Last Thursday, a federal district court in Dallas granted summary judgment for an insurer who issued a claims-made-and-reported professional liability insurance policy, holding the insured’s notice to its retail insurance broker did not constitute timely notice to the insurer, and notice of the claim was not timely given during the reporting period.

In Vela Wood PC v. Associated Indus. Ins. Co., Inc., 3:19-CV-1140-N, 2020 WL 5440496 (N.D. Tex. Sept. 10, 2020) (slip op.), the insured was sued near the end of the initial policy period, and immediately gave notice to its retail insurance broker, although the insured disputed whether the suit filed against it truly stated a “claim” as defined under the policy.  The agent apparently did not give notice to the insurer at that time.  After the first policy period expired and the next policy period began, the claimant amended its petition, and there was no dispute that the amended petition stated a “claim.” The insured gave notice to the insurer during the second policy period.

After the insurer denied the claim for late notice, the insured brought this suit, arguing the original suit against it during the first policy period did not state a “claim” because there were no facts alleged to inform the insured of the wrongful act or error that was committed. The court disagreed and observed the policy defined a “claim” as simply a written demand for monetary damages which alleges a Wrongful Act.  The court pointed out that while conclusory legal allegations are not enough to withstand a federal 12(b)(6) motion to dismiss, they are enough to allege a “claim” under the policy terms.

The court also rejected the insured’s claims that its report to the retail broker during the first policy period was sufficient notice to the insurer, relying on well-established Texas law holding that a retail broker is generally the agent of the insured, and giving notice to the retail broker does not relieve the insured of its duty to ensure the notice reaches the insurer. The court examined various circumstances under the Insurance Code in which a retail broker may be legally deemed the agent of the insurer, and concluded that absent evidence of a course of dealing in which the insurer had authorized the broker to act as its legal agent for purposes of receiving notice of a claim, it was not the insurer’s legal agent.

Editor’s Note: This case highlights the hazards that can occur with claims-made-and-reported policies, particularly when a suit is filed against the insured near the end of the reporting period and later amended.  However, most claims-made policies allow the insured to lock in coverage by promptly reporting circumstances that may be reasonably expected to lead to a claim, such as a questionable and poorly pleaded lawsuit.  For purchasers of claims-made policies, the best practice to avoid late notice problems may be, “when in doubt, report.” Although this fact scenario suggests the insured may have had a valid claim against its retail insurance broker for failing to transmit the original report to the insurer, the insured apparently chose not to bring the broker into this suit, for reasons unknown.

Jump to Page

Necessary Cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytical Cookies

Analytical cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.