Summary: This is an article written by Mr. Thomas M. Bower, a partner in the New York City office of Shaub, Ahmuty, Citrin & Spratt, LLP. Mr. Bower has concentrated his practice in the area of insurance and reinsurance coverage issues since 1987. This particular article offers guidelines as to what a claim is and is not when it comes to insurance policies and suggestions on how different parties can handle a claim. This article has been edited for space and format purposes only.
Mr. Bower can be reached at 212-599-7764 or [email protected]. Comments or questions concerning this topic are welcomed.
Topics covered: Introduction A grievance or complaint is not a claim Notice of a potential future claim is not a claim Notice of an occurrence is not a claim A claim and the demand for money Suggestions
Introduction
Under a claims-made policy, coverage is usually triggered when a claim is first made against the insured during the policy's effective date. In disputes over when a claim was first made, parties sometimes take differing views of what the word claim means. This is particularly likely to happen if the underlying dispute developed gradually, escalating through a series of contacts and confrontations before emerging as a full-blown lawsuit. At what point in that sequence of events was a claim first made within the meaning of the policy?
Although most people would understand the word claim to encompass something more than just a lawsuit, parties often disagree over whether that “something more” might include such things as: a letter from a lawyer seeking information (e.g. a “Dear Doctor” letter, asking for a copy of a physician's records relating to the lawyer's client); a letter expressing a grievance, complaint, or accusation; a threat of possible future litigation; a demand for some kind of monetary compensation or other relief; or, a demand that someone re-do unsatisfactory work at no cost.
Dictionary definitions make it clear that the word claim may be used in a number of senses, meaning different things in different contexts. And, some policyholders have relied on such definitions to argue that the word claim is inherently ambiguous and should therefore be construed against the insurer and in favor of coverage. So, to minimize disagreements over the meaning of the word claim, some claims-made policies attempt to define it. Such policy definitions have varied significantly among different companies and different lines of coverage. As examples, the following are a few policy definitions of claim quoted in reported cases.
In Specialty Food Systems, Inc. v. Reliance Insurance Company of Illinois, 45 F. Supp. 2d 541 (E.D. La. 1999), a claim is “any written demand or notice received by an Insured from a person or from any administrative agency advising that it is the intention of a person to hold the Insured responsible for the consequences of a Wrongful Employment Practice and includes any demand received by an Insured for damages and/or the service of suit.”
In Insite Properties, Inc. v. Jay Phillips, Inc., 638 A.2d 909 (N.J. App. Div. 1994), a claim is “a demand for money or money damages received by the Insured during the Policy Period and forwarded to the Company during the Policy Period.”
In Evanston Insurance Company v. GAB Business Services, Inc., 521 N.Y.S.2d 692 (1st Dep't 1987), a claim is “a demand received by the Insured for money or services, including the service of suit or institution of arbitration proceedings against the Insured.”
However, many policies make no effort to define claim. As a result, a number of coverage lawsuits have required courts to determine the meaning of the undefined word claim in a claims-made policy. Although the resulting case law is not unanimous, the vast majority of courts considering the issue have held that the undefined term claim in a claims-made policy is (a) not ambiguous and (b) contemplates a demand, made under an assertion of legal right, for compensation in the form of money, services, or something else of value. This has often been expressed by the observation that, to be a claim, such a demand must, as noted in the Evanston case, “relate to an assertion of legally cognizable damage, and must be a type of demand that can be defended, settled and paid by the insurer.” The actual filing of a lawsuit or service of a demand for arbitration is usually not required (especially where the policy language distinguishes between claims and suits), but something more than merely airing a grievance or giving notice of a potential future claim is necessary.
A Grievance or Complaint is Not a Claim
Merely lodging a grievance or complaint—without demanding compensation for it—does not constitute the making of a claim. That is so even if the surrounding circumstances would lead a reasonable person to expect a demand for compensation to be made in the future. Thus, for example, it was held in Hill v. Physicians & Surgeons Exchange of California, 274 Cal. Rptr. 702 (Ct. App. 1990) that no claim was made when a patient complained to her surgeon that she was unhappy with the results of surgery he had performed, because she did not demand any compensation.
In the same vein, it was held in Bensalem Township v. Western World Insurance Company, 609 F. Supp. 1343 (E.D. Pa. 1985) that an EEOC letter to an employer, advising of an age discrimination complaint lodged by a former employee, was not a claim, because it made no demand for money or other relief.
Raising questions about someone's conduct and asking for an explanation also does not, by itself, constitute the making of a claim. In one case, for example, someone winding up an estate wrote to the lawyer who had drafted the decedent's will, pointing out problems with the will and asking for an explanation from the lawyer. The court, in Hoyt v. St. Paul Fire & Marine Insurance Company, 607 F.2d 864 (9th Cir. 1979), held that the letter did not constitute a claim against the lawyer because it demanded no compensation.
Even an express threat of litigation is not necessarily a claim. In one case, for example, someone complained about the insured's past conduct and expressly warned that the insured could be liable for damages if it failed to honor its commitments in the future. This was held not to constitute the making of a claim because it did not include a demand for money or other compensation; this case is Evanston Insurance Company v. Security Assurance Company, 715 F. Supp. 1405 (N.D. Ill. 1989).
Notice of a Potential Future Claim is Not a Claim
The kinds of cases mentioned above also stand for the proposition that notice of a potential claim, or future claim, is not the making of a claim. In the EEOC case mentioned above, for example, the court characterized the EEOC's letter as merely a warning that a claim might be made in the future. In the case about the will, the court characterized the letter as merely notice that a claim might be made in the future if the lawyer did not provide a satisfactory explanation of the will. In the case involving the threat of litigation, the court characterized the threat as merely raising the specter of a potential future claim if the insured did not live up to its obligations.
Notice of an Occurrence is Not a Claim
An insured's own knowledge of an occurrence or of facts that might give rise to liability, does not constitute the making of a claim in the absence of a demand for compensation or other relief. Even if a potential claimant gives the insured notice of the occurrence, that still does not constitute a claim in the absence of a demand for compensation or other relief. Even notice that a potential claimant has hired a lawyer is not a claim, absent a demand for compensation of some kind. Also, the insured's report of the occurrence to its own insurer is not the making of a claim.
A Claim and the Demand for Money
Most cases discussing the meaning of the word claim deal with demands for money, because that is the most common type of relief that claimants demand. However, some cases have held that a claim was made even where the claimant demanded only some kind of relief other than money. In one such case—Windham Solid Waste Management District v. National Casualty Company, 146 F.3d 131 (2nd Cir. 1998)—the court held a claim was made when a state agency demanded an insured excavate solid waste and comply with other environmental requirements. In another case, a client unhappy with his lawyer's work demanded the lawyer re-do it at no charge. The court in Phoenix Insurance Company v. Sukut Construction Company, 186 Cal. Rptr. 513 (Ct. App. 1982), held that demanding free services as a form of compensation constituted the making of a claim.
Suggestions
The cases cited in this article are from courts in a number of states. When trying to determine whether something is or is not a claim, one needs to check to see whether there is case law on point in the specific jurisdiction whose law applies to the particular insurance policy. Also, when analyzing these issues, it is necessary to parse the exact language and circumstances of a letter or other communication very closely. What the communication actually says and does not say is normally more significant than any implication or subtext that might be inferred from it.
A claimant familiar with the insurance arrangements of the person or organization against whom the claim is made should consider whether it might be in his best interest to defer making a claim until the beginning of a new policy period; or, alternatively, to make a claim before the end of a current policy period. If the claimant is not yet ready to file a lawsuit, but wants to make a claim that will trigger the other party's claims-made coverage, then the claim letter should include a clear demand for money or some other kind of compensation or relief. (A demand for money is best for this purpose; one need not state a specific sum).
If the claimant wants to give some sort of notice, lodge a complaint, threaten litigation, or something along those lines, but does not yet wish to make a claim that would trigger the other party's current claims-made coverage, then no demand for money or other relief should be made, and the communication should not be characterized as a claim.
If the intent is to make a claim, then this should be done in writing and one should make sure the insured receives it. Many policies require a claim to be made in writing, so an oral demand might not be a claim at all. Also, if the insured does not receive the claim, there will be a serious issue as to whether the claim was actually made during the policy period.
An insured, when shopping for insurance, should consider whether he would rather have a claims-made policy that includes a definition of claim, or one that leave it for courts to define on a case-by-case basis. If the insured is in a position to negotiate policy terms with the insurer, he should consider whether to negotiate an agreed definition of claim, or leave it for courts to define on a case-by-case basis.
The insured should not assume that, because a particular communication is not a claim, it therefore need not be reported to an insurer. Even if right and the communication is not a claim, most policies require policyholders to report promptly both (a) the making of a claim, and (b) occurrences or circumstances likely to result in a claim. When in doubt, it is usually better to err on the side of giving prompt notice to all insurers that might afford coverage. As a corollary, if someone sends a letter that says something to the effect of “please forward this to your insurance company,” it is usually a good idea to do so promptly.
An insurer should consider carefully whether the claims-made policy forms should define claim, or leave it for courts to define on a case-by-case basis. When examining a matter that is not yet in suit, an insurer should consider whether there has been any communication that constitutes the making of a claim within the meaning of the policy. Finally, when analyzing coverage for a matter already in litigation, the insurer should bear in mind that the summons and complaint with which the file was opened might not really be the first time this claim was made.