No Coverage Under Claims-Made Policy Where No 'Claim' Made Against Insured During Policy Period

The Superior Court of Pennsylvania, applying Pennsylvania law, has affirmed a trial court’s decision that coverage is not available under a claims-made policy where no “claim” was made against the insured during the policy period. Real Estate Mgmt. Advisors, LLC v. U.S. Liability Ins. Co., 2022 WL 2815359 (Pa. Super. Ct. July 19, 2022).

The insured, a real estate management firm, discovered that one of its employees had misappropriated funds from client escrow accounts. The insured subsequently deposited its own funds into the client escrow accounts to cover the losses caused by the employee’s misappropriation. At the time the insured learned of the misappropriation, it had an errors and omissions policy providing coverage for Loss “that the Insured shall become legally obligated to pay because of Claims first made against the Insured during the policy period[.]” The policy defined “claim” as “a demand for money as compensation for a Wrongful Act” and “any judicial or administrative proceeding initiated against any Insured seeking to hold such Insured responsible for a Wrongful Act, including any appeal therefrom.” The insured sought coverage for its reimbursement of the misappropriated funds. The insurer denied coverage because no third party had asserted a “claim” against the insured.

The insured sued for coverage, and the trial court entered summary judgment in favor of the insurer, concluding that no claim had been made during the policy period. The insured appealed, and the appellate court affirmed the trial court’s decision. The appellate court rejected the insured’s argument that it had a valid “claim” as soon as it “became aware that client funds had been misappropriated” “because that is when it became legally obligated to its clients for repayment of the misappropriated funds[.]” The appellate court reasoned that “pursuant to the plain language of the Policy, in order to trigger a coverage obligation, the Policy requires that a third-party assert a claim against [the insured], which [the insured] is legally obligated to pay.” Accordingly, “[b]ecause no third-party had asserted a claim against [the insured] and [the insured] had not become legally obligated to pay any third-party, [the insurer] had no duty to [the insured] under the Policy."