Multiple recent state court decisions have favored insurance companies in directors & officers (D&O) liability cases that hinged on the issue of the timely reporting of claims under claims-made-and-reported policies. These rulings have held that matters not reported in a timely manner (even when a series of consecutive claims-made-and-reported policies existed) does not trigger coverage.
In these cases, there appears to have been D&O coverage in place on an uninterrupted basis throughout the period when the claims were first made against the insureds, and in one case that continuous coverage appears to have been in place with the same insurer. Further, these do not appear to be cases where the insured bought D&O insurance for the first time when trouble was brewing (the ‘burning building’ scenario that insurers fear).
Just the Facts
So, what happened? It’s actually quite simple. The insurer held up the four corners of the insurance contract(s) in question, looked at the reporting obligations, said they were not met, and the courts agreed.
- No complicated analysis of whether the definition of “claim” was even met.
- No defense costs advanced by the insurer (up until some complex exclusionary language created a debate about coverage).
- Not even any ugly allegations of fraud or ill-gotten gains that arguably precluded any
Nope, it all hinged on just the facts. These otherwise potentially covered claims (some assumptions are being made here) were not reported in a timely fashion—end of discussion!
Well, actually, more discussion was likely had about the costs expended to challenge and sue the D&O carriers in order to ultimately arrive at these decisions. Ouch – talk about salt in the wound!
The Definition of “Claim”
So, what’s the take-away? Insurance buyers have to know:
- What exactly meets the definition of “claim” (almost always defined in the policy) in their claims-made-and-reported coverages
- Know when that “claim” is first-made against them (either an insured person and/or entity that is covered)
- Most importantly, report it to the proper insurance policy in a timely manner as prescribed in the policy.
If that doesn’t happen, the battle for coverage will be an uphill one right from the beginning.
And, keep in mind, this issue applies to any claims-made-and-reported policies: D&O, employment practices liability (EPL), fiduciary liability, employed lawyers, as well as most E&O and cyber liability policies.
You don’t want to lose the fight before you even get into the arena!