Charter School’s Notice of Closure Constitutes a “Claim” First Made Before the Policy Period

Applying Nevada law, the United States District Court for the District of Nevada has held that an insurer did not owe coverage to its insured charter school because a “Notice of Closure” constituted a “claim” first made before the policy period.  Argent Preparatory Acad. f/k/a Silver State Charter Sch. v. Philadelphia Indem. Ins. Co., 2019 WL 1049384 (D. Nev. Mar. 4, 2019).

The insured school operated under the oversight of the State Public Charter School Authority (the "Authority").  On October 26, 2015, the Authority sent the school a formal “Notice of Closure” under NRS § 388A.330, identifying the school’s financial mismanagement, establishing a period for corrective action, and scheduling a public hearing to determine whether to revoke the school’s charter.  A state court appointed a receiver and trustee to oversee the school and ordered that the school pay any receiver and trustee fees.  On November 10, 2016, the school sought coverage for the fees under its claims-made policy, which was effective from November 26, 2015 to November 26, 2016.  The insurer denied coverage, arguing that the Notice of Closure sent on October 26, 2015 constituted a “claim” first made before the policy period.

In the resulting coverage litigation, the court agreed with the insurer.  The court noted that the policy defined “claim” to include “[a]ny written demand for monetary or non-monetary relief (including injunctive)” or “[a]ny formal administrative [or] regulatory . . . proceeding . . . commenced by the filing of a notice of charges . . . or similar document.”  The court held that the Notice of Closure satisfied both definitions of a “claim” under the policy.  The Notice of Closure constituted a request for non-monetary relief because it requested corrective action and threatened revocation of the school’s charter if such action was not taken.  The Notice of Closure initiated a “formal administrative [or] regulatory proceeding” under NRS § 388A.330(2)-(3) because it “prescribe[d] certain steps that lead to a substantive outcome—a decision about whether to revoke or terminate the school’s charter.”  The court rejected the school’s arguments that the Notice of Closure did not initiate a “formal” proceeding and was “simply a notice of non-compliance,” pointing out that the Notice of Closure initiated a formal process that provided notice and opportunity to be heard before the school’s charter was revoked or terminated.  The court also found immaterial the fact that the Notice of Closure did not state that the Authority would seek appointment of a receiver or trustee.  According to the court, it was “the fact of a proceeding—not its result—that shows the Notice of Closure constituted a claim within the meaning of the Policy.”