Unambiguous Claims-Made-and-Reported Professional Liability Policy Bars Coverage for Late Noticed Claim
Applying Arizona and New York law, an Arizona trial court has held that a claims-made-and-reported policy unambiguously does not apply where the insured failed to notify the insurer of a claim before the policy’s reporting deadline. Southwest Energy Systems LLC v. Underwriters at Lloyd’s, London, Case No. 2017-015010 (Ariz. Super. Ct., Maricopa Cnty. Mar. 15, 2018). Wiley Rein represented the insurer in this case.
The insured engineering firm agreed to provide electrical testing services at a construction site as a subcontractor. In May 2014, after ten different fire events occurred at the site, the prime contractor served an arbitration demand on the firm. The firm, however, did not attempt to place its professional liability insurer on notice of the arbitration until October 9, 2015. The insurer denied coverage, including on the basis that the arbitration constituted a claim that was first made against the firm during the 2013-2014 policy period but was not reported to the insurer until after the expiration of the 2013-2014 policy’s reporting deadline. The firm filed coverage litigation, asserting claims for breach of contract and “bad faith.”
In granting the insurer’s motion to dismiss, with prejudice, the court agreed that the 2013-2014 policy unambiguously limited coverage to those claims that were both first made against the firm during the policy period and reported to the insurer no later than sixty days after the expiration of the policy period. The court reasoned that, because the firm conceded that it did not attempt to provide notice to the insurer until after the expiration of the reporting deadline, the 2013-2014 policy did not afford coverage for the arbitration, regardless whether New York or Arizona law applied.
The court also rejected the firm’s arguments based on the “reasonable expectations” doctrine. The court noted that, under New York law, the “reasonable expectations” doctrine applies only where the policy language is ambiguous, and the subject policy’s claims-made-and-reported language is clear and unambiguous. The court also held that, even under Arizona’s “reasonable expectations” doctrine, dismissal of the complaint was appropriate because the claims-made-and-reported nature of the subject policy “could be reasonably understood by a reasonably intelligent person.” The court observed that the firm had not suggested that the insurer or any of its agents made any representations that would have reasonably led the insured to a different conclusion. Finally, the court held that, because the insurer appropriately denied coverage, it could not as a matter of law breach the covenant of good faith and fair dealing.
