A primary professional liability policy, issued by a major insurer, and an excess professional liability policy, written by another major company, were carried for a period of one year by an engineering firm. Both policies were written on a "claims made" basis.

The insured was hired by a city as consulting engineer for design and construction of an addition to a power generation facility. A lawsuit stemming from the project was referred to the primary insurer within the term of its policy. However, the excess insurer was not put on notice until almost two years after the termination date of its coverage. It denied liability on the basis of untimely notice, whereupon the insured initiated legal action to recover under the policy. Summary judgment in favor of the insurance company was appealed by the insured.

The distinctions drawn by the appeal court between "occurrence" policies and claims made policies, as follows, are informative: "Coverage is effective in an occurrence policy if the covered act or covered omission occurs within the policy period, regardless of the date of discovery. A claims made policy covers the insured for claims made during the policy year and reported within that period or a specified period thereafter, regardless of when the covered act or omission occurred."

The court went on to explain the several types of notice requirements found in liability policies. One requires that notice of claim be given to the insurer "as soon as practicable" after an event bringing about a claim. Occurrence policies are always subject to it; claims made policies, occasionally. The other notice provision requires the reporting of a claim within the policy term or a short period (30 or 60 days) after the policy expiration. It is always applicable to claims made policies; never to occurrence policies.

The excess liability insurer was notified by the insured of the claim almost two years after the expiration of the policy. The court concluded that the notice provisions of the claims made policy were such that no coverage of the claim was provided. The judgment of the trial court was affirmed in favor of the insurance company.

Editor's Note: The court's rationale for claims made coverage is notable: "The closer in time that the insured event and the insurer's payoff are, the more predictable the amount of payment will be, and the more likely it is that rates will fairly reflect the risks taken by the insurer. The purpose of a claims made policy is to minimize the time between the insured event and the payment. . . ."

(CHARLES T. MAIN, INC., Plaintiff-Appellant v. FIREMAN'S FUND INS.CO. ET AL., Defendants-Appellees. Massachusetts Supreme Judicial Court, Suffolk. March 8, 1990. 551 N.E. 2d 28. CCH 1990 Fire and Casualty Cases, Paragraph 2531.)