Many insurance policies include a provision known as a “claims made and reported” clause which indicates that a claim is only covered if the claim is reported to the insurer during the policy’s stated time limit. Because Louisiana is a Direct Action State, it was believed that this provision would not be enforced against an injured third party and previous Appellate Court decisions seemed to conflict on the issue.
The Supreme Court recently held that such provisions will be enforced against a third party, in certain factual situations. In Joyce Gorman versus City of Opelousas, 2013-1734 (La. 7/1/14). Brian Armstrong was allegedly beaten while incarcerated at the city jail in Opelousas. He ultimately passed away and his mother filed a lawsuit against various parties.
Insurer did not receive notice until after time period for notice had expired
The insurer of the jail at the time of the incident was identified through discovery and ultimately named in the lawsuit. However, the insurer did not receive notice of the lawsuit until more than a year after the incident and after the time period for notice in the policy had expired. The insurer filed a Motion for Summary Judgment seeking to have claims against it dismissed for lack of coverage as the claim was not reported within the policy’s stated time limit.
Claims Made and Reported Provision
The policy stated:
Notice: This is a claims made policy. Converge is limited generally to liability for claims first made against you and reported in writing to us while the coverage is in force. Please review the policy carefully and discuss policy coverage with your insurance agent or broker.
A claim for a wrongful act shall be first made against the Insured and reported to us in writing during the policy period or any extended reporting period we provide under this policy.
Thus, the insurer only agreed to pay claims on behalf of the city if: 1) the wrongful act occurred on or after the retroactive date of the policy, but before the end of the policy period; 2) the claim for the wrongful act is first made against the City during the policy period; AND 3) the claim is reported to the insurer in writing during the policy period.
No Coverage for Failure to File According to Time Limits in Claims Made and Reported Provision
The Louisiana Supreme Court stated:
“Gorman’s September 27, 2010 claim was made between April 17, 2010 and April 17, 2011, as required, Gorman’s claim was not reported to Lexington until September 22, 2011, which is after the policy period expired on April 17, 2011. The occurrence of only the first two of the policy’s required conditions was insufficient to trigger coverage. Absent a timely reporting, one of the conditions needed to trigger coverage under the applicable Lexington policy did not occur. Therefore, the Lexington policy did not provide coverage to the City for the wrongful act alleged by Gorman” Gorman, at * 4.
In reaching the decision, the Court rejected arguments that the Direct Action statute confers rights on third parties which vest when the injury occurs. Id. at *6 It also considered that an injured third party is forced to rely on the insured to comply with the reporting provision in its policy. Id. The Court noted that to reach a decision which provided coverage would convert a claims-made-and-reported policy into an occurrence policy. Id. Under the current state of Louisiana Law, a claims made and reported policy is therefore beneficial to insurance companies seeking to limit liability as opposed to an occurrence policy as additional conditions must be met in order to trigger coverage under a claims made and reported policy.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.