District Court Opines That The Words Used In An Insurance Policy Actually Mean What They Say

by Nexsen Pruet, PLLC

Many practitioners, both near and far, assert that a good number of our courts’ opinions, whether at the state or the federal level, are simply “result oriented” decisions where the court has decided what result it wants to obtain and them “gerrymanders” the law to “justify” the result.  It is argued that such “result oriented” decisions come about as the result of economic, social, and/or political pressures – either real or imagined.  Whether this is true or not is a debatable proposition and, like statistics, is clearly in the “eyes of the beholder” – especially if the one beholding is on the losing side.

In GS2 Engineering & Environmental Consultants, Inc. v. Zurich American Insurance Company and Steadfast Insurance Company, 2013 WL 3457098 (D.S.C., filed 9 July 2013), the United States District Court for the District of South Carolina, Columbia Division, cannot be chided for a “result oriented” decision as the District Court simply determined that the language used in an insurance policy actually does mean what it says even if that prevents liability insurance coverage from applying to a claim made against the insured..

Steadfast Insurance Company issued a liability insurance policy to GS2 Engineering & Environmental Consultants, Inc. for both the 2009-2010 policy year and the 2010-2011 policy year.  The policies specifically provided that:

This is a claims made and reported policy.  Notice of a potential “claim” is not a “claim” and does not trigger coverage under this policy.  This policy has certain provisions and requirements unique to it and may be different from other policies an “insured” may have purchased.  . . . .

“Claims” must first be made against the “insured” during the “policy period” and “claims” must be reported, in writing, to us during the “policy period”, the automatic extended reporting period or the extended reporting period, if applicable.

Both the 2009-2010 and 2010-2011 Polices contained an automatic 30-day extended reporting period (ERP), as well as affording GS2 engineering the opportunity to purchase an ERP of up to three years.  Nevertheless, the ERPs did not come into play unless Steadfast had non-renewed the coverage for the next subsequent policy period or the insured had cancelled and/or non-renewed the policy.  GS2 Engineering obtained coverage from a different insurer for the 2011-2012 policy term.

In March 2010, Richland School District Two sued GS2 Engineering in South Carolina State Court for breach of contract, negligence, and negligent misrepresentation arising out of GS2 Engineering’s evaluation of certain property Richland Two intended to use for the location of a new elementary school.  GS2 Engineering’s attorney accepted service of the pleadings on 14 April 2010.  Over five months later, on 23 September 2010, Richland Two’s attorney provided Steadfast with a “courtesy copy” of the Summons and Complaint.  Six weeks or so later, on 10 November 2010, GS2 Engineering finally tendered the claim to Steadfast.

On 4 April 2011, Steadfast denied coverage due to GS2 Engineering’s failure to advise Steadfast of the Richland Two claim within the applicable 2009-2012 policy period.  In addition, Steadfast also denied coverage for the 2010-2011 policy on the basis the insurance excluded coverage for pre-existing conditions of which GS2 Engineering was aware prior to the 2010-2011 policy’s inception.

Not unsurprisingly, GS2 Engineering sued Steadfast, albeit in the unusual context of a third-party claim in the original underlying litigation.  Steadfast successfully had GS2 Engineering’s claim severed and then removed it to Federal Court.  Steadfast denied GS2 Engineering’s coverage claim and asserted its own no-coverage declaratory judgment counterclaim.  The parties filed cross-Motions for Summary Judgment (GS2 Engineering sought judgment only on its breach of contract claim) and the District Court, the Honorable Cameron McGowan Currie, presiding, decided the matter on the briefs and the record.

Judge Currie determined that both the 2009-2010 Policy and the 2010-2011 Policy both plainly and unambiguously addressed the insured’s claim reporting responsibilities in the policies’ introductory paragraphs, stating:

This is a claims made and reported policy . . .  This policy has certain provisions and requirements unique to it and may be different from other policies an “insured” may have purchased.... Words and phrases that appear in quotations have special meaning.  Refer to DEFINITIONS (Section VIII).

“Claims” must first be made against the “insured” during the “policy period” and “claims” must be reported, in writing, to us during the “policy period”, the automatic extended reporting period or the extended reporting period, if applicable.

2013 WL 3457098, *2.  She further recognized that GS2 Engineering knew about “the claim that is at issue in this action no later than April 14, 2010, when its attorney accepted service of [the] lawsuit [and] nearly four months remained in the 2009 Policy Period.”  2013 WL 3457098, *3.  Unfortunately, GS2 Engineering failed to “take action to inform Steadfast of the claim before the 2009 Policy expired and the 2010 Policy went into effect on August 7, 2010.”  2013 WL 3457098, *3.  Furthermore, the District Court acknowledged that “Steadfast received its first notice of the suit on September 23, 2010, roughly 47 days into the 2010 Policy Period [interestingly] provided by counsel for Richland Two, rather than by GS2 [Engineering].”  .”  2013 WL 3457098, *3.  Additionally, “GS2 [Engineering] first communicated with Steadfast regarding the claim on November 12, 2010[, and, therefore], GS2 [Engineering] did not both receive and report the [Richland Two] claim during the same policy period.”  .”  2013 WL 3457098, *3.

In analyzing the facts and the applicable law, Judge Currie concluded that Steadfast had correctly argued that the “basic nature of claims-made-and-reported policies require[d] that claims be both made against the insured and reported to the insurer during the same policy period.”  2013 WL 3457098, *4.  (Emphasis in original).  In the vein that “the policy language means what it says” Judge Currie further noted that the “introductory language in the policies issued to GS2 [Engineering] disclosed these requirements and noted that they might be different from other policies the insured had purchased.”  2013 WL 3457098, *4.  Furthermore, she noted the “policies' relevant coverage provisions, likewise, provided that coverage applied only if the ‘the claim [wa]s first made against the insured during the policy period and reported to [Steadfast] during the policy period, the automatic [ERP] or the [purchased ERP] if applicable.’ ”  2013 WL 3457098, *4. 

While GS2 Engineering relied on two minority position cases - Helberg v. Nat'l Union Fire Ins. Co., 102 Ohio App.3d 679, 657 N.E.2d 832 (Ohio 1995); and AIG Domestic Claims, Inc. v. Tussey, 2010 WL 3603844 (Ky.Ct.App.2010), review granted (Sep. 14, 2011), - the District Court looked to the majority position espoused in, among other decisions, Checkrite Ltd., Inc. v. Illinois Nat. Ins. Co., 95 F.Supp.2d 180 (S.D.N.Y.2000); and Ehrgood v. Coregis Ins. Co., 59 F.Supp.2d 438 (M.D.Pa.1998), to “reject[] GS2 [Engineering]'s arguments that all [of Steadfast’s] policies should be treated as a single continuous policy or [that] the reporting period for the 2009[-2010] Policy should be extended into the 2010[-2011] Policy Period.”  2013 WL 3457098, *4.  Additionally, Judge Currie specifically quoted from the resolute dissent in AIG Domestic Claims, Inc. v. Tussey, 2010 WL 3603844, which had “noted that the majority of cases confronting similar issues had found an absence of coverage.”  2013 WL 3457098, *4.  (citing AIG Domestic Claims, Inc. v. Tussey, 2010 WL 3603844, *5) (Wine, J)).

The District Court concluded and found:

the reasoning in Checkrite and Ehrgood persuasive as they better reflect the nature of the policies at issue and their actual language.  Th[is] [District] [C]ourt further concludes that the South Carolina Supreme Court would apply this reasoning to exclude coverage under the facts of this case and language of the present policy, which clearly and repeatedly advises that coverage requires a claim to be made and reported during the same policy period.  Any ambiguity which might be found in the ERP, when read in isolation, is clarified by the language found in the introductory and basic coverage provisions quoted above.  The policy even alerts the insured that such terms ‘may be different from other policies an ‘insured’ may have purchased.’

2013 WL 3457098, *6. (Internal footnote omitted).

Judge Currie also concluded that GS2 Engineering could not “assign” the Richland Two claim to the 2010-2011 policy given the 2010-2011 policy’s “specific ‘pollution liability’ provisions [and the fact] the claim was made ‘four months or so before the Steadfast Policy went into effect’; [as well as] the “pre-existing condition” exclusion.”  2013 WL 3457098, *7.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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