To comply with the reporting requirements, policyholders need to know what is and what is not a "claim" according to the policy terms. Too often, a policyholder fails to provide the required reporting of a claim for several reasons.
A common mistake is for the policyholder to refuse to report the claim because of concern for increases in future premiums or attempting to avoid paying out-of-pocket the defense costs that fall within the deductible. This can be combined with the general notion that the claim is, at least in the mind of the policyholder, completely without merit—they have done nothing wrong. An example would be an employee who has lodged a complaint with the state employment commission alleging wrongful termination. The policyholder may think the claim is absurd and treat it with complete disdain by simply tossing out the report of the complaint.
Another common situation arises with continuous claims-made coverage, often with the same insurer. The trouble here is the policyholder does not believe that coverage may be forfeited because a claim made against them in year one will not be covered if not reported in that same policy year—reporting the claim in year two should suffice. But this gets to the crux of the matter: a claim first made in policy year one must also be reported in policy year one (or some limited time thereafter such as 60 days). Reporting that claim several months into policy year two will likely result in no coverage, even if the coverage is continuous with the same insurer.
A Hybrid Claims-Made Policy
The observation by the First Circuit that "not all liability policies are on equal footing" is particularly germane to certain claims-made CGL policies.
A 2022 ruling by the Supreme Court of Washington, Preferred Contractors Ins. Co. Risk Retention Grp., LLC v. Baker & Son Constr. Inc., 514 P.3d 1230 (Wash. 2022), found that a purported claims-made-and-reported CGL policy was unenforceable against Washington's public policy, answering a certified question from the US District Court. The CGL policy wording was very odd in that it had features of both an "occurrence" and "claims-made-and-reported" policies. The court observed (in pertinent part):
These were claims-made policies. However, the insuring agreement provided coverage with language more similar to an occurrence policy:
- b. This insurance applies to "bodily injury" and "property damage" only if:
- (1) The "bodily injury" or "property damage" is caused by an "occurrence" that first takes place or begins during the "policy period";
- (2) The "bodily injury" or "property damage" resulting from the "occurrence" first takes place, begins, appears and is first identified during the "policy period."
But this CGL policy also included the following "claims-made-and-reported" wording:
d. ... [T]his policy shall apply only to claims first made against the insured and reported to us in writing during the policy period. Coverage under this policy will only apply to claims made against the insured and reported to us on or after the policy inception date and prior to the policy expiration date as shown on the Declarations page(s), subject to the extended reporting period provided below.
As a condition precedent to any coverage (defense or indemnity) under this Policy, You must give written notice to the Company of any claim as soon as practicable, but in all events no later than:
(a) the end of the Policy Period; or
(b) 60 days after the end of the Policy Period so long as such "Claim" is made within the last 60 days of such Policy Period.
Source: Preferred Contractors at 1232–1233.
To trigger this CGL policy, the BI or PD had to occur during the policy period—a long-established "occurrence" policy trigger. The kicker, though, is that claim for damages because of BI or PD also had to be first made against an insured and reported to the insurer during the same policy period (or possibly 60 days after the policy period) in which the BI or PD took place.
Here, the CGL policy dates were from January 5, 2019, to January 5, 2020, and from January 5, 2020, to January 5, 2021. The BI took place on October 31, 2019—an accident resulting in a fatality. An attorney's letter, the "claim," was sent to the insured on September 23, 2020, putting the insured on notice that a wrongful death claim was being pursued. That "claim" was reported to the insurer 2 days later on September 25, 2020.
Nonetheless, the insurer denied coverage because the "claim" for damages due to the BI was not made against the insured during the CGL policy period in which the BI occurred—the January 5, 2019, to January 5, 2020, CGL policy period. Rather, the claim was made about 11 months later during the January 5, 2020, to January 5, 2021, CGL policy period. But since the BI did not occur during the latter policy period, neither policy provided coverage based on its terms.
The court labeled this policy as a "nonretroactive" claims-made policy. But, it is important to understand that this CGL wording provides no retroactive coverage because the insuring agreement limited coverage to BI occurred during the policy period, not because of any retroactive date limitation. In other words, a retroactive date limitation, which is common on claims-made CGL policies, would have no relevance on a policy with this wording.
Quoting from another case, the court commented that the CGL policy being considered had combined the worst features of "occurrence" and "claims-made" policies and the best of neither and that it would be a rare instance in which the error occurred and was discovered with sufficient time to report it to the insurance company, all within a 12-month period. Applying a state statute requiring contractors to have financial responsibility, the court ruled that "we cannot enforce insurance provisions that render coverage so narrow it is illusory." Ibid. at 1237.