{"id":18677,"date":"2022-07-27T11:00:00","date_gmt":"2022-07-27T16:00:00","guid":{"rendered":"https:\/\/plusblog.org\/?p=18677"},"modified":"2024-07-29T13:57:20","modified_gmt":"2024-07-29T18:57:20","slug":"waiver-of-late-notice-defense-in-new-york-cementing-the-difference-between-occurrence-claims-made-and-claims-made-and-reported-policies","status":"publish","type":"post","link":"https:\/\/plusweb.org\/news\/waiver-of-late-notice-defense-in-new-york-cementing-the-difference-between-occurrence-claims-made-and-claims-made-and-reported-policies\/","title":{"rendered":"Waiver of Late Notice Defense in New York: Cementing the Difference Between Occurrence, Claims-Made, and Claims-Made-and-Reported Policies"},"content":{"rendered":"\r\n
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Chiara Tondi Resta<\/strong> is an associate at Wiley Rein LLP in Washington, D.C. where she is a part of the firms Insurance Group.\u00a0 She represents insurers in connection with coverage issues and disputes arising under various types of insurance policies, including General Liability, Directors & Officers, Professional Liability, and Cyber insurance policies.\u00a0 She advises on the applicability of various policy exclusions and conditions, and represents insurers in coverage litigation on those issues.\u00a0 Chiara earned her law degree from the University of Virginia School of Law.<\/p>\r\n<\/div>\r\n<\/div>\r\n\r\n\r\n\r\n

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The Southern District of New York recently held that an insurers late-reporting defense is not subject to waiver under claims-made-and-reported policies.\u00a0 Hunt Constr. Grp. Inc. v. Berkley Assurance Co.,<\/em> No. 19-cv-8775, 2021 WL 4392520 (S.D.N.Y. Sept. 24, 2021).\u00a0 The ruling recognizes the fundamental importance of reporting requirements in claims-made-and-reported policies and represents an important win for insurers on a hot issue. \u00a0The ruling has been appealed to the Second Circuit, providing an opportunity to cement the federal court’s view of New York law on the differences between occurrence, claims-made, and claims-made-and-reported policies.\u00a0<\/p>\r\n\r\n\r\n\r\n

Background<\/u><\/em><\/strong><\/p>\r\n\r\n\r\n\r\n

The insured, Hunt Construction Group, Inc. (Hunt), was a general contractor that purchased claims-made-and-reported errors and omissions policies.\u00a0 When the contractor was sued for alleged mismanagement of a construction project, it notified its insurer, Berkley Assurance Company (Berkley).\u00a0 But the notice was late according to the policy’s reporting requirements.\u00a0 The claim was reported in the policy period after <\/em>the claim had been made.\u00a0 Berkley initially agreed to defend the contractor, subject to a reservation of rights, but seven months later, it denied coverage on the ground that the insured had not provided timely notice of the claim.\u00a0<\/p>\r\n\r\n\r\n\r\n

In subsequent coverage litigation, Hunt argued that Berkley had waived the late-notice defense because New York law requires insurers who gain actual or constructive knowledge of a late-notice defense to immediately raise the defense or risk waiving it.\u00a0 The court initially sided with the contractor; however, the court did not consider that the policy at issue was a claims-made-and-reported policy.<\/p>\r\n\r\n\r\n\r\n

On a motion for reconsideration, the court ruled in Berkley’s favor, holding that the late-notice defense is not subject to waiver where the timing of claim reporting establishes the contours of policy coverage, as in claims-made-and-reported policies.\u00a0 The court noted that New York case law acknowledges the unique function of notice requirements in claims-made-and-reported policies. In that context, the governing rule is that where the issue is the existence or nonexistence of coverage, as is the case when late notice is at issue under a claims-made-and-reported policy, the doctrine of waiver is simply inapplicable.<\/p>\r\n\r\n\r\n\r\n

The Appeal<\/u><\/em><\/strong><\/p>\r\n\r\n\r\n\r\n

Hunt appealed to the Second Circuit the district court’s decision on waiver (and on other substantive issues not addressed here).\u00a0 The parties completed briefing in May 2022 and are awaiting the Second Circuits ruling.<\/p>\r\n\r\n\r\n\r\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The Insureds Argument on Appeal<\/u><\/em><\/strong><\/p>\r\n\r\n\r\n\r\n

Hunts appeal takes issue with the District Courts views of New York waiver law, memorialized in Albert J. Schiff Ass. Inc v. Flack<\/em>, 51 N.Y.2d 692 (1980).\u00a0 Hunt argues that Schiff<\/em> distinguished between instances where the doctrine of waiver is inapplicable i.e., <\/em>where the issue is the existence or nonexistence of coverage and situations where waiver has traditionally applied such as failure to give timely notice of a loss under claims made policies.\u00a0 See <\/em>Appellate Brief at 30-31.\u00a0<\/p>\r\n\r\n\r\n\r\n

Hunt argues that Schiff<\/em> does not permit an insurer to evade its promised coverage by belatedly arguing that its insured failed to take certain actions as a prerequisite thereto.\u00a0 See <\/em>Appellate Brief at 31-32.\u00a0 That is because Schiff <\/em>draws a distinction between the substantive risks insured by a policy which cannot be waived and the insureds breach of policy conditions that the insured must satisfy to secure coverage.<\/p>\r\n\r\n\r\n\r\n

Since Hunt claims that it violated a condition <\/em>to coverage, and not that it is seeking to change the nature of coverage or the substantive risks insured against, Hunt urges that under Schiff<\/em>, Berkley can and indeed has waived its late notice defense.\u00a0 In support, Hunt points to the policy’s notice requirements that are expressly described in the policy as conditions, and by arguing that the notice requirements are merely technical requirements in the policy, not a fundamental quality of the insurance coverage purchased.<\/p>\r\n\r\n\r\n\r\n

The Insurers Response on Appeal<\/u><\/em><\/strong><\/p>\r\n\r\n\r\n\r\n

Berkley’s response focuses on a key doctrine of New York law articulated in Schiff that<\/i>\u00a0where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable.\u00a0 See <\/em>Berkley’s Appellate Response at 38.\u00a0 Berkley reasons that because timely reporting of claims in a claims-made-and-reported policy is a prerequisite for the existence of coverage under the policies insuring clause that is, it is an element that determines the scope of coverage available there can be no waiver of coverage when it comes to late notice.\u00a0 Id.<\/em><\/p>\r\n\r\n\r\n\r\n

Berkley points out that Hunt has conflated two different policy provisions.\u00a0 While Hunt argues that the coverage denial was based on a policy condition that requires prompt<\/em> notice of claims, Berkley’s denial was not based on the mere fact of a delay in the reporting; rather, it was based on the complete failure<\/em> . . . to report a claim during the Policy Period in which it is first made.<\/em>\u00a0 Id.<\/em> at 39.\u00a0 That is, while an insurer can<\/em> waive its coverage defense where notice was delayed but still made during the relevant policy period, it cannot<\/em> waive the defense where the notice delay means the claim is never noticed during the relevant policy period.\u00a0 Id. <\/em>at 40.\u00a0 <\/em>In that instance, the claim falls outside the scope of coverage as defined in the Insuring Agreement, and no waiver can bring the claim back into coverage.\u00a0 Id.<\/em>\u00a0<\/p>\r\n\r\n\r\n\r\n

Berkley explains that this difference is based on the nature of coverage offered under claims-made-and-reported policies.\u00a0 Because the timing of notice is the trigger<\/em> for coverage in a claims made policy and is thus material to the existence or nonexistence of coverage, the waiver doctrine cannot apply because it would go beyond merely extinguishing a defense to underlying coverage, and cause [an insurer] to extend coverage beyond the period for which the policy provides.\u00a0 Id.<\/em> at 40-41.<\/p>\r\n\r\n\r\n\r\n

Discussion<\/u><\/em><\/strong><\/p>\r\n\r\n\r\n\r\n

The district court’s ruling in Hunt <\/em>represents a big win for insurers in an important jurisdiction because New Yorks late notice law recently has favored policyholders.\u00a0 In particular, in 2009 New York passed a statute that adopted the notice-prejudice rule for some professional liability policies.\u00a0 The Hunt <\/em>courts original ruling created yet another barrier for insurers on late-notice, and it was indicative of how courts may fail to recognize the fundamental differences between claims-made-and-reported policies and occurrence or claims-made policies when it comes to their reporting requirements.<\/p>\r\n\r\n\r\n\r\n

But the Hunt <\/em>court’s ruling on reconsideration provides some reprieve to insurers.\u00a0 By holding that the reporting requirement cannot be waived, the district court acknowledged that reporting requirements of claims-made-and-reported policies are a fundamental quality of the coverage offered, and that thus they allow insurers to set their reserves more accurately and more clearly define the risk they assume. Berkley’s arguments on appeal take this one step further.\u00a0 It notes that waiver law also distinguishes between claims-made policies more generally, and claims-made-and-reported<\/em> policies, which have slightly different reporting requirements.\u00a0 Although both policies only offer coverage for claims made against the insured during the policy period, only claims-made-and-reported policies also required the claim to be reported to the insurer during the same policy period as a part of the policy’s insuring clause.\u00a0 This is separate from the prompt notice provision that both types of policies usually have.\u00a0 The additional requirement of claims-made-and-reported policies plays an important role for insurers in narrowing the potential for risk, because it creates a guarantee that only claims made and<\/em> reported during the same policy period could implicate its payment obligations.<\/p>\r\n\r\n\r\n\r\n

This is precisely the point that Berkley emphasizes in its response to Hunts appeal.\u00a0 Hunt incorrectly sees no distinction for waiver purposes between (1) a delay between a claim taking place and the reporting of it, and (2) a delay that causes a claim to be reported during a different policy period than when it was made.\u00a0 But Berkley acknowledges that in the first scenario, waiver of the late notice defense is permissible under both claims-made and claims-made-and-reported policies because the delayed notice does not affect the scope of coverage offered.\u00a0 See <\/em>Insurers Appellate Response at 40.\u00a0 The prompt notice requirement is a condition to coverage.\u00a0<\/p>\r\n\r\n\r\n\r\n

But in the second scenario, allowing waiver of the late notice defense where a claim is not reported until the policy period after the period during which it was made would go beyond merely extinguishing a defense to underlying coverage, and cause [an insurer] to extend coverage beyond the period for which the policy provides.\u00a0 Id.<\/em> at 40-41.\u00a0 It would force insurers to offer coverage where none had actually been purchased, changing the fundamental nature of the policy from claims-made-and-reporting to a claims-made policy.\u00a0\u00a0 Reporting no longer would define the scope of coverage.<\/p>\r\n\r\n\r\n\r\n

The district court’s ruling in Hunt <\/em>acknowledges these important considerations, although not in so many words.\u00a0 And the ruling only expressly notes the difference between the reporting requirements of claims-made-and-reported policies and occurrence policies; it does not address the distinction between claims-made policies and claims-made-and-reported policies.\u00a0 Ironically, Hunts appeal forced Berkley to articulate the nuances of this issue even more clearly than the district court did, and expressly discussed the doctrine with respect to both types of policies.\u00a0 By forcing Berkley to spell out this distinction on appeal, Hunt may have helped Berkley not only secure a win on appeal, but also by giving the appellate court the opportunity to adopt Berkley’s reasoning, which is much clearer and more explicit than the district courts current holding.\u00a0 Such an outcome would provide insurers and insureds clarity on a common, and often contentious, coverage issue.<\/p>\r\n\r\n\r\n\r\n

The Hunt<\/em> district court’s ruling joins a line of other cases across jurisdictions acknowledging the special nature of claims-made-and-reported policies, specifically in the context of waiver and late notice.[1]<\/a>\u00a0 It also reinforces New Yorks previously existing case law on this issue, which the Hunt<\/em> court acknowledged on reconsideration.[2]<\/a>\u00a0 Many of these cases, including those cited by Berkley in its appellate response, make the same argument that Berkley has made in this case.\u00a0 Berkley rightly points out that, pursuant to these cases, New Yorks intermediate courts and federal courts applying New York law have all reached the same conclusion . . . in the context of claims-made-and-reported insurance policies, where the timing of claim reporting establishes the contours of policy coverage, an insurers late-reporting defense is not subject to waiver.\u00a0 See <\/em>Berkley’s Appellate Response at 44-45.\u00a0 Berkley also emphasizes that Hunt has never been able to identify any case holding that an insurer waived such an argument under a claims-made-and-reported policy.\u00a0 Id.<\/em> at 43.\u00a0 With this in mind, the appellate court should have ample precedent to rely on to find support for the district court’s ruling.<\/p>\r\n\r\n\r\n\r\n

Although the district court’s ruling is an important win for insurers, they are not out of the woods yet.\u00a0 The ruling has been appealed and is now fully briefed.\u00a0 While the parties briefing suggests that Berkley has a good chance of success, how the Second Circuit views the issue remains to be seen.<\/p>\r\n\r\n\r\n

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[1]<\/a> See e.g., Sollek v. Westport Ins. Corp.<\/em>, 2012 U.S. Dist. LEXIS 157649 (S.D. Miss. Nov. 2, 2012) (holding that the notice provisions of claims-made-and-reported policies define the scope of coverage by providing a certain date after which an insurer knows it is no longer liable under the policy.\u00a0 Thus, allowing waiver or estoppel to nullify these requirements would fundamentally change the nature of the insurers risk.\u00a0 It would likewise expand coverage beyond the scope of the bargain.\u00a0 Neither waiver nor estoppel create coverage in this context); Or. Sch. Activities Ass’n v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.<\/em>, 279 Fed. Appx. (9th Cir. 2008) (holding that waiver of late notice is not applicable with respect to claims-made-and-reported policies because under Oregon law, waiver is not available to prevent the insurer from asserting a policy defense if the defense is a condition of coverage; otherwise the plaintiff would be able to create coverage through a waiver argument where none existed, and because notice under a claims-made-and-reported policy is the very act that triggers coverage it is not a defense that can be waived, even if the insurer also asserts other defenses).<\/p>\r\n\r\n\r\n\r\n

[2]<\/a> See e.g.,<\/em> Berkley Assurance Company v. Hunt Construction Group, Inc.<\/em>, 465 F. Sup. 3d 370 (S.D.N.Y. 2020) (noting that the court could not find any case holding that an insurer waived its late notice defense under a claims-made-and-reported policy);\u00a0Calocerinos & Spina Consulting Engineers, P.C. v. Prudential Reinsurance Co.<\/em>, 856 F. Supp. 775 (W.D.N.Y. 1994) (noting that because the timing of notice is the trigger for coverage in a claims made policy and is thus material to the existence or nonexistence of coverage, the waiver doctrine cannot apply);\u00a0McCabe v. St. Paul Fire & Marine Insurance Company<\/em>, 914 N.Y.S.2d 814 (4th Dept 2010) (finding that the overwhelming weight of authority holds that such an argument [i.e., denying coverage for late notice] is not subject to waiver because the doctrine of waiver may not operate to create coverage where it never existed);\u00a0Certain Underwriters at Lloyds London v. Advance Transit Company Incorporated<\/em>, 188 A.D.3d 523 (NY. App. Div. 2020) (affirming the lower court’s ruling that late notice of a claim under a claims-made-and-reported policy barred coverage, even though the insurer initially defended subject to a reservation of rights).\u00a0<\/p>\r\n","protected":false},"excerpt":{"rendered":"

Chiara Tondi Resta is an associate at Wiley Rein LLP in Washington,…<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","footnotes":""},"categories":[97,107,112],"tags":[345],"business-line":[43],"post-type":[49],"topic":[29],"class_list":{"0":"post-18677","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-plus","7":"category-events","8":"category-guest-blog","9":"tag-claims-made","10":"business-line-errors-and-omissions-eo","11":"post-type-plus-blog","12":"topic-professional-liability-pl-insurance","16":"post_tag-claims-made"},"acf":[],"_links":{"self":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts\/18677","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/comments?post=18677"}],"version-history":[{"count":3,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts\/18677\/revisions"}],"predecessor-version":[{"id":58286,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts\/18677\/revisions\/58286"}],"wp:attachment":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/media?parent=18677"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/categories?post=18677"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/tags?post=18677"},{"taxonomy":"business-line","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/business-line?post=18677"},{"taxonomy":"post-type","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/post-type?post=18677"},{"taxonomy":"topic","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/topic?post=18677"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}