No Coverage for Claim Deemed First Made Prior to Inception of Policy Period

Applying the law of Puerto Rico, a federal district court held that coverage was unavailable for an underlying lawsuit under a claims-made policy because the claim was deemed first made prior to the inception of the policy period.  Galarza-Cruz v. Grupo HIMA San Pablo, Inc., 2020 WL 2843028 (D.P.R. May 28, 2020).

By letter dated June 30, 2016, the insured received a request for monetary compensation to settle a workplace discrimination claim.  Thereafter, on July 11, 2016, the claimant filed a charge of discrimination against the insured before the Anti-Discrimination Unit of the Puerto Rico Department of Labor and Human Resources and the Equal Employment Opportunity Commission.  Finally, on May 8, 2017, the claimant filed a lawsuit against the insured, incorporating the same allegations of sexual harassment, discrimination, retaliation, and unjust termination as found in her earlier demand letter and administrative charge.  On June 15, 2017, the insured tendered the lawsuit for coverage under a claims-made policy with a policy period of December 31, 2016 to December 31, 2017.

The policy provided that “[a]ll Claims arising from the same Wrongful Act or Interrelated Wrongful Act shall be deemed one Claim . . . first made on the date the earliest of such Claims is first made, regardless of whether such date is before or during the Policy Period.”  The policy further required that the insured give notice of “every Claim . . . as soon as practicable but in no event later than 60 days after the end of the Policy Period.”  Based on this policy language, the insurer denied coverage because the insured failed to timely report the initial claim until almost six months after the policy had expired.  The claimant amended her complaint against the insured to add the insurer as a party, and the insurer filed a motion for summary judgment.

The court granted summary judgment in favor of the insurer, holding that there was no coverage because the claim was not first made during the operative policy period.  The court ruled that the claimant’s original June 30, 2016 letter, the administrative charge, and the lawsuit were each a claim alleging the same unlawful employment practices, and were thus deemed a single claim first made on June 30, 2016—before the inception of the policy.  The court rejected the insured’s argument that the insurer was estopped from denying coverage because the past practices of the parties revealed that the insured only reported claims when a judicial complaint was filed.  The court noted that this practice would not necessarily contradict the policy’s reporting provisions and that the insured would still be entitled to coverage under those circumstances so long as the claim against the insured was made during the applicable policy period.

Wiley Executive Summary

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