Claims-Made Notice Requirement
November 8, 2012
The patient of the insured dentist brought an action against the dentist's claims-made professional liability insurer seeking payment for a malpractice claim against the dentist. This case is Physicians Insurance Company of Wisconsin v. Williams, 279 P.3d 174 (2012).
Williams recovered a $480,260 default judgment against Dr. Ahmadi based on an allegation that Ahmadi used street cocaine to anesthetize Williams's gums during a 2002 root canal. A short time after this operation, Williams sideswiped a residential gas meter while driving a cement truck for work. Williams's employer subjected him to a mandatory drug test which came back positive for cocaine. As a result, Williams lost his job.
Ahmadi had a professional liability policy that expired on April 14, 2004. Williams filed a lawsuit against Ahmadi on April 15th, the day after the policy expired. Earlier, on February 6, 2004, while the policy was in force, Williams sent Ahmadi a demand letter by certified mail. Ahmadi neither responded to Williams nor alerted his insurer of the demand or the lawsuit that followed. Five months after the policy expired, Williams through his attorney made a demand directly on the insurer.
When Williams made his demand on Physicians Insurance Company (PIC), the insurer took the position that coverage did not exist because the claim had not been made and reported during the policy period. Williams filed a lawsuit against the insurer. The trial court ruled in favor of Williams and the insurer appealed.
When the case came before the Nevada Supreme Court, the court noted that the PIC policy is a claims-made policy and for coverage to exist, a claim must be made and reported within the policy period. Thus, the policy required Ahmadi to give PIC written notice of the demand from Williams. This did not happen. So, by the express terms of the policy insuring agreement, the policy does not cover the claim by Williams because it was not reported to PIC during the policy period.
Williams conceded that PIC did not receive actual notice of his demand while the policy was in force. However, his argument was that news accounts of Ahmadi's problems (license suspension, arrest on charges of possession of cocaine) gave the insurer constructive notice of a potential claim during the policy period and this was enough to trigger coverage. In Williams's view, a newscast or other public report of an insured's professional misconduct qualifies as a claim made according to the terms of the professional liability policy.
The Supreme Court said, however, that the claim definition in the policy conveys a requirement that, for an insured's report of a potential demand for damages to qualify as a claim, it must include specific information about a specific wrongful act and consequent injury to a patient. The repeated references in the policy to “report” and “reporting” denote more in the way of formal contact between the insurer and the insured than generalized newspaper notice. The court said that the notice requirement makes the point that the insurer must receive actual, as opposed to constructive, notice. Unless the policy language states otherwise, a discovery clause should not be deemed satisfied unless the insurer was put on notice of specifics.
The court ruled that the news accounts of Ahmadi's behavior did not constitute a report to PIC of an act or omission in the furnishing of professional health care services to any one person that was reasonably likely to give rise to a demand for damages. The court held that, for a report of a potential demand for damages to qualify as a claim, there must be sufficient specificity to alert the insurer's claim department to the existence of a potential demand for damages arising out of an identifiable incident involving an identified or identifiable claimant with actual or anticipated injuries.
The ruling of the trial court was reversed and remanded with instructions to enter summary judgment in favor of PIC.
Editor's Note: The Supreme Court of Nevada rules that a newspaper article written and published and intended to be read by the general public does not provide adequate specifics to give notice of a claim under a claims-made policy. The court said that allowing coverage to be triggered by broadly phrased, innocuous, or non-specific statements would permit an unbargained-for expansion of the policy, undermining the key distinguishing characteristic of a claims-made policy. A claims-made policy requires specific information in the notice given to the insurer in order for coverage to be established.