A New York federal court has held that an architecture firm is not entitled to coverage under a claims-made professional liability policy because the insured had a reasonable expectation of liability prior to the policy’s inception date. University of Pittsburgh v. Lexington Ins. Co., 2016 WL 7174667 (S.D.N.Y. Dec. 8, 2016).
The insured architecture firm held consecutive claims-made professional-liability policies with two different insurers. The architect designed a building and, during the first policy period, construction problems arose. The architect submitted a notice of potential claim to the first insurer stating that a claim was reasonably likely to result against the firm due to the construction delays. The first insurer denied coverage, asserting that the notice did not provide sufficient detail. The architect then provided notice of the same incident to the second insurer, who also denied coverage.
In an earlier decision in the coverage litigation that ensued, the court granted summary judgment to the first insurer, holding that the notice of potential claim did not meet the notice requirements of the first policy. In this subsequent decision, the court also agreed that the second policy did not afford coverage for the claim. Citing a prior knowledge condition in the second policy, the court held that the undisputed facts showed that the architect “had knowledge of any act, error, omission, situation or event that could reasonably be expected to result in a Claim” before the second policy incepted.
The court rejected the insured’s contention that the decision “create[s] an unfair forfeiture” because the insured purchased consecutive claims-made policies. According to the court, the insured “did not respond to its knowledge of potential liability with the care and promptness required by the terms of its insurance contracts.” The court explained that the insured “was never entitled to unconditional indemnification, even if it purchased two back-to-back policies.” To hold otherwise “would effectively hold [the second insurer] to a strict-liability coverage standard for which it did not contract and for which it was not paid.”