Even Without Express Demand for Money, Pre-Policy Period Letter is a “Claim”
Applying New Jersey law, a New Jersey federal court has found that a letter to an insured law firm referencing an “action against the Firm for damages” arising out of the firm’s actions and requesting that the firm put its insurer on notice constituted a “claim” made prior to the inception of the firm’s claims-made professional liability policy. Innes v. St. Paul Fire & Marine Ins. Co., 2015 WL 5334580 (D.N.J. Sept. 11, 2015). The court also found that the letter demonstrated that the firm had knowledge prior to the policy period of an act, error or omission that might reasonably be expected to result in a claim, barring coverage for the dispute.
The insured firm had represented the underlying claimant’s ex-wife in divorce proceedings. The claimant contended in a letter prior to the inception of the claims-made policy at issue that the firm had given the passport of the claimant’s daughter to the claimant’s ex-wife, who had fled the country, causing the claimant to expend tens of thousands of dollars to locate his daughter. The letter was signed by the claimant’s attorney, stating that he represented the claimant “in an action against [the insured] Firm]” and requesting that the firm “please put your carrier on notice.” After the policy incepted, the claimant sued the firm, alleging the same misconduct.
The policy defined “claim” as a “demand received by an insured for money or services alleging an error, omission, negligent act or ‘personal injury in the rendering of or failure to render ‘professional legal services’ for others by you or on your behalf.” The court held that “despite the fact that [it] does not contain a verbatim demand for money or services,” the claimant’s pre-policy period letter could “reasonably be construed as a demand to recover” the tens of thousands of dollars in legal fees that the claimant allegedly incurred following the asserted wrongful actions by the insured firm. Accordingly, the court determined that the “claim” was first made at the time of the letter, prior to the inception of the claims-made policy period, and that no coverage was available.
In the alternative, the court concluded that the letter triggered the policy’s provision extending coverage for acts occurring prior to the policy period “provided that the insured had no knowledge of any suit, or any act or error or omission, which might reasonably be expected to result in a claim or suit as of the date of signing the application for this insurance.” The court concluded that the firm had subjective knowledge of the acts leading to the underlying claim because it received the claimant’s letter. The court next determined that, on an objective basis, a reasonable professional in the insured’s position might have expected a claim or suit to result in light of the letter’s reference to “an action” and request to put the firm’s carrier on notice. Accordingly, the court determined that the policy did not cover the underlying claim because the firm could have reasonably foreseen that certain errors and acts might become the basis of a claim or suit.