The Louisiana Supreme Court has held that the application of a reporting provision in a claims-made-and-reported policy to bar coverage for claims asserted by a tort claimant who was unaware of the policy’s reporting requirements did not violate Louisiana’s Direct Action Statute. Gorman v. City of Opelousas, 2014 WL 2937129 (La. July 1, 2014). The court also refused to treat two consecutive policies as a single “continuous” policy period under which coverage could be triggered by a claim made in one policy period but not reported until the next. Id.
While incarcerated in a city jail, an individual suffered a fatal attack perpetrated by two other inmates. The individual’s mother filed a wrongful death action against the city, which was insured under two consecutive claims-made-and-reported policies. In that action, which was brought during the first policy period, the city initially refused to produce its insurance policies. Ultimately, after a motion to compel, the city produced them, and the claimant named the insurer as an additional defendant in the suit (by which time the second policy had incepted). The trial court ruled in the insurer’s favor, holding that there was no coverage because the claim was not first made and reported during any one policy period. An intermediate appellate court ruled in favor of the insurer as against the city, but it reversed as to the claimant. The court reasoned that the state’s Direct Action Statute gave the claimant a vested right at the time the tort was committed that “could not be taken away because of the insured’s failure to notify the insurer – a condition over which the plaintiff had no control.” The insurer appealed.
On appeal, the Supreme Court of Louisiana reversed, holding that “[w]here a policy unambiguously and clearly limits coverage to claims made and reported during the policy period, such limitation of liability is not per se impermissible.” The court reasoned that “in the absence of coverage to the [c]ity, … [the claimant] was not deprived of her rights under the Direct Action Statute” because “that statute does not extend any greater right to the injured third party who was damaged by the insured.” The court also rejected the assertion that the claimant’s right vested at the time of the injury to her son, reasoning that such a ruling would convert the policy into an occurrence policy and upset “the bargained-for exchange between the insurer and insured.” Finally, the court rejected the argument that the consecutive policies could be treated as a single “continuous” policy period – with a claim made in the first policy and reported in the second triggering coverage – since “[t]he plain terms of the policies” provided coverage only for claims first made and reported during the same policy period.