Timely Notice under a Claims-Made Policy

June 3, 2013

This insurance dispute arose out of an injury to Johnson, son of Volk. The dispute pertained to coverage under a professional liability claims-made policy and a general liability policy. This case is Volk v. ACE American Insurance Company, 2013 WL 440210.

Johnson is mentally-handicapped and requires the services of a personal care attendant. Volk had these services provided by North Country Home Care. In November 2005, Johnson was permanently blinded in a BB gun accident while under the care of North Country. At that time, North Country had a professional liability policy and a general liability policy issued by ACE.

In June 2009, Volk notified the former president of North Country that she intended to file a claim for Johnson's injuries. The president reported the claim to ACE. ACE denied coverage in August 2009, determining that the incident fell under the professional liability policy which was a claims-made policy and only covered claims made prior to the policy's termination. Following ACE's denial of coverage, Volk sued North Country and the insured forwarded a copy of the complaint to ACE. Volk and North Country agreed to a Miller-Shugart settlement and Volk obtained a judgment in the amount of $2,675,758. Volk then filed this lawsuit seeking a declaration that ACE owed coverage.

The insurer argued against coverage under the general liability policy, claiming that the patient exclusion in the policy applies. Volk claimed that Johnson was not a patient, but instead was a recipient or consumer of care and that as a result, the patient exclusion was inapplicable. The court noted that “patient” is not defined in the policy, but said that the recipients of care from North Country must be patients since they received services performed by the insured to care for and assist them. Therefore, the patient exclusion precludes general liability coverage.

Another argument put forth by the insurer was that the claim was not presented during the policy period, which was required by the terms of the professional liability claims-made policy. The court found that ACE maintained coverage under the professional liability policy until it ceased business operations and it was not required to maintain coverage indefinitely. Therefore, since the claim was not made during the policy period, the court ruled that the professional liability policy did not apply.

Volk argued that the policy should provide coverage under the doctrine of reasonable expectations. The court said that the doctrine is only applicable as a tool for resolving ambiguity and for correcting extreme situations where a party's coverage is significantly different from what the party reasonably believes it has paid for and where the only notice the party has of that difference is in an obscure and unexpected provision. The court did not find the policy language to be ambiguous and ruled against Volk.

Summary judgment was granted the insurer.

Editor's Note: This ruling by the United States District Court in Minnesota reaffirms the point that a claims-made policy requires a claim to be made against the insured during the policy period. In this instance, the claim was presented four years after the incident occurred and three years after the policy was terminated since the insured, North Country, officially ceased business operations at that time.

There was no coverage under the general liability policy due to a patient exclusion that prevented coverage for any loss, cost or expense arising out of bodily injury to patients. Even though the plaintiff argued the injured person was not a patient, the court ruled that the facts of the situation showed a patient-care giver relationship and so, the exclusion applied.