By Jill A. Ellman, Esq.of Tressler LLP
The Material submitted to underwriters as part of a renewal process did not meet the policy’s requirements for notification to a specified address and within a specified time period according to a federal appeals court. Atlantic Health System, Inc. v. National Union Fire Insurance Company of Pittsburgh, No. 11-2060 (3rd Cir. Feb. 29, 2012).
In the underlying matter, an antitrust lawsuit was filed in April 2004 against the insured, Atlantic Health System, Inc. (“AHS”), by Med Alert Ambulance, Inc. (the “Med Alert Lawsuit”). While renewing its policy during the 2003-2004 policy period, AHS advised National Union of the Med Alert Lawsuit in its underwriting application. The renewal applications were sent to an underwriter located at a different address than the claims department. AHS reported the lawsuit in July 2004 under a policy issued by National Union Fire Insurance Company of Pittsburgh (“National Union”) effective May 1, 2004 to May 1, 2005. National Union denied coverage because AHS had notice of the underlying matter prior to the inception of the 2004-2005 policy period. In response, AHS reported the Med Alert Lawsuit in August 2004 under the prior 2003-2004 policy period. National Union again denied coverage for the claim because notice had not been provided within the policy period or the 30-day notice extension after the policy’s expiration.
The insured commenced coverage litigation seeking declaratory and monetary relief. The District Court granted summary judgment in favor of National Union, finding that the insured did not adhere to National Union’s policy provisions in that it did not (1) submit the material to the address designated for reporting a claim, and (2) did not indicate that the material was submitted as a notice of a claim as opposed to for any other reason. AHS appealed to the Third Circuit.
The crux of AHS’s claim is that National Union should have granted coverage to AHS under the 2003-2004 policy because statements made in the renewal process served as notice to National Union of the Med Alert Lawsuit. National Union countered that AHS failed to provide timely notice of the claim in accordance with the policy’s terms. The Third Circuit noted the difference between occurrence and claims-made policies as highlighted in Zuckerman v. National Union Fire Insurance Co., 495 A.2d 395 (N.J. 1985), which interpreted that claims-made policies must be applied strictly. For claims-made policies, the Third Circuit found that extending notice beyond the contracted policy period “would be inequitable and unjustified.” The Third Circuit further distinguished notice provisions in occurrence policies, which are triggered by an event in the policy period, to those in claims-made policies, which are triggered by the submission of a claim. Relying on American Casualty Co. of Reading, Pennsylvania v. Continisio, 17 F. 3d 62 (3d Cir. 1994), the Third Circuit concluded that claims-made policies are less expensive because underwriters determine exposure based on a definitive period of time. Any further extension of the reporting period would increase risk to insurers and raise the cost of the policy to the insureds.
In response to AHS’s argument that it provided actual notice to National Union through its underwriting application process, the Third Circuit emphasized the ruling in Continisio, which provided that “[N]otice must be given through formal claims channels…we recognize that the information needed…varies when predicting the probability of future losses and recognizing the need to investigate a claim that may be based on past occurrences.” Continisio, 17 F. 3d at 69. The Third Circuit concluded that the insureds must therefore give notice of a covered claim at the address identified by the insurer- mere mention of a claim in an application renewal process does not constitute an appropriate notice of a claim. The Third Circuit found it unreasonable that AHS would expect National Union’s underwriting department to “sift through a renewal application and decide what should be forwarded to the claims department on the insured’s behalf.”
Tressler Comments: Atlantic Health System clearly outlines the consequences for policyholders who do not adhere to the policy’s notification terms. The Third Circuit properly concluded that an insured should not be entitled to coverage for failure to perform its contractual obligations. The Atlantic Health System is an informative decision for not only explaining the requirements of a claims-made policy, but also for explaining that underwriters may want and need information about prior or current claims for purposes of evaluating the risk. Thus, if a policyholder and its broker elect to provide notice of a claim for purposes of securing coverage under the policy, they should be sure to send such notice to the proper address specified in the policy or Declarations and clearly indicate the purpose for which the notice is being given.
Jill A. Ellman is an associate in the New York office of Tressler LLP (http://www.tsmp.com/jill-ellman/; 646.833.0871; jellman@tresslerllp.com).
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