When the window closes, insureds can be locked out
Insureds should not balk for a moment at reporting any sign of
a claim to their insurers, no matter how premature or frivolous
a claim may seem, or how embarrassing it may be to disclose it.
By Joseph S. Harrington, CPCU
A liability insurance policy provides one coverage trigger or another: occurrence or claims made. You can’t have both, and you don’t have a choice between them on a claim-by-claim basis.
Basic as that seems to agents and brokers, federal courts have had to act of late to clarify expectations regarding claims-made coverage in cases where the facts were not so straightforward.
In August 2022, a U.S. appeals court in Illinois ruled that a D&O liability insurer owed no duty to defend a suit originally submitted to the defendants in 2017, but not reported to the insurer until an amended complaint was filed in 2018. [Hanover Ins. Co. v. R.W. Dunteman Co., No. 20-1826 (7th Cir. Oct. 24, 2022)]
The original complaint sought a declaratory judgment against the insured company; the amended complaint added allegations against individual officers, directors, and shareholders, prompting them to notify the insurer. Claims-made D&O policies were in force for both 2017 and 2018.
In essence, the court held that the claim was made when the first suit was filed in 2017, and that the amended complaint submitted in 2018 did not constitute a different claim. Under that logic, since the defendants did not report the claim during the policy period when it was first made, the insurer had no obligation to defend it.
No notice; no coverage
In October, a U.S. district court in Colorado held that a professional liability insurer owed no coverage for the estate of a dentist who died without reporting several recent suits against him by former patients. In that ruling, the court stated that there was no need for an insurer under a claims-made policy to demonstrate that lack of notice prejudiced its defense. Timely notice was required to trigger coverage, regardless of its impact on the defense. [Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Estate of Calendine, 2022 WL 3446023 (D. Colo. Aug. 17, 2022)]
For agents and brokers, these cases serve as vivid reminders to impress a message upon clients insured under claims-made policies.
Insureds should not balk for a moment at reporting any sign of a claim to their insurers, no matter how premature or frivolous a claim may seem, or how embarrassing it may be to disclose it.
Occurrence-based coverage stays with you until whenever the claim comes, but a window closes when the reporting period ends for a claims-made policy, and insureds can’t climb back into coverage through another window.
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.