The United States District Court for the District of Massachusetts recently held that delivery of a policy is not a prerequisite to the enforcement of its terms unless a policy so explicitly states. The court also held that an insurer can deny coverage for the failure to satisfy “claims made and reported” policy prerequisites without first investigating the claim. Gargano v. Liberty International Underwriters, Inc., et al., No. 08-11058-WGY (September 9, 2008). The court therefore dismissed the plaintiff insured’s 93A and 176D claims for improper denial of coverage.
The plaintiff insured had purchased three consecutive “claims made and reported” professional liability insurance policies from three separate insurers. A lawsuit was filed against the plaintiff during the policy period of the first policy. Judgment was entered against the plaintiff with regard to that lawsuit during the policy period of the third consecutive policy. Thereafter, the plaintiff notified all three liability insurers of the claim against him, demanded that they indemnify him as to the damages award, and requested that they investigate the claim and defend him with regard to his pending appeal (which was during the policy period of the third consecutive policy). All three insurers denied coverage, and the plaintiff brought a lawsuit against them.
All three insurers sought summary judgment on the ground that the claims were not both “made” and “reported” within any one of the three policy periods. In response, the plaintiff argued that none of the three insurers should be permitted to rely on such policy language to deny coverage because he had not received a copy of any of the policies until after the judgment against him was entered. The plaintiff also claimed that the insurers were required to investigate the claims before denying them due to late reporting. The district court granted summary judgment for all three defendant insurers.
The district court held that the plaintiff, who did not contend that any of the insurance policies contained clauses that made their effectiveness contingent on delivery, and who bought the insurance policies from a broker, was charged with the insurance agent’s knowledge of the terms and conditions of the policies. The fact that he did not obtain the text of the policies until a later date does not render them ineffective or estop the defendants from invoking their terms.
The district court also held, after concluding that the claim was not both “made” and “reported” within any one of the three separate policy periods, that an insurer has no duty to investigate a claim before denying coverage due to late reporting with regard to “claims made and reported” policies. Such a duty is only applicable to “occurrence” policies, and the only fact that must be demonstrated in order to permit an insurer to deny coverage under a “claims made and reported” policy is that the claim was not made or reported during the policy period.