No Coverage Under Claims Made and Reported Policy for Claim Reported After Policy Expiration

A Virginia federal court, applying Virginia law, has held that an insurer was entitled to summary judgment that no coverage was available under its claims made and reported policy for a claim noticed to it after the policy expired.  Gateway Residences at Exch., LLC v. Illinois Union Ins. Co., 2018 WL 1629107 (E.D. Va. Apr. 3, 2018).

A claimant sued a design firm for negligent design during the design and construction of a building and obtained a default judgment.  The claimant then sought to recover from the design firm’s insurer.  The insurer denied coverage under the claims made and reported policy because no claim was reported to it during the policy period.  The insurer was notified of the claim on September 2, 2016, after an insurance finance company cancelled the policy on September 5, 2014 and after the policy would have terminated naturally without the cancellation on February 1, 2015.

In the coverage action that followed, the claimant argued that the insurer waived this defense under a Virginia statute which requires an insurer that discovers a breach of the conditions of a policy to notify the claimant within 45 days, or it waives the defense.  The court held, however, that the statute did not apply because the insurer did not contend that the policyholder violated a policy provision by not reporting a claim during the policy period.  Instead, the court concluded, the lack of notification of the claim during the policy period was a non-occurrence of a condition precedent to coverage under the policy.

The claimant also argued that the policy cancellation by the insurance finance company was invalid.  The court agreed with the insurer that the validity of the cancellation was not material, because the claim was not reported until after the natural termination of the policy in any event.  Finally, the court rejected the claimant’s argument that the claim was reported within the policy’s extended reporting period, because the record did not show that the insured requested or paid for the extended reporting period.

Finding that there was no genuine dispute of material fact as to whether the insurer received notice of the claim within the policy period, the court held that the insurer was not obligated to provide coverage and entered summary judgment in its favor.

Wiley Executive Summary

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