Claims-Made Policy and Reporting Requirements
February 3, 2014
The insurer under a claims-made policy filed a declaratory judgment action to determine whether it had a duty to defend and indemnify its insured in an underlying litigation. This case is James River Ins. Co. v. Garcia, 856 F.Supp.2d 1284 (2012).
Garcia, an architect, purchased a claims-made professional liability policy from James River in 2009 and 2010. The 2010 policy included a residential condominium/town home exclusion that excluded any damages arising directly or indirectly out of the performance of or failure to perform professional services related to residential condos or townhouses. Both policies also contained an extended reporting period provision.
A lawsuit was filed against Garcia alleging deficiencies and delay in his work on a condo project. The insurer filed a declaratory judgment action seeking a declaration that because the claim against Garcia arose from work done for a condo project that was not forwarded to James River until June 2010, coverage is excluded from the 2010 policy due to the residential condo/townhouse exclusion. The insurer also contended that because it was not notified of the claim until June of 2010, there was no coverage under the 2009 policy because of the claims-made reporting provisions.
Garcia argued that the claim made in the underlying lawsuit is covered under the 2009 policy because it was reported to Garcia in May of 2009, or because it was covered under the automatic extended reporting period provision in the 2009 policy. Garcia explained that because James River sent a nonrenewal notice for the 2009 policy, the plain language of the policy allows an automatic 60 day extension for reporting. In the alternative, Garcia said that if the 2010 policy is considered a renewal of the 2009 policy, then the claim should be covered under the 2010 policy because Florida courts have held that a renewal is subject to the same terms and conditions as the original policy.
The U.S. District Court for the Southern District of Florida noted that under Florida law, an insurer is required to give its insured at least 45 days advance written notice of nonrenewal, and that the state courts have interpreted nonrenewal to include a policy with material changes in terms and conditions. If an insurer fails to give the 45 days notice, then the coverage shall remain in effect until 45 days after the notice is given or until the effective date of replacement coverage obtained by the insured. The court found that James River did give the required statutory notice of nonrenewal.
The court also noted that the extended reporting period provision stated that a change in policy terms and conditions shall not be considered nonrenewal for purposes of triggering the extended reporting periods. Since the 2010 renewal policy contained the residential condo/town house exclusion and this was not in the 2009 policy, that change in the policy terms did not trigger the extended reporting period provisions.
Based on the undisputed facts of the situation, the court concluded that there was no coverage under either policy. The claim was not made during the 2009 policy period and the extended reporting period was not triggered. And, the claim was not covered under the 2010 policy because of the residential condo/townhouse exclusion.
The motion for summary judgment by James River was granted.
Editor's Note: The U.S. District Court held that, based on the facts and the wording in the policy, the extended reporting period was not triggered and the insured did not have coverage for the underlying claim against him.