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Insurance Coverage Notes and Developments

Federal Court Rejects Effort to Skirt a Policy’s Claims-Made-and-Reported Requirement

Federal Court Rejects Effort to Skirt a Policy’s Claims-Made-and-Reported Requirement

While courts on some issues may seem bent on finding coverage, there are some notable exceptions. Courts generally have faithfully applied claims-made-and-reported provisions even when an insured has had continuous coverage. An Arkansas federal district court recently did just that when it concluded that a school district failed to give its insurer timely notice of a claim under consecutive claims-made-and-reported policies.

The basic fact pattern before the court was a common one. The insurer had issued the school district two consecutive one-year policies written on a claims-made-and-reported basis. A teacher filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) during Policy 1. After the EEOC dismissed the charge, the teacher filed a lawsuit against the school district during Policy 2. The school district first reported the lawsuit to its insurer during Policy 2, and subsequently sought coverage for its settlement of the lawsuit.

Each policy’s Insuring Agreement required a claim to be made and reported within the policy period or 60 days thereafter. The Limit of Liability Sections for each policy contained a “single claim” provision, stating that “[a]ll Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts of the Insureds shall be deemed to be one Claim. Such Claim shall be deemed to be first made on the date the earliest of such Claim is first made, regardless of whether such date is before or during the Policy Period.”

The court considered two main issues. First, the insured attempted to argue that the lawsuit filed in Policy Year 2 should be deemed a claim made and reported in Policy Year 2 (and not a related claim with the EEOC Charge deemed made in Policy Year 1) because the related claim provision in the policies was found in the Limit of Liability section. Citing several jurisdictions holding similar single claim provisions to be unambiguous, the court concluded that the EEOC charge and lawsuit constituted a single claim that was first made against the school district in Policy Year 1.  In so concluding, the court rejected the insured’s argument that the provision’s location in the Limit of Liability Section restricted its application only to the amount of liability (i.e., the court found the clause operates as more than an anti-stacking of limits provision).

The court next concluded that there was no coverage for the claim under Policy Year 1 because the school district first reported it to its insurer well into Policy Year 2—more than seven months after the extended 60-day grace reporting period available under Policy 1. And having already determined that the claim was first made before Policy 2 took effect, the court ruled that there was no coverage under that Policy. Thus, the policies’ respective claims-made-and-reported requirement were separately applied and respected. The fact that the insured had continuous coverage did not alter the result. The court found the school district’s waiver and estoppel defenses unavailing, noting that it would not deny the insurer’s motion for summary judgment on those bases, and accordingly dismissed the school district’s claims with prejudice.

The case is Pine Bluff Sch. Dist. v. Ace Am. Ins. Co., No. 5:18-cv-00185-KGB, 2019 U.S. Dist. LEXIS 116167 (E.D. Ark. July 12, 2019).