Countless insurance coverage disputes can be avoided by simply reporting claims timely and in accordance with the notice provisions found in the insurance policy.  Yet, some broker personnel and insureds seemingly fail to read the rather explicit policy language or deliberately choose to ignore it.

A recent federal court decision in New Jersey illustrates the peril of failing to comply with a policy’s claim notice provision. Atlantic Health System, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2011 U.S. Dist. LEXIS 39797 (D. N.J., April 11, 2011).  A Notice of Appeal to the Third Circuit was filed in this case on April 20, 2011.

The facts in this case are rather straightforward.  The insured first became aware of a draft complaint to be filed against it in February 2004, and suit was ultimately filed in April 2004.  They reported the matter, which is not disputed to constitute a claim, in July 2004 during a claims-made and reported D&O policy effective May 1, 2004 – 2005.  The insurer denied coverage as the claim was not first made against the insured during the policy period. Going back to the drawing board, the insured one month later in August 2004 tendered the claim under the policy in effect for the period May 1, 2003 – 2004.  This time, the insurer denied coverage because the claim was not timely reported within that policy’s 30-day reporting extension, which expired on June 1, 2004.

Coverage litigation was initiated by the insured, initially in a New Jersey state court and ultimately removed by the insurer to the federal District Court.

The Court upheld the denial under the 2004-2005 policy period and then turned to the insured’s argument that there was timely reporting under the 2003-2004 policy by virtue of the fact that the underlying litigation was disclosed in a renewal application for the 2004-2005 policy, which was received by the insurer’s underwriters during the 2003-2004 policy period.  The Court, however, noted that the policy clearly required written notice to the claims department at an address different from that of the underwriting personnel and that the reporting deadline was indisputably 30 days after policy expiration and the claim was not sent to the claims department by the insured until July 2004.

The Court observed that litigation matters reported as part of a renewal process should not constitute notice of a claim for coverage under the policy and that the underwriters had no reason to have to pass such on to the claims personnel.  Indeed, the Court briefly noted that underwriters need to know of litigation to alert them of matters that should be excluded.

A renewal application sent to an underwriter for the purpose of identifying possible claims for the exclusion of coverage from a future policy period ostensibly serves a different purpose than a notice-of-claim, which seeks coverage under an existing policy. (emphases added)

In this case there was continuous coverage with the same insurer from May 1, 2000 through May 1, 2005 and many brokers and policyholder lawyers will argue that this should be a classic case of “no harm, no foul” because the claim was both first made and first reported during this continuum.  The Court, however, properly recognized that there were separate contracts for the two periods in which the claim was first made (2003-2004) and properly first reported (2004-2005).  To fall within the scope of the insuring agreement, both events must take place during the same policy period.*

*Many commentators use the term “claims made and reported” to refer only to policies where both events must take place during the policy period. Most policies over the past several years have evolved to contain some extension period for reporting ranging from 30 days (as here) to as many as 100 days.  Nonetheless, the reporting deadline is fixed with a bright line and operates similarly to the so-called true claims made and reported policies, as opposed to “pure claims made” policies that typically require only that claims be reported as soon as practicable.