Claims Made & Reported Policies: Continuous Coverage Does Not Trump the Requirement that Claims Be Made and Reported in the Same Policy Period

In a ruling upholding the concept that “words have meaning”, a United States District Court interpreting South Carolina law denied coverage to an insured which had a claim made against it in one policy period but did not report the claim to its insurer until the next policy period even though the insured was continually insured by the same insurer. Rather, the Court held in essence that a requirement that claims be “made-and-reported in the policy period” actually means that claims that claims must be made and reported in the same policy period and coverage will not be extended merely because the insured renews its policy.

In GS2 Engineering & Environmental Consultants, Inc. v. Zurich American Insurance Company and Steadfast Insurance Company, United States District Court for the District of South Carolina, 3:12-cv-02934-CMC the Court was confronted with a claim for coverage against an insurer which provided continuous coverage to an insured through two separate “claims-made-and reported” policies. Each policy required claims to be made and reported in the same policy period. A claim was made against the insured during the first policy period (about 5 months before the policy expired) but was not reported to the insurer until 47 days after the first policy terminated (i.e. during the second policy period). The insurer denied coverage and the insured asserted claims for breach of contract and bad faith failure to pay insurance benefits.

The Court granted summary judgment for the insurer holding that the essence of claims-made-and-reported policies requires that claims be both made against the insured and reported to the insurer during the same policy period and noting that unless a specific policy provision provides otherwise “renewal of a claims-made-and-reported policy does not modify the requirement that claims be reported in the same policy period in which they are received.” Inasmuch as the policy clearly advised that coverage required a claim to be made and reported during the same policy period, coverage did not exist under either policy.

The case is significant in several respects.

  • First and foremost, it rejects the concept advanced by some insureds that somehow the claims made and reported requirement is not enforceable if an insured is continuously insured by the same insurer when the claim is made and when the claim is reported. Rather, as noted by the Court “the conceptual framework applicable to claims-made-and-reported policies applies where a policy is renewed, as well as when it is not, since each policy represents an agreement as to a specific period during which claims made and reported will be covered.” [Quoting from the decision in Checkrite Ltd., Inc. v. Illinois Nat. Ins. Co. 95 F. Supp. 2d 180 (S.D.N.Y. 2000)].
  • Second, it rejects the concept that a limited extension of time to report claims after a policy is terminated and not renewed somehow makes the policy ambiguous and permits an insured to obtain coverage for claims made and reported in separate policy periods in all circumstances. [The policies contained an “extended reporting period” provision which permitted an insured to report claims made during the policy up to 30 days after the policy period ended if the policy was not renewed. Inasmuch as the policy was renewed, the extended reporting period could not apply.]

The decision was rendered on July 9, 2013 and the time to seek review has not expired.

Richard D. Hoffman is a litigator in the San Francisco office, focusing 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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