Why a Claims Made Policy Requires Claim Be Made During Policy Period
Claims Made and Claims Made and Reported policies contain traps for unwary insureds who do not understand the limitations of that coverage. Unlike “occurrence” based policies if a claim is not made during the effective dates of the policy there is no coverage at all although premium has been paid to the insurer for years.
In The ACT-1 Group, Inc. v. Alternative Care Staffing, Inc., Slip Copy, 2015 WL 4967133 (E.D.Mich., 8/20/2015 Evanston Insurance Company (“Evanston”) and Markel Corporation’s (“Markel”) were sued to provide defense and indemnity to The ACT-1 and filed motions for summary judgment which were ruled upon by the District Court for the Eastern District of Michigan.
On March 6, 2007, Gloria Brown died at the Henry Ford Hospital in Detroit, Michigan while being treated by Alisha Noel, a nurse employed by defendant Alternative Care Systems (“ACS”). The Henry Ford Health System (“HFHS”) contracted with plaintiff, ACT–1 Group, Inc. (“ACT–1”), a staffing company, to provide nursing staff for HFHS hospitals. (ACT–1 then subcontracted with ACS to provide the Henry Ford Hospital with nurses.
On August 21, 2008, the estate of Gloria Brown sued HFHS for medical malpractice, alleging that Noel was negligent in treating Brown (“the Brown litigation”). The Estate of Gloria Brown did not name ACS or Evanston as defendants in that lawsuit.
At some time between January and March of 2010, the Brown litigation settled for $877,243.03. Neither ACS nor Evanston participated in that lawsuit or settlement.
On September 10, 2010, HFHS sued ACT–1 and ACS in Michigan state court for indemnification in the Brown lawsuit. The court entered judgment against ACT–1 and ACS in that suit for $877,247.03. (Dkt. 1–2 at 159.)
ACS’ Insurance Policy
ACS purchased medical malpractice insurance through Evanston. However, ACS financed its insurance premiums through loans from the National Premium Budget Plan (NPBP), and the NPBP cancelled ACS’ insurance policy when ACS failed to make its monthly payments on the loan. ACS’ policy was cancelled effective March 25, 2009. Between March 25, 2009 and June 24, 2009, ACS did not have medical malpractice insurance coverage through Evanston or anyone else.
On June 23, 2009, an application was submitted and confirmed that it was unaware of “any circumstances which may [have] result [ed] in a malpractice claim or suit being made or brought against [ACS] or any of [ACS’] employees.” As a result of the application, ACS began a new Evanston insurance policy on June 24, 2009, with no retroactive coverage. That policy lasted until June 24, 2010.
HFHS Contacts ACS
On September 9, 2008, Paradiso sent a letter to Corner asking her to tell ACS about the Brown litigation. In his deposition, Paradiso referred to this letter as a “notification letter” that contained “no claim request.”
No one at Evanston or on behalf of Evanston had any discussion with the owners of ACS or Corner until Fall 2009. On September 15, 2009, an insurance broker forwarded the Brown litigation papers, including the May 11, 2009 claim from Paradiso, and a copy of an email from ACT–1’s attorney to the claims services manager at Markel. Two days later, John Foley, the claims manager for Evanston, contacted ACT–1’s attorney for additional information. Foley then assigned the claim to Jagady Blue, senior claims manager for Markel, for handling. Blue searched the record and concluded that no claim was made against ACS during ACS’ policy period that would have triggered coverage. ACS’ policy through Evanston expired on June 24, 2010.
On September 10, 2010, HFHS sued ACT–1 and ACS in Michigan state court for its settlement costs, plus additional costs and fees. On August 5, 2011, that court ordered ACT–1 to indemnify HFHS and entered judgment against ACT–1 for $877,243.03.
ACT–1 sued ACS, Evanston, and Markel on July 15, 2013, claiming that ACS breached its subcontracting agreement by failing to indemnify ACT–1 in the Brown litigation. ACT–1 also sued Evanston and Markel as a third-party beneficiary under MCL § 600.1405, claiming that Evanston breached its 2008 insurance agreement with ACS by failing to indemnify ACS in the Brown litigation.
Defendant moves for summary judgment on two grounds: (1) that ACT–1 failed to file a claim with ACS or Evanston during the period of ACS’ insurance coverage and (2) that Markel Corporation is not an insurer.
ACS’ insurance contract provides claims-made coverage, which means that only claims first made during the policy period will be covered. ACS was covered by Evanston insurance from May 28, 2003 to March 25, 2009, under a policy with a retroactive date of May 28, 2003, and from June 24, 2009 to June 24, 2010, with a retroactive date of June 24, 2009. The retroactive dates in the policies bar claims first made against the insured before those dates. Accordingly, plaintiff must show that HFHS first made a claim against it during one of these policy periods.
On May 11, 2009, eight months after sending the first letter, Paradiso sent a second letter to the office manager of ACS. This letter stated that HFHS “ha[s] provided [ACS] with a copy of the Summons and Complaint which [have] been served upon Henry Ford Hospital.” It then conveyed the intent to hold ACS liable for the harm caused by ACS’ employee, Noel, advising ACS that HFHS had decided to apply the contract provision requiring ACT–1 to indemnify and defend HFHS with regards to the claims against Noel. The letter further counseled ACS that “it will be important for ACS to contact Noel and make arrangements for representation.”
However, Paradiso’s letter of May 11, 2009 was sent and received in the three-month period during which ACS lacked Evanston insurance. ACS’ 2008–2009 policy was cancelled on March 25, 2009, and its next policy began on June 24, 2009, with a retroactive date of June 24, 2009. Because ACS first received Paradiso’s insurance claim on May 11, 2009, during the three-month period in which ACS lacked insurance coverage, Evanston is not contractually bound to provide insurance coverage for any restitution related to the Brown litigation that ACS may have to pay.
Because there is insufficient evidence for a reasonable juror to conclude that ACT–1 properly filed an insurance claim against ACS during the period of ACS’ Evanston insurance coverage, summary judgment must be granted.
Had the insured paid the loan payments its policy would not have been cancelled by the premium finance company it would have had coverage available. Because of the three month lapse in coverage the loss that occurred during the lapse was not covered.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972.
Mr. Zalma’s new e-books “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;” “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.