Insurance for Non-Insurance Attorneys: How do I know which liability policies respond to claims against my clients?

Farella Braun + Martel LLP

Farella Braun + Martel LLP

It depends on the nature of the claim against the insured and the type of coverage at issue. Liability insurance policies are broadly understood as either "occurrence" policies or "claims-made" policies, and each has a different trigger of coverage.

Commercial general liability policies are probably the best known and are referred to as a kind of "occurrence"-based policy. This means it covers liability for certain types of injuries (“bodily injury” and “property damage” – which more or less mean what you would expect) caused by an “occurrence.” “Occurrence” is a defined term, but you should think of it as the act that causes the injury. The confusing part, however, is that coverage typically does not depend on when the “occurrence” happened. Rather, the general liability policy that will respond to a claim or lawsuit is the one in effect at the time the injury itself occurred. Sometimes, the “occurrence” and the injury happen at the same time (think of a foul ball in baseball that hits a fan, for example). In other instances, the “occurrence” and the injury can happen years apart (for instance, a company discharges a substance that decades later allegedly causes cancer). In the latter scenario, the policy in effect at the time of the injury to the person, and not the one in effect at the time of the discharge, is the one that the insured would look to for coverage. (There are some general liability policies that are, in fact, triggered by when the “occurrence” happened, not when the “bodily injury” or “property damage” occurred. Although this type of coverage is not nearly as common, it does exist, and insureds should be aware of it.)

Adding a further layer of complexity, general liability policies also contain a totally different type of coverage for “personal injury” and “advertising injury.” This coverage is, in fact, triggered by when the act, or, as the policy refers to it, the offense, occurs (even if the policy has expired by the time any claim is made). Covered offenses include false arrest, detention, or imprisonment; malicious prosecution; wrongful eviction; slander; libel; and disparagement. The insured should look to the policy in effect at the time of these alleged acts for coverage.

In contrast to general liability policies, “claims-made” policies are triggered by the date the “claim” is first made against the insured, not the date of the act giving rise to the “claim.” It is common for the act to have occurred in prior policy periods that have since expired.  The insured typically then has a certain amount of time to report the “claim” under that policy. If the insured fails to report the claim within the required time, the insured risks losing coverage altogether. The most common types of “claims-made” policies include professional liability or directors and officers liability policies.

There are three things to keep in mind with claims-made policies. 

First, some claims-made policies limit or exclude coverage for acts that precede a certain date prior to the inception of the policy period (insureds may know this as the retroactive date). The retroactive date is typically set forth in the Declarations page of the policy. 

Second, the insured must determine whether a “claim” been made against it.  “Claim” is usually defined in the policy and it can be very broad (i.e., “a written demand for monetary or non-monetary relief” is commonly included). This means that a demand short of a legal proceeding (for example, a demand letter from an attorney or a client) may need to be reported. There is no standard definition of “claim,” so it is important to read the policy and make that determination.

Third, if a “claim” has been made, when must it be reported? Again, the policy will tell you. There is no uniform time period. Some policies require reporting “as soon as practicable” but not later than the end of the policy period. Other policies allow reporting for a limited period of time after the end of the policy period. And some do not contain a date certain. Insureds should be aware that the law governing the enforcement of these different reporting periods varies from state to state.

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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