In Innes v. St. Paul Fire and Marine Ins. Co. et al., Civil Action No. 12-cv-00234-ES-MAH, 2015 U.S. Dist. LEXIS 121753 (D.N.J. Sept. 11, 2015), a New Jersey federal district court, applying New Jersey law, held there was no coverage under a claims-made professional liability policy because the claim was “first made” prior to the inception date of the policy. The court found that, because the claimant sent a letter to the insured law firm that referenced “an action against [the insured]” and requested that the insured “please put your carrier on notice,” the letter constituted a claim that was “first made” prior to the inception of the insured’s malpractice policy, and was therefore not covered under the policy, which required that a claim be “first made and reported” during the policy term. Id.
Here, the insured had represented the plaintiff’s wife in divorce proceedings during which the parties had agreed that the insured would hold the passport of the couple’s minor child. The plaintiff asserted that, in contravention of that agreement, the insured gave the passport to the wife, allowing his wife to flee the United States with their child, causing him to expend legal fees to retrieve the child. The plaintiff’s counsel then sent a letter to the insured stating that he represented the plaintiff “in an action against your Firm,” asserting misconduct in the improper release of the passport, and instructing the insured to “[p]lease put your carrier on notice.” Id. at *3. The plaintiff filed an action in state court a year later, after the insured’s malpractice policy had incepted, seeking a declaratory judgment that he was a third-party beneficiary of the policy. The action was removed to federal district court. On cross-motions for summary judgment, the district court granted the insurer’s motion, denied the plaintiff’s motion, and dismissed the complaint.
The district court first determined that the professional liability policy in question was a claims-made policy that expressly provided coverage for claims “first made during the policy period,” with a claim being defined as a demand for “money or services alleging an error, omission, negligent act or 'personal injury' in the rendering of or failure to render 'professional legal services.'" Id. at *5. The court then ruled that a claim was made when the letter from the plaintiff’s counsel was delivered to the insured, finding that the letter constituted a claim even though it did not “contain a verbatim demand for money or services.” Id. at *17. Citing precedent concerning identical or nearly identical policy language, the court noted that the letter stated that the plaintiff was represented by counsel in an “action” against the insured and instructed the insured to place its carrier on notice. The court further determined that the letter’s reference to “tens of thousands of dollars in legal fees” incurred following the alleged wrongful conduct by the insured “can reasonably be construed as a demand to recover that money.” Id. at *18. The court also rejected the plaintiff’s semantic argument based on the New Jersey Supreme Court’s pronouncement in the seminal case, Zuckerman v. Nat’l Union Fire Ins. Co., 100 N.J. 304, 310 (1985), that a “claims made policy … provide[s] unlimited retroactive coverage,” ruling that Zuckerman only recognized such coverage “as long as the claim made to the insured occurred within the [policy] term.” Id. at *15. The court thus ruled that there was no coverage here because the claim had been “first made” prior to inception of the policy in question. Id.
The court further ruled that even if the claim had been first made during the policy term, there still would be no coverage based on the policy’s prior knowledge exclusion, precluding coverage for acts occurring prior to the policy period that the insured “knew or reasonably should have known … could result in a claim or suit.” Id. at *19. Applying a mixed subjective-objective analysis applied under New Jersey law by the Third Circuit in Colliers Lanard & Axilbund v. Lloyds of London, 458 F.3d 231, 233 (3d Cir. 2006), the court found that the insured had subjective knowledge of the alleged wrongful acts prior to the inception of the policy in light of the letter received from the plaintiff’s counsel, and that the objective part of the analysis was satisfied because a “reasonable professional” might have expected a claim or suit to be brought. Id. at *21-22. The court thus ruled that the policy would not have covered the plaintiff's claim even if the claim had been timely made.