D&O and E&O - How Not To Report A Claim Redux
In our May 25, 2011, blog post [see here], we reported on the lower court decision in this matter. Now the Third Circuit has affirmed that decision in Atlantic Health System, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 11-2060, (3d Cir. March 22, 2012).[see here]
This is another cautionary tale of what can go wrong when an insured, directly or through its broker, ignores the claim reporting instructions in the policy form or on the Declarations and sends its notice of claim to an incorrect address. Some commentators will complain that this is another insurance company “gotcha” and there is no big deal in sending notice of a claim to the address for an underwriting unit. Why can’t they just walk it across the street or down the hall to wherever the claims unit may be?
The Third Circuit relied heavily upon its earlier decision in American Cas. Co. of Reading, Pennsylvania v. Continisio, 17 F.3d 62 (3d Cir. 1994), quoting from that decision as follows.
[T]he only reasonable interpretation of the policy provision is that the insureds mustvregard the information they possess as a potential claim and formally notify their insurervthrough its claims liability department that a claim may be asserted . . . . [N]otice mustvbe given through formal claims channels because we recognize that the information needed, or at least the perspective utilized in reviewing it, varies when predicting the probability of future losses and recognizing the need to investigate a claim that may be made based on past occurrences. (emphasis added)
Continisio, 17 F.3d at 69.
In my view, this matter was well-decided and well-reasoned both at the District Court level and upon appeal before the Third Circuit. It is certainly not a classic situation of a denial of coverage based upon a hyper-technicality. Rather, it shows a keen judicial understanding of the nature of underwriting and claims responsibilities within an insurance company. Hopefully, word of this decision is disseminated widely among policyholders and their brokers. Forewarned should be forearmed.
Comments (2)
Read through and enter the discussion by using the form at the endDonna Ferrara, Esq - April 14, 2012 9:25 AM
Gee, Joe, not everyone would consider this "well-decided and well-reasoned".
There is no doubt that the carrier knew of the claim, during the appropriate policy period. Moreover, National Union theoretically took the claim into account in renewing the policy.
Yes, there is case law saying that notice during the application process is not sufficient. Yes, the policy set out a notice process.
Still, there is no dispute that the carrier knew of the claim in a timely manner. Isn't that the purpose of notice? I would also assume that the carrier, through the underwriters, presented their renewal with a letter telling the insured how much National Union valued their business, possibly even tossing around words like "partner" and "loyatyl" and "client.".
Apparently, "partners" are valued for their "loyalty" only if they don't have claims. There is, apparently no obligation - even an ethical one - for those carriers to tell the client to send in notice to Water Street. The carrier need only pocket the check and keep silent
What would have happened if the client sent in the notice to Water Street, during the first policy period but put the wrong policy number in the captioned? Or had a mistake in reporting the name of the plaintiff, although attaching the actual complaint?
Sorry Joe, this is a "gotcha". I accept that it is an inconvenience to treat notice to the underwriter as notice to the claims department. After all, underwriters will probably just toss the notice in the file and forget it. The claims department would write an acknowledgement letter, hire outside counsel and suggest litigation management rules, and do nothing until the retention is eroded.
This decision, and dozens like it, must be taken as proof that D&O carriers' assertions of good faith and fair dealing are at best, advertising puffery, and at worst, deliberate falsehood.
Obviously, as a US taxpayer, I am a part owner of the carrier here and I want them to make money. As an attorney for a broker, I want a trustworthy business partner There must be a way to have both.
Joe Monteleone - April 16, 2012 3:45 PM
Donna, most loyal follower of this blog, your indignation is no doubt taken righteously, but I must add my disagreement as to some of your points.
First, I do not disagree that the carrier knew of the litigation during the policy period and presumably took it into account in deciding to renew that policy. However, that is not the equivalent of saying the insurer knew there was a claim being submitted for coverage under the policy. As both the lower court and the Third Circuit recognized, litigation is reported to underwriters for various purposes to help them evaluate a risk. Nothing in the Opinions suggests that underwriters had reason to view this as simply a case of a misdirected notice of a claim such that the underwriters would at least have an ethical obligation to redirect it to the claims department.
Second, one can only speculate as to what may or may not have been contained in the insurer's renewal letter. In any event, even if it contained language substantially similar to what you surmise, I do not believe their handling of this matter was legally or ethically improper.
Finally, if any of the "gotcha" situations that you describe were present, i.e., wrong policy number or wrong address, but with a clear intent in the insured's or broker's letter that this was being submitted as notice of a claim under the policy, I would be inclined to share in your indignation.
Simply put, the Opinions do not indicate, and I am not privy to, any facts or information that would suggest the insurer may have behaved unethically here. As to the legal propriety of their actions, my view has now been vindicated by two respected federal courts.