Innocent Insured Provision Applies Where Insured Failed to Comply with Policy’s Reporting Provision  

Applying Georgia law, the United States Court of Appeals for the Eleventh Circuit held that a policy’s “innocent insured” provision regarding “giving of notice” applied where an innocent insured would lose coverage due to another insured’s failure to timely report a claim to the insurer. Maxum Indem. Co. v. Colliers Int’l–Atlanta, LLC, 2021 WL 2434350 (11th Cir. June 15, 2021).

The insured obtained a claims-made and reported professional liability insurance policy for the policy period from January 1, 2015 through January 1, 2016, with a supplemental extended reporting period from February 1, 2016 through February 1, 2017. The insured received notice of a potential lawsuit against it and one of its employees on March 20, 2016. The insured did not report the potential lawsuit to the insurer until June 29, 2017. Suit was eventually filed against the insured and its employee, but the employee was not informed of potential coverage under the policy until March 2, 2018.

The employee subsequently sought coverage for the lawsuit and argued that, even if the insured failed to timely report the claim, the policy’s “innocent insured” provision applied because the employee promptly reported the matter after he learned of the policy. The provision restored coverage for an insured “[w]henever coverage under this insurance would be excluded, suspended or lost ... [b]ecause of noncompliance with any condition relating to the giving of notice” if such insured promptly provided notice after learning of such non-compliance.

The insurer maintained that the “innocent insured” provision did not apply because it was limited to circumstances involving “noncompliance with any condition relating to the giving of notice,” as opposed to noncompliance with the policy’s “reporting provision,” which provided that the policy applies “only if[ ] [a] ‘claim’ for ‘damages’ because of the rendering of or failure to render ‘professional services’ is first made against any ‘insured’ ... and reported to [the insurer] during the policy period or any Extended Reporting Period.” The insurer filed suit to seek a declaratory judgment that it had no duty to provide coverage to the employee. The insurer prevailed on motion for partial summary judgment, and the employee appealed.

The appeals court vacated the trial court’s ruling, concluding  that “the only reasonable interpretation of the Innocent Insured Provision is that it applies to instances where an innocent insured would lose coverage due to another insured’s failure to comply with the requirements surrounding the transfer of information about a claim, including the reporting requirements.” The court analyzed the terms “notice” and “reporting” and held that “[a]bsent from the policy is anything defining the terms differently or distinguishing them from each other.” As a result, the court held that the only “reasonable way” to interpret the policy’s notice provision is as “instructions for how to properly transfer information about a claim to [the insurer]—regardless of if [sic] the policy calls that action ‘giving of notice’ or ‘reporting.’”