As every policyholder should know, purportedly “late” notice under claims-made insurance policies can eradicate coverage – even if the policyholder purchases successive policies from the same insurer. Alaska Interstate Construction, LLC (AIC) faced this very situation, and lost coverage in a recent unpublished Ninth Circuit decision (Alaska Interstate Construction, LLC. V. Crum & Forster Specialty Insurance Company, Inc.). AIC purchased successive professional errors and omissions liability policies from Crum & Forster Specialty Insurance Company, Inc. (C&F). C&F issued an initial policy for the policy period of December 1, 2011, to May 1, 2013, and then a renewal policy with a policy period of May 1, 2013, to May 1, 2014. Thus, for the period from December 1, 2011, until May 1, 2014, C&F insured AIC. On January 10, 2013, during the initial policy period, a third party made a claim against AIC. AIC did not report the claim during the initial policy period but instead reported the claim on June 19, 2013, during the renewal policy period. The court found no coverage because AIC received the claim in one policy period but reported the claim in the subsequent policy period.
In a creative attempt to avoid this outcome, AIC argued that the policies’ vague definition of “policy period” as “the period shown in the Declarations” did not limit the “Declarations” to one specific policy period, and that the policy period could reasonably be interpreted as encompassing both the initial and renewal policy periods. The Ninth Circuit unequivocally rejected this argument and instead treated the policies as two separate contracts without a continuous policy period.
Ironically, AIC’s renewal of the policy placed it in a worse position than had it walked away. The initial policy, which expired on May 1, 2013, included a 90-day automatic extended reporting period (ERP) when the policy “is canceled or not renewed by [C&F] for any reason except non-payment of premium.” AIC argued that if the policies are viewed separately for purposes of determining the policy period, then the initial policy was effectively cancelled when its policy period ended, thus invoking the automatic ERP, which was in effect when AIC reported the claim to C&F. The Ninth Circuit rejected this reasoning: “the plain language of the policy states that cancellation and non-renewal are the events that trigger the ERP. Thus, because AIC renewed its policy, the ERP did not apply.”
This case is just one of many decisions depriving policyholders of coverage under claims-made policies due to the timing of notice. To avoid this outcome, commercial policyholders should ensure that they report all claims asserted against them during the operative policy period. They should also carefully evaluate potential liabilities to determine whether to give notice of circumstance under a policy before the end of the policy period. This due diligence is essential – for with claims-made policies, late is not better than never.