A divided Court of Appeals of Kentucky recently held that an insured was continually covered under two back-to-back “claims-made” insurance policies issued by the same insurer even though a claim was made against the insured during one policy period, and not reported to the insurer until fourteen months later, during the second policy period. AIG Domestic Claims, Inc. v. Tussey, 2008-CA-001248 (Ky.App. September 17, 2010).
An insured was covered under two consecutive claims-made policies, issued by the same insurer, from July 1, 2005 to July 1, 2007. A claim was made against the insured on February 20, 2006, with more than four months remaining in the fist policy period. It was not until April 23, 2007, however, more than nine months into the second policy, that the insured reported that claim to its insurer under the first policy. Eventually the insured also asserted that the claim was covered by the second policy.
The Court of Appeals held that there was coverage for the claim despite the fact that the claim was made during one policy period and reported during another. The court held that, because the policy was in force from July 1, 2005 through July 1, 2007, and during that time the terms of the policy remained identical, “seamless coverage” was created over the two-year period. “It is difficult to fathom,” the court reasoned, “that a claim accruing during the two policy periods would not be covered by either policy.” The court did note, however, that “if the policy had expired and no additional premium was paid for an extension of coverage, we would agree that [the insurer] must prevail.” “Nevertheless,” it continued, “we have difficulty reaching the same result where, as here, the policy was renewed and there was no lapse in coverage.
One member of the three-judge panel dissented because this case did not present an “eleventh hour” situation, where the insured first learned of a claim close to the end of a policy period and could not reasonably report the claim until after the policy period had lapsed. In such a case, the dissenter believed, a workable exception could be adopted by Kentucky’s courts, allowing the insured a reasonable time in which to report. Instead, the dissenter opined, the decision “jumps wildly afield, allowing occurrence-based coverage for all claims-based policy holders,” which “leap will surely have ramifications in insurance premium costs to professionals and professional organizations all over this great Commonwealth.”