In Playboy Enterprises, Inc. v. Indian Harbor Insurance Company the California Court of Appeals narrowly interpreted the definition of “claim” under a claims-made and reported professional liability insurance policy. The court determined that an email sent to the insured prior to a formal written demand (and prior to the policy period) did not qualify as a “claim,” even though the email impliedly threatened litigation and alleged that the claimant had suffered losses because of Playboy’s conduct.

In late 2012, businessman Elliott Friedman, began discussions with Playboy about potential licensing arrangements in Asia for a Playboy-branded beer and Playboy-branded cigarettes. On April 19, 2016, Friedman complained to Playboy’s then-general counsel, Rachel Sagan, that he lost money because of the reckless and grossly negligent actions of certain Playboy executives. Friedman’s email indicated that he wished to “meet to review documents, emails, etc. with or without outside counsel.” On May 10, 2016, Friedman contacted Sagan again complaining that two senior executives at Playboy killed his two businesses, causing significant damage to him. In this email, Friedman advised Playboy that he had spoken to his lawyer, and that “[w]hile working with [his lawyer] is great, and a billion-dollar damages trial is interesting, challenging and should be successful, [he] would rather focus at this point of [his] life on settling the issues and just getting compensated for [his] investment” in the beer and cigarette ventures.”

In June 2016, Friedman met with Sagan and outside counsel regarding the issue, and Friedman noted that he “had no intention of making any claim” against Playboy. Subsequently, on March 14, 2017, nine months later and after the subject policy incepted, Friedman’s attorney threatened legal proceedings over the failed cigarette venture, alleged damages in excess of $227 million, and sought a settlement of $95 million.

In December 2017, Friedman’s lawyer sent another letter asserting similar allegations with respect to the beer venture. Following receipt of the March 2017 and December 2017 demand letters, Playboy provided notice to its insurer, Indian Harbor Insurance Company (Indian Harbor). In response, Indian Harbor requested all communications exchanged by and between the parties prior to March 2017. Indian Harbor disclaimed coverage finding that Friedman’s May 10, 2016, email, together with the 2017 demand letters, constituted a single “claim” first made prior to the policy period.

Notwithstanding the denial of coverage, Indian Harbor agreed to participate in mediation and reserved its right to recoupment. Playboy and Indian Harbor negotiated a settlement with Friedman and his affiliated entities for $5 million and Indian Harbor paid $4,840,259.97 towards the settlement (the amount of the settlement in excess of the policy’s remaining self-insured retention). Following settlement, Playboy and Indian Harbor filed cross-complaints, with Indian Harbor seeking a declaration of no coverage and recoupment of the approximately $4.84 million it paid.

The trial court denied a summary judgment motion filed by Indian Harbor, determining that the May 10, 2016 email did not qualify as a “claim” under the policy noting that while Friedman called the idea of a trial ‘interesting’ in the communication, he did not request ‘monetary damages, services, or injunctive or other non-monetary relief,’ and ruled that the “claim” was first made in March 2017, after the policy incepted, when Friedman’s attorney sent the first demand letter to Playboy. On appeal, the court affirmed the trial court confirming that the May 10, 2016 email did not contain a “demand” and did not request monetary compensation or other non-monetary relief.

Comment: Despite that fact that the court concluded that the email Friedman sent prior to the formal settlement demands did not constitute a “claim,” while investigating a claim under a claims-made-and-reported policy (which  provides coverage only for claims made within the policy period that the insured reports to the insurer within a specified time), claims professionals should ensure that they request copies of all communications between the parties to a dispute, including those that pre-date a formal suit or written demand specifically noticed to the insurance company. Simply stating  a grievance does not constitute a “demand,” in the legal sense of the word. If the May 2016 communication had more directly threatened litigation or included a settlement demand, then those communications would have been deemed a “claims” and the court, as it noted, would have determined that there was no coverage under the Indian Harbor policy.