Insurer Cannot Avoid Liability Because Suit Served After Policy Period
A Louisiana federal court, applying New York law, held that an insured does not need actual knowledge of a suit filed during the policy period in order for a claim to made under a claims-made policy and that a claims-made policy cannot avoid coverage merely because timely notice of a claim occurs after the policy period ended.
The claims-made policy at issue covered the period from December 31, 2012 to December 31, 2013. The insured was named as a defendant in a class action lawsuit on December 18, 2013, but was not served with the lawsuit until January 15, 2014. On January 23, 2014, the insured notified the insurer of the action filed against it. The insurer denied coverage arguing that in order for there to be coverage a “Claim” must first be made against the insured within the policy period; and the “Claim” must be reported to the insurer within the policy period. The insured then filed a declaratory judgment action alleging breach of contract and breach of the implied covenant of good faith and fair dealing, based on the insurer’s failure to defend.
The parties disputed whether a “Claim” was made within the policy period and whether notice was timely. The policy defined “Claim” as “a written demand or service of civil proceedings by one or more claimants.” The insured argued that the “Claim” was made on December 18th when the insured was first named in the underlying lawsuit. The insurer argued that the “Claim” was made on January 15, 2014 when the insured received service because, under the policy language, the very nature of a “Claim” involves some type of notice to the insured. The court found that the definition of “Claim” was unambiguous and particularly clear because it made the distinction between the date a claim is made against an insured and the date the insured receives written notice. Therefore, the court held that the “Claim” was made when the insured was named in the underlying lawsuit.
As to the notice provision, the insured contended that it provided timely notice when it contacted the insurer 8 days after it first received notice of the claim. The “Notice of Claim” provision of the policy provides that the insured must give written notice “as soon as practicable but in any event the earlier of 30 days after You first receive notices of any Claim … which is reasonably expected to give rise to a Claim, or the end of the Policy Period.”
The insurer argued that the “earlier of 30 days” portion of the notice requirement did not modify the “end of the Policy Period” requirement and, therefore, did not extend the policy period, but instead, only applied to the notice and awareness portion. The court did not disagree with the insurer’s grammatical interpretation of the notice provision, but found that it did not conflict with the insured’s assertion that the provision permitted notification within 30 days of first receiving notice of the “Claim.” Thus, the court held that, although the insured’s notice to the insurer occurred after the expiration of the claims-made policy, it was timely and did not bar coverage. HealthSmart Benefit Solutions, Inc. v. Principia Underwriting, No. 14-00776 (W.D. La. Jan. 23, 2015).