Coverage for “Related Claims” Reported after the End of a Claims Made Policy
Coverage for “Related Claims” Reported after the End of a Claims Made Policy
By David Grossbaum, Esq., of Cetrulo & Capone, LLP. Grossbaum's practice focuses on the defense of professional liability claims against lawyers and other professionals, and on insurance coverage issues. He is a past chair of the New England Steering Committee of PLUS and of the Professionals’, Officers’ and Directors’ Liability Committee of the American Bar Association.
The scenario discussed in this article happens all the time: A claim is made against the insured during a claims made policy, and the attorney reports it to the carrier, thereby triggering coverage. After that policy has expired, a related claim is made against the same insured. The second claim is reported under the expired policy that is covering the first claim and also under the policy in effect when the second claim was made against the insured. Which policy provides coverage for the later related claim -- the first policy, the second policy, or both?
The hallmark of a claims made and reported policy is that it only provides coverage if a claim is made against the insured and reported to the insurer during the policy period. That language would seem to preclude coverage under an expired policy, placing the second claim solely under the later policy. That is how some courts have dealt with this situation.
There is language in claims made and reported policies, however, that can change the outcome completely. Virtually all claims made and reported policies contain “related acts” language something like the following: “Related acts, errors or omissions shall be treated as a single claim. All such claims, whenever made, shall be considered first made during the policy period . . . in which the earliest claim arising out of such act, error or omission was first made, and all such claims shall be subject to the same limits of liability.” This language means that two related claims will be treated as a single claim, and both of the claims will be treated as having been made at the time the first claim was made (and reported). Under this interpretation, the second of the two related claims could, indeed, be treated as a claim made under the expired policy and covered by it.
Cases Finding That the Claim Relates Back to the Expired Policy
In Pizzini v. AISLIC, 2002 Westlaw 1477611 (E.D. Pa. 2002), the insured was covered by two policies issued by American Interna-tional Specialty Lines Insurance Company, one running from January 1, 1995 through January 1, 1996, and one from January 1, 1996 to January 1, 1997. In August of 1995, a group of plaintiffs, called the Pizzini Plaintiffs, sent a demand letter to the insured attorney and sued him in October 1995. The insured was not served with the complaint until in January 1996, at which time he notified AISLIC under the second policy. In March 1996, during the second AISLIC policy, another set of plaintiffs (the Petit Plaintiffs), also involved in the same matter, filed suit against the insured.
The court found that AISLIC properly disclaimed as to the Pizzini Plaintiffs because their claim (the August 1995 demand letter) had been made against the insured during the first AISLIC policy but not reported until the second AISLIC policy, a violation of language requiring that the claim first be made against the insured and reported to the insurer during a single policy period. As to the Petit Plaintiffs, although this claim actually was first made and reported during the second AISLIC policy, the “related acts” language meant that this claim would be treated as having been first made in August 1995 when the Pizzini Plaintiffs first made their “related” claim. The Petit claim was not covered because it was not first made and reported during a single AISLIC policy period.
A similar result occurred in United States v. A.C. Strip, 868 F. 2d 181 (6th Cir. 1989). The first claim was made against an individual insured lawyer during a policy issued by Pacific Employer’s Insurance Company. The complaint was served on the lawyer a week before the Pacific policy expired. He did not give written notice to his insurance agent until after the Pacific policy had expired and a policy with The Home Insurance Company had commenced. Later, during The Home policy period, the plaintiff filed an amended complaint, this time naming the insured law firm as a defendant. The court had to decide whether Pacific or Home or neither covered these two claims.
The court said that the suit against the lawyer could not be covered by Pacific because he never reported it during the Pacific policy period. Likewise, The Home did not cover this claim because it was made against the insured before The Home policy commenced.
As to the claim against the law firm, which actually was made against the insured and reported during The Home policy, the court looked to the “related acts” language. The court found that the claim against the law firm was “related” to the claim that was made against the individual lawyer before The Home policy commenced. Under the “related acts” clause, the law firm claim and the lawyer claim were both deemed to be a single claim and to have been made when the lawyer was first sued. Because that date was before The Home was on the risk, the claim against the firm was not treated as a claim first made during The Home policy.
Another case, Kopelowitz v. Home Ins. Co., 977 F. Supp. 1179 (S.D. Fla. 1997), adopts the reasoning that if the first of the related claims is barred (in this case by an exclusion for potential claims reported on the application), the subsequent related claim is also barred, but the court found that the claims were not related.
In Continental Cas. Co. v. Wendt, 205 F. 3d. 1258 (11th Circuit 2000), the court held that there was no coverage for the second of two related claims because the second claim was treated as made under the policy in effect when the first related claim was made, and that earlier policy had already paid its limits.
Cases Finding Coverage for the Related Claims under the Later Policy
There are at least two cases finding that a claim reported after the expiration of a policy can never be covered, regardless of whether it relates back to a claim made and reported while the policy was still in force. In Homestead Ins. Co. v. American Empire Surplus Lines Ins. Co., 44 Cal. App. 4th 1297 (1996), the court found that a subsequent related claim was not covered by the policy in effect when the first related claim was reported. By the time the second claim was reported, the policy covering the first claim had expired, but that policy contained a definition of “claim” that included the following: “claims arising out of the same act or out of a series of interrelated acts shall be considered as arising out of one negligent act, error or omission and shall be treated as a single claim.” The court said that imposing coverage for the later related claim on a carrier whose policy had expired violated the basic requirement of claims made and reported policies, namely that claims must be reported to the insurer while the policy was still in force. The court further found that the “related acts” clause was designed instead to make sure that related claims reported during the policy would not trigger two limits and multiple deductibles.
A similar result was reached by the federal court in the Eastern District of Pennsylvania in Lehigh Valley Network v. Executive Risk Indemnity, Inc., 2001 Westlaw 21505 (E.D. Pa. 2001), the same district that more recently decided Pizzini. In that case, there were two successive carriers, ACIC and then Travelers. A claim was made against the insured and reported to ACIC during its policy. A later claim was made and reported during the Travelers policy. The court said that the “related acts” language in the ACIC policy was designed to create a limitation on the limits of liability that might be provided for related claims rather than to extend coverage for related claims reported after the policy had expired. The court then interpreted the “related acts” language in the Travelers policy (both in the “conditions” section and in an exclusion) and found that the claims were not related.
Experience tells us that a carrier will frequently pick up coverage for claims reported after its policy has expired if the later claim relates to a prior claim that was reported to it. Whether a carrier is obligated to provide coverage in these situations is an issue on which courts have come to different conclusions, even within the same jurisdiction. The lesson learned from these cases is that if a related claim is made after the policy has expired, coverage must be evaluated carefully under the law governing the insurance contract.
This article is reprinted here with the permission of the Professional Liability Underwriting Society. This article was originally published in the PLUS Journal. This article is intended to inform the reader of potential liability exposures for attorneys. This article reflects general principles only and does not render legal advice. Readers should consult legal, financial, insurance and other advisors if they have specific concerns. Neither the Los Angeles County Bar Association, Aon and its affiliates, the author nor PLUS assumes any responsibility for how the information in this article is applied in practice or for the accuracy and completeness of the information. Reproduction without written permission is prohibited. This article is made available by Aon Direct Insurance Administrators, administrators of the LACBA Sponsored Aon Insurance Solutions Program, with the permission of PLUS.
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