By Joshua Marx, Esq.
The United States District Court for the Western District of Washington granted summary judgment in favor of an insurer where the undisputed evidence showed that the claim was not made during the policy period. Moody v. American Guarantee & Liab. Ins. Co., 2011 U.S. Dist. LEXIS 38024 (W.D. Wash., April 7, 2011)
The underlying complaint involved a suit for legal malpractice by client Rodney Moody against his attorney Leland Ripley. At the time, Ripley had a professional liability policy with American Guarantee & Liability Insurance Co. (aEURoeAmerican GuaranteeaEUR?), which was issued on a aEURoeclaims made and reported basisaEUR? and was effective from November 1, 2007 to November 1, 2008. Specifically, the insuring agreement provided that American Guarantee would pay for damages and claims expenses for claims that were aEURoeboth made and reportedaEUR? to American Guarantee during the policy period.
Moody filed the underlying malpractice complaint on October 31, 2008 - only one day before RodneyaEUR(TM)s American Guarantee policy expired. However, the summons and complaint were not served on Ripley until November 15, 2008, two weeks after his policy expired. Moreover, Ripley never reported the claim to American Guarantee, which didnaEUR(TM)t learn of the claim until April 30, 2009 when MoodyaEUR(TM)s attorney contacted American Guarantee.
The parties to the underlying lawsuit ultimately reached a settlement where attorney Ripley assigned to his former client Moody the claim against his professional liability insurer, American Guarantee. Defendant American Guarantee moved for summary judgment in Federal Court on the basis that RipleyaEUR(TM)s policy required that American Guarantee be notified of any claim for which Ripley was seeking coverage during the policy period. American Guarantee argued that since it was never informed about the malpractice claim against Ripley until after the policy had expired, American Guarantee is not liable to pay the Moody claim.
The District Court agreed, finding that the policy language unambiguously required the insured to notify American Guarantee of the malpractice claim during the policy period as a condition precedent to coverage. In reaching this conclusion, the court relied on Washington law requiring that the notice requirement of aEURoeclaims made and reportedaEUR? policies to be strictly construed. The court found that because it is undisputed that Ripley did not report the malpractice claim to American Guarantee during the policy period, the insurer was not liable for the claim amount.
The assignee plaintiff also sought to defeat summary judgment by arguing that the notice/ prejudice rule applied to the policy, which would require the insurer to show actual prejudice to deny coverage. The Court did not find this argument persuasive as Washington law explicitly holds that the notice/prejudice rule does not apply to aEURoeclaims madeaEUR? policies. The Court explained that if this were not the case, it would be the equivalent of providing a free extension of coverage to the insured, something for which neither party originally bargained.
This case highlights that courts, and in this case federal courts, are not afraid to strictly interpret aEURoeclaims made and reportedaEUR? policies under Washington law. This was likely one of the reasons that the insurer removed this case from Washington state court to federal court. Indeed, the court was presented with an opportunity to find coverage when there was no prejudice shown and declined to do so, thereby following well-established Washington law. Ostensibly, the court also relied on Washington law that specifically excludes the notice/prejudice rule from aEURoeclaims madeaEUR? policies. Here, the insured would have benefited from obtaining an extended reported period, particularly where the insured has some prior notice that a lawsuit or claim may be forthcoming.