7th Circuit Upholds Prior Knowledge Provision in Claims-Made Policy

The Seventh Circuit Court of Appeals decided on April 2, 2013 that an Indiana law firm was not entitled to coverage for a claim made and reported in a second policy period where the insured reasonably had knowledge that a claim might be made during the first policy period. Koransky, Bouwer & Poracky v. The Bar Plan Mutual Insurance Co., No. 12-1579, 2013 U.S. App. LEXIS 6558 (7th Cir. Apr. 2, 2013). As the Court noted (in affirming a District Court decision to the same effect), “a reasonable attorney would have recognized that his failure [to deliver a contract during the first policy period] . . .was an omission that could reasonably be expected to be the basis of a malpractice claim.” According to the Court, the Firm should have reported the potential claim before its initial claims-made policy expired and the Firm made a misrepresentation in its renewal application when it did not disclose the incident that could give to a claim. Thus two bases existed for denying coverage:

  • Prior Knowledge; and
  • Rescission (which ultimately was not pursued by the Insurer).

The decision and holding is most interesting in that it involved an Insured who was continually insured by the same insurer. This supports the proposition that the prior knowledge provisions of claims made and reported policies (or permitting rescission) should apply even in cases where the insured is continually insured by the same insurer.

Author Richard Hoffman is a partner in Duane Morris’ Trial Practice Group. He focuses his practice on focus on fiduciary litigation and insurance coverage advice and litigation.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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