NOTICE REQUIREMENTS OF "CLAIMS-MADE" AND "OCCURRENCE" POLICIES DISTINGUISHED

Professional Liability	Claims Made
Occurrence

An attorney was continuously insured, by the same insurer, under professional liability policies renewed annually on a "claims-made" basis over a period of nine years. He was served with a summons and complaint in a legal malpractice action three months before the expiration date of the applicable policy. He did not give notice of the pending litigation to the insurer until after the policy had expired.

The insurance company sought and was granted, in the federal district court, a declaration that it was under no obligation to either represent or indemnify the insured. The basis for the judgment was that the policy at issue was a "claims-made" policy and the claim had not been reported to the insurer within the policy period. The insured appealed.

The insured's attorney argued that the insurer "could not legally deny coverage absent a showing of prejudice arising from his noncompliance with the notice requirement. Citing Massachusetts cases in point, the federal appeal court examined the difference in purpose in the notice requirement of an "occurrence" basis liability policy and that of a "claims-made" basis liability policy.

The court relied on and endorsed the distinction made by the Supreme Judicial Court of Massachusetts in Charles T. Main v. Fireman's Fund Insurance Company, 406 Mass. 862 (1990), as follows: "An 'occurrence' policy covers an act or omission which occurs within the policy period, regardless of the date of discovery. A 'claims-made' policy, on the other hand, 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 appeal court said that, with respect to "occurrence" policies in Massachusetts, an insurer could avoid liability by making a showing of prejudice resulting from a late notice. By way of distinction, it said: "In order for an insurer to be entitled to deny coverage under a 'claims-made' policy, it must only show that the insured did not report the claim within the same policy year in which he received notice of it; no showing of prejudice need be made."

It was concluded by the court that the strict notice requirements of the "claims-made" policy carried by the insured were fundamental and clear. He failed to give notice accordingly. The judgment of the district court was affirmed in favor of the insurance company and against the insured.

Editor's Note: The insured had bolstered his attempt to secure coverage by reliance on language requiring notice to the insurer "as soon as practicable." The appeal court noted that such is the case with "occurrence" policies. It applied under the insured's "claims- made" policy only when the insured became "aware of any act, error or omission which could reasonably be expected to be the basis of a claim." It was required, however, that an actual claim be reported within the policy period.

National Union Fire Ins. Co., Plaintiff, Appellee V. Talcott, Defendant, Appellant. United States Court of Appeals for the First Circuit. No. 90-1945. April 30, 1991. CCH 1991 Fire and Casualty Cases, Paragraph 3140.