as follows:  “In actions other than contract.   In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury.”

 Where the action falls under the provisions of section 3288, the decision to award prejudgment interest will not be disturbed on appeal absent an abuse of discretion.  (Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 814, 148 Cal.Rptr. 22, 582 P.2d 109.)   The Bullis court ruled that while the language of Civil Code section 3288 only grants authority to the “jury” to award prejudgment interest, the trial court, when acting as the trier of fact, may also award prejudgment interest under the statute.  (Id., at p. 814, 148 Cal.Rptr. 22, 582 P.2d 109.)   In Bullis, the Supreme Court upheld the trial court's award of prejudgment interest from the date of the appellant's negligence, at which point respondent suffered monetary loss.   The high court noted that the date of each negligent act was readily ascertainable and stipulated to by the parties.  (Id., at p. 815, 148 Cal.Rptr. 22, 582 P.2d 109.)

The action in this case was plainly based on tort and thus falls within the purview of Civil Code section 3288.   It is clear that the award of prejudgment interest from the last date Curotto could have filed a timely stop notice was a readily ascertainable date and did not constitute an abuse of discretion.

The judgment is affirmed.


1.   Lawyers' Mutual interprets this date as November 12, 1986, the date our Supreme Court denied review of a Court of Appeal decision affirming the grant of summary judgment against Bay Cities in an action against American Savings and Loan Association.   Pursuant to Lawyers' Mutual's request, we take judicial notice of the consolidated opinion filed in Bay Cities Paving & Grading, Inc. v. American Savings and Loan Association A030180 and Bay Cities Paving & Grading, Inc. v. Rossi Tower Limited (Aug. 29, 1986) A031553 [nonpub. opn.].

MERRILL, Associate Justice.

WHITE, P.J., and CHIN, J., concur.

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