The First Circuit recently held that an insured was not entitled to coverage under a Professional Liability claims made and reported policy where the claim is not both made against the insured and reported to the insurer within the policy period. Gargano, et al. v. Liberty International Underwriters Inc., et al., No. 08-2287 (1st Cir. 2009).
The insured attorney was sued by another attorney in a fee dispute. The insured attorney represented himself and did not provide notice of the claim against him until after judgment had been entered against him in the amount of $102,000. He then reported the claim to each of three insurance companies that had issued him successive “claims made and reported” professional liability policies.
The first two insurers denied coverage on the ground that the claim was not covered because it was not reported during their policies’ term of coverage. The third insurer denied coverage on the ground that, although the claim was reported during its policy period, it was first made against the insured prior to the policy’s term of coverage. The insured then brought suit against all three insurance companies for breach of contract and violation of 93A.
The U.S. District Court for the District of Massachusetts granted the insurers’ motions to dismiss. On appeal, the First Circuit noted that under Massachusetts law, the “insured event” for the purposes of a “claims made and reported” policy is a combination of (1) the date on which the claim is first made against the insured; and (2) the date on which the claim is reported to the insurer (citing Chas. T. Main, Inc. v. Fireman’s Fund Ins., 551 N.E. 2d 28, 29 (Mass. 1990)). Accordingly, if both events do not occur within the policy period, there is no coverage afforded under the policy.
The First Circuit therefore affirmed the District Court’s decision on the grounds that the insured’s claim for coverage did not fall within the coverage period of any of his three professional liability policies.
The First Circuit also rejected “out of hand” the insured’s argument that the insurers were required to show prejudice from the insured’s failure to give timely notice. In doing so, the court noted that “[t]o require the insurer of a ‘claims made and reported’ policy to demonstrate prejudice from the insureds failure to report a claim within the relevant policy period ‘would defeat the fundamental concept on which claims-made policies are premised,’ with the likely result that ‘claims-made policies, which offer substantial benefits to purchasers of insurance as well as insurance companies, would vanish from the scene.’”
Finally, as to the insured’s argument that the insurers’ refusal to deliver copies of the policies to him rendered him unaware of the “claims made and reported” language, the court found that delivery of the policy to the insured’s insurance agent or broker constituted notice to the insured. Accordingly, the First Circuit found it unreasonable to give effect to the broad presumption that the insured was covered by professional liability insurance but then not give effect to the “claims made and reported” provision that is the very “essence” of the policy.