Notice of Claims in Claims-Made Insurance Policies

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Notice of Claims in Claims-Made Insurance Policies Identifying Claims; Evaluating Whether and When to Report WEDNESDAY, FEBRUARY 22, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Eric G. Barber, Atty, Perkins Coie, Madison, Wis. Mark D. Villanueva, Atty., McCarter & English, Philadelphia Nancy R. Kornegay, Partner, Brown & Kornegay, Houston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 Defining Claim in Claims-Made Policies Eric G. Barber Perkins Coie LLP (608)

5 Definition of "Claim" Usually quite broad; Often includes: Civil or criminal proceedings; Written demands; Administrative or regulatory proceedings; May include investigations of insureds As distinguished from a Circumstance 5

6 Sample "Claim" Language (1) a written demand for monetary, non-monetary or injunctive relief, including, but not limited to, any demand for mediation, arbitration or any other alternative dispute resolution process; (2) a civil, criminal, administrative, regulatory or arbitration proceeding for monetary, nonmonetary or injunctive relief which is commenced by: (i) service of a complaint or similar pleading; (ii) return of an indictment, information or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges; (3) an Insured Person Investigation; (4) a Derivative Demand; (5) an official request for Extradition of any Insured Person, or the execution of a warrant for the arrest of an Insured Person where such execution is an element of Extradition. "Claim" shall include any Securities Claim and any Employment Practices Claim. Source: Chartis Executive Edge Broad Form Management Liability Insurance Policy (Form (4/10)), Section 13. Definitions, "Claim." 6

7 Demand for Damages Cases Fed. Ins. Co. v. Ill. Funeral Director's Ass'n, 2010 U.S. Dist. LEXIS (N.D. Ill. Dec. 8, 2010) (letter from agency identifying excess fees was a written demand for non-monetary relief); City of Santa Rosa v. Twin City Fire Ins. Co., 140 N.M. 434 (2006) (employment discrimination charge not a claim without damages demand); Westrec Marina Management, Inc. v. Arrowood Indem. Co., 163 Cal. App. 4 th 1387 (2008) (former employee's letter alleging wrongful termination was written demand). 7

8 Coverage for Securities Claims Directors and officers insurance policies often cover Securities Claims claims arising out of wrongful acts related to purchase or sale, or offer to purchase/sell securities issued by the insured; SEC investigations and enforcement actions excluded in many cases, but they may be covered. 8

9 Securities Claims Cases Nat'l Stock Exch. V. Fed. Ins. Co., 2007 U.S. Dist. LEXIS (N.D. Ill. Mar. 30, 2007) (SEC investigation not a claim before formal order issued); Minuteman Int'l, Inc. v. Great Am. Ins. Co., 2004 U.S. Dist. LEXIS 4660 (N.D. Ill. Mar. 18, 2004) (SEC investigation was a claim where policy required demand for non-monetary relief); Highwoods Props. v. Exec. Risk. Indem., Inc., 407 F.3d 917 (8th Cir. 2005) (breach of fiduciary duty involving stock was a claim). 9

10 Are Subpoenas Claims? No definite answer recent cases go both ways and often turn on the policy s specific language; Courts look at link between subpoenas and related government investigations; 10

11 Recent Cases Involving Subpoenas as Claims Ace Am. Ins. Co. v. Ascend One Corp., 570 F. Supp. 2d 789 (D. Md. 2008) (subpoena and investigative demands were claims); Jemmco Partners v. Exec. Risk. Indem., Inc., No. L (N.J. Super. Ct., filed Mar. 22, 2007) (subpoena seeking documents was a claim). But see, Diamond Glass Cos. v. Twin City Fire Ins. Co., 2008 WL (S.D.N.Y. Aug. 18, 2008) (grand jury subpoena for documents/testimony was not a claim); 11

12 Related/Interrelated Claims Losses stemming from same/related acts generally considered a single claim; Policy language consolidates multiple claims that have a "common nexus," or are "causally or logically connected"; Very contentious issue without a clear resolution across courts. 12

13 Related/Interrelated Claims Cases Quanta Lines Ins. Co. v. Investors Capital Corp., 2009 U.S. Dist. LEXIS (S.D.N.Y. Dec. 17, 2009) (claims must have sufficient factual nexus to be interrelated); Axis Surplus Ins. Co. v. Johnson, 2008 U.S. Dist. LEXIS (N.D. Okla. Oct. 3, 2008) (factual analysis, not just legal theory, is essential to determine relatedness); G-I Holdings v. Hartford Fire Ins. Co., 2007 U.S. Dist. LEXIS (D.N.J. Mar. 16, 2007) (construing "interrelated wrongful acts" as unambiguous). 13

14 Late Notice of Claims in Claims-Made Insurance Policies Mark D. Villanueva, Esq. McCarter & English

15 What are Claims-Made Policies? Professional liability policies such as Directors and Officers, Errors and Omissions, and Employment Practices Liability policies are typically written on a claims-made basis Provide coverage for claims asserted against the insured during the policy period 15

16 Benefits to the Insurer of Claims- Made Policies Limited tail exposure Predictability of potential obligations at close of policy period Smaller gap of time between when insurer prices policy and the time when the insurer may incur an obligation to pay

17 Notice Provision in Pure Claims Made Policies Typically requires notice as soon as practicable 17

18 Notice Provision in Claims-Made and Reported Policies ) Insurers place the reportingrequirement in the Insuring Agreement, Conditions, or both Failure to trigger the Insuring Agreement bars all coverage, while breach of a reporting Condition may not bar all coverage for late notice 18

19 Notice Provision in Claims-Made and Reported Policies (cont.) Insuring Agreement: affords coverage for claims first made against you and reported to us in writing during the period this Policy is in effect or within ninety (90) days following its termination. 19

20 Notice Provision in Claims-Made and Reported Policies (cont.) Conditions: It is a condition precedent to this insurance that you [provide notice] of any claim as soon as practicable during the Policy Period... but in no event later than ninety (90) days after the expiration of the Policy Period. 20

21 Notice Provision in Claims-Made and Reported Policies (cont.) Some policies may also include the following language in the definition of Claim : A claim shall be considered made : (1) when it is first reported to the Company 21

22 The Notice Prejudice Rule Many jurisdictions have considered the notice prejudice rule in the context of occurrence based policies. Notice provision in occurrence based CGL policy may provide: In the event of an occurrence, written notice containing particulars sufficient to identify the insured and all reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable. 22

23 The Notice Prejudice Rule (cont.) As soon as practicable has been construed to mean within a reasonable time and is a fact specific inquiry. See, e.g., Bass v. Allstate Ins. Co., 77 N.J. Super. 491, 495 (App. Div. 1962); Country Mutual Insurance Company v. Livorsi Marine, Inc., 856 N.E.2d 338, 343 (Ill. 2006); Mount Vernon Fire Ins. Co. v. King Gen. Constr., 1998 U.S. App. LEXIS (2d Cir. 1998). 23

24 The Notice Prejudice Rule (cont.) Some jurisdictions place burden on policyholder to prove that late notice did not prejudice the carrier See, e.g., Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530, (Iowa 2002); Ferrando v. Auto-Owners Mut. Ins. Co., 781 N.E.2d 927 (Ohio 2002) 24

25 The Notice Prejudice Rule (cont.) Other jurisdictions impose the burden of proving appreciable prejudice on the carrier See, e.g., Cooper v. Government Employees Ins. Co., 51 N.J. 86, (1968); Resolution Trust Corp. v. Moskowitz, 868 F. Supp. 634, 638 (D.N.J. 1994) 25

26 The Notice Prejudice Rule (cont.) At least 8 states have passed legislation concerning the notice prejudice rule Maryland Ins. Code , Massachusetts Ins. Code 112, Michigan Ins. Code , Missouri Reg , New York Ins. Code 3420, Texas Board of Ins. Order No , Utah Ins. Code 31A , Wisconsin Ins. Code

27 The Notice Prejudice Rule (cont.) Most courts have declined to apply the notice prejudice rule to claims-made and claims-made and reported policies. See, e.g., Zuckerman v. National Union Fire Insurance Company, 100 N.J. 304 (1985); Central Illinois Light Co. v. Home Insurance Co., 821 N.E.2d. 206 (Ill. 2004); Gulf v. Dolan, Fertig & Curtis, 433 So. 2d 512, (Fla. 1983) 27 For example, a lawsuit filed against an insured during the policy period, but served after the policy period was not covered in Slater v. Lawyers Mutual Ins. Co., 278 Cal. Rptr. 479 (Cal. Ct. App. 1991).

28 The Notice Prejudice Rule (cont.) Some courts have applied the notice prejudice rule to claims-made and claims-made and reported policies. See, e.g., Sherwood Brands, Inc. v. Great American Ins. Co., 418 Md. 300 (2011); Financial Industries Corp. v. XL Specialty Ins. Co., 285 S.W.3d877 (Tex. Sup. Ct. 2009); Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., 288 S.W.3d 374 (Tex. Sup. Ct. 2009); Sherlock v. Perry, 605 F. Supp (E.D. Mich. 1985) 28

29 Notice: to Give or Not to Give. That is the Question! Nancy R. Kornegay Brown & Kornegay, LLP Houston, Texas Brown & Kornegay LLP

30 The Five Basic Types of Notice Provisions 1. Occurrence: as soon as practicable or immediately ; 2. Claims-made: as soon as practicable or immediately ; 3. Occurrence reported: requires reporting of an occurrence likely to involve the policy as soon as practicable and, in any event, during the Policy Period. 4. Claims-made-and-reported: as soon as practicable during the Policy Period,... but in no event later than ninety days after the expiration of the Policy Period or Discovery Period. 5. Circumstance: If, during the Policy Period, the Insureds become aware of any circumstance that may give rise to a Claim being made against the Insureds... shall give written notice... with full particulars.... Many courts fail to distinguish between claims-made and claims made-and-reported policies, and speak in broad terms of claims-made policies. See, e.g., Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., 288 S.W.3d 374, 380 (Tex. 2009) (citing Textron, Inc. v. Liberty Mut. Ins. Co., 639 A.2d 1358, 1362 n.2 (R.I. 1994) and discussing courts failures to distinguish types of policies) Brown & Kornegay LLP

31 When and Whether to Give Notice When and whether to give notice are two potentially thorny questions. When the issue of notice involves an actual claim, the decision is less risky, but not without risk: Presumably, the policy s definition of claim has been met The insured can assess from the claim whether the policy s notice requirements can be satisfied Is the claim against an insured under the policy? Does the claim allege wrongful acts as defined by the policy by an insured under the policy? If, however, there is no assertion or threat of liability, then claim may not be satisfied. See, for example, FDIC v. Booth, in which the Fifth Circuit held that the mere threat of liability will not necessarily develop into an actual demand for compensation and is not a claim. 82 F.3d 670, 675 (5th Cir. 1996) Generally, the less the insured is able to provide notice of the specifics the who, what, where, why, and when of a claim the less likely it is that the insured can provide adequate notice Brown & Kornegay LLP

32 Examples of Non-Claims: No Wrongful Act Consider the following typical notice of claim in a claims-made policy: The Insureds must, as a condition precedent to the obligations of the Insurer under this Policy, give written notice, including full details, to the Insurer of any Claim as soon as practicable after it is made. Next, consider a lawsuit in which the Insured is named as a defendant but there is no allegation in the lawsuit of a wrongful act as defined in the policy the lawsuit makes a request for specific performance, for example. If the definition of claim includes any civil proceeding commenced by service of a complaint or similar pleading, is this a claim? Does it trigger the Insured s duty to provide notice to the insurer? The correct answer should be that, unless a civil proceeding... alleges a potentially covered wrongful act by the insured, there is no claim and the insured s obligation to provide notice has not been triggered Brown & Kornegay LLP

33 Only Excluded Acts are Alleged: National Union Fire Ins. v. Willis In 1998, Willis, an insured director and officer, was sued for intentional torts He did not give notice of the lawsuit to his D&O carrier In 2000, the plaintiffs amended their petition to include a claim of negligent misrepresentation against Willis He gave notice of claim under his 2000 D&O policy The insurer denied invoking its related claims provision and arguing the negligent misrepresentation claim related back to the 1998 suit The Fifth Circuit upheld the trial court s ruling in favor of National Union The court relied upon the 1998 policy s notice of circumstance provision, which stated, If during the policy period,... the Insureds shall become aware of any circumstances which may reasonably be expected to give rise to a Claim... and shall give written notice... with full particulars as to dates, persons, and entities invoked Brown & Kornegay LLP

34 Notice of Circumstance: a method for attaching coverage to a claim before an actual claim is made Different types of circumstance-notice provisions Some are mandatory: the Insured shall give notice Others are not: the Insured may give notice Obviously, an insured risks losing coverage for a potential claim if a mandatory circ notice provision is ignored. See Willis discussed above. Some invoke an objective standard for assessing whether known circumstances may give rise to a claim: aware of any circumstances which may reasonably give rise to a Claim Others invoke a subjective standard: aware of any circumstances the insured believes may give rise to a Claim Still others invoke a hybrid two-part standard: aware of any circumstances the insured reasonably believes may give rise to a Claim The wording of the circ notice provision determines the level of specificity required There is no bright-line rule for determining the sufficiency of the notice Brown & Kornegay LLP

35 Examples of Sufficient and Insufficient Notice Content Sufficient Notice: Sigma Fin. Corp. v. Am. Int l Specialty Lines Ins. Co., 200 F.Supp. 2d 710 (E.D. Mich. 2002). The circ notice provision stated the insured was to give notice of any occurrence of which the insured was aware that may reasonably give rise to a claim for a Wrongful Act. The court interpreted this to mean the insured need not give notice of a Wrongful Act, only an occurrence which may reasonably be expected to give rise to a claim for a Wrongful Act. A series of letters notifying the insurer of potential claims, which included a detailed account of relevant financial matters and the specific securities sales at issue was sufficient. Insufficient Notice: RTC v. Artley, 24 F.3d 1363 (11th Cir. 1994). The circ-notice provision required written notice of any written or oral notice received from a party stating the party intended to hold insured responsible for wrongful acts. The insured provided its insurer with financial documentation showing its loan portfolio was in trouble Brown & Kornegay LLP

36 Best Practices Review the policy. Policies that allow the insured to provide a circnotice are not uniform in their wording. Do you have enough information to provide an adequate notice? Make sure there is sufficient internal discussion about the circumstances gather adequate detail for the notice. Get outside advice from experienced coverage counsel and/or the broker who placed the policy on the content of the notice letter. Does it satisfy the elements of the notice requirement? Follow up with the insurer. Make sure they received the notice. Get their acknowledgement in writing that the notice was sufficient and accepted. If they decline, supplement with additional notice before the policy expires Brown & Kornegay LLP