The Eighth Circuit Court of Appeals recently reaffirmed that claims-made policies only provide coverage when “the error or omission is discovered and brought to the insurer’s attention during the term of the policy.” In Ritrama, Inc. v. HDI-Gerling America Insurance Company, No. 14-3392, 2015 WL 4730916 (8th Cir. Aug. 11, 2015), the Eighth Circuit made clear that “insurance policies are meant to cover risks of future events—not known losses,” particularly in the case of claims-made policies, which only cover claims that are first discovered during the policy period, not claims known to the insured before the policy incepts.
First, the court held that the word “claim” is unambiguous, even when not defined in the policy, and affirmed the lower court’s ruling defining claim as “an assertion by a third party that the insured may be liable to it for damages within the risks covered by the Policy.” The court explained that “a mere request for information is generally insufficient to constitute a claim, whereas a demand for relief generally constitutes a claim.” The court directly denied the insured’s attempt to require an implicit or explicit “threat to sue” in the definition of a claim. For example, the court stated that “mere complaints of a defective product without a demand for relief would not fall within the general definition of a claim,” but when a claimant alleges that the insured caused damage through some acts or missions and the claimant intends to hold the insured responsible, a cognizable claim has occurred, even without threatened litigation.
The court went on to hold that the claimant had made an assertion against the insured for damages prior to the policy issuance. Communications between the insured and the claimant included the word “claim” and evidence indicated that the insured had aggressively tried to settle the claim before the damages escalated. The court found this sufficient to establish that a claim had been made against the insured prior to the claims-made policy incepting. Thus, the court affirmed the lower court’s ruling that the insurer did not have a duty to defend the insured.
This decision supports insurers who issue claims-made policies and reiterates that these policies do not provide coverage for existing claims known before the insured purchased the policy.