Last week, the US Court of Appeals for the First Circuit ruled in Gargano v. Liberty International Underwriters Inc that a claim must both be made against the insured and reported to the insurer within the policy period of a “claims made and reported” professional liability insurance policy to be an insured event. The Court further concluded that an insurer need not demonstrate prejudice from an insured’s untimely notice in order to defeat coverage under such policies.
Paul A. Gargano and his law firm Gargano & Associates PC obtained three successive, one-year “claims made and reported” professional liability policies from three insurers, NCMIC Insurance Co, Greenwich Insurance Co, and Liberty International Underwriters, Inc for the policy years 2004 - 2005, 2005 - 2006 and 2006 - 2007, respectively. A claim was made against Gargano in March 2005, during the NCMIC policy period. Gargano first reported the claim to all insurers in July 2007, during the Liberty International policy period. The claim was not first made and reported to the insurers within any one of the policies.
The First Circuit’s Ruling
The First Circuit ruled that: “It is clear under Massachusetts law that for a ‘claims made and reported’ policy, ‘the insured event’ is the combination of both requirements: (1) the claim must first be made against the insured during the policy period, and (2) the claim must be reported to the insurer within the policy period.” The Court affirmed the dismissal of the insured’s breach of contract and deceptive business practices claims against the insurers because the underlying claim against the insured was not both made and reported during the term of any of the insured’s three professional liability insurance policies.
The Court held that the insurers’ failure to deliver the policies at issue did not bar dismissal because:
- delivery or actual possession is not essential to the making of the insurance contract unless the contract sets forth a requirement for delivery, a requirement absent in the policies at issue,
- the insured admitted the formation of a contract, and
- the policies were delivered to the insured’s broker, and the broker's knowledge of the contracts would be imputed to the insured.
Finally, the Court held that insurers need not demonstrate prejudice to escape liability under a “claims made and reported” policy.
The Court held that a claim must be both made against the insured and reported to the insurer within the policy period of a “claims made and reported” professional liability insurance policy. The Court further concluded that an insurer need not demonstrate prejudice from an insured’s untimely notice in order to defeat coverage under such policies.