Late Notice Bars Coverage Under Claims-Made-and-Reported Policy for Claim Noticed to Insurer After Policy Period Expired

The North Carolina Court of Appeals has held that there is no coverage for a claim the insured knew about in July 2019 but failed to report to the insurer until November 2020 — after the expiration of the policy period. Virmani v. Professional Sec. Ins. Co., 2024 WL 446429 (N.C. Ct. App. Feb. 6, 2024).

In 2019, a doctor filed a complaint with the state medical board against the insured doctor in connection with concerns she had after observing the insured’s inappropriate behavior with some of his patients. On July 26, 2019, the board informed the insured that he was under investigation.

The insured hired counsel to represent him but did not notify his professional liability insurer until sixteen months later in November 2020. The doctor’s professional liability policy stated that it protects the insured “from claims first made and incidents first reported . . . . during the policy period and arising out of [the insured’s] professional activities during the protected period, provided that you comply with the conditions and notification provisions specified in this policy.” The policy required the insured to report claims “promptly” and “during the policy period.” The insurer denied coverage because the doctor did not provide notice of the investigation during the policy period, which ended in November 2019. The insured initiated coverage litigation and, after a bench trial, the trial court ruled in favor of the insured.

On appeal, the North Carolina Court of Appeals reversed. The court held that the policy’s reporting requirements were not ambiguous and required a claim “to have both arisen during a covered policy term and to be reported within a covered policy term.” The court also noted that the notice requirement was stated multiple times throughout the policy, including the first line of the policy, which stated that “[t]his is a claims-made and reported policy.” Since it was undisputed that the insured failed to provide prompt notice, the court concluded that the insurer did not wrongfully deny coverage. The insured also hired his own counsel, thereby depriving the insurer of its right to select counsel. The court further reasoned that to conclude otherwise would transform the policy to an “occurrence policy” — a policy indemnifying the policyholder for any loss from an event that occurs within the policy period, regardless of when the claim is made. Lastly, the court held that the fact that the claim was a “regulatory defense event” did not change the conclusion. The reporting requirements unambiguously applied to the policy in its entirety.

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