RETROACTIVE DATE IDENTICAL TO FIRST DAY OF POLICY EFFECTIVELY ELIMINATED COVERAGE FOR PRIOR ACTS

Professional Liability	Claims Made
Prior Acts	Retroactive Date

An action was filed against a professional engineering firm, alleging errors and omissions committed prior to the retroactive date specified in their "claims-made" professional liability policy, which was identical to the effective date of the policy. The lawsuit was brought early in the term of the one-year policy. The insurer refused to defend because all allegations of error or omission applied to activities of the firm before the retroactive date. The insured appealed a trial court judgment in favor of the insurer in the course of litigation that ensued.

The policy Declarations described the coverage as "claims-made" professional liability as per the attached form. The retroactive date shown was the same date that the policy was effective. The following pertinent language was contained in large type, under the heading "Coverage," in the attached form: "This policy applies to claims first made against the insured and reported to the company during the policy period arising from services rendered or alleged to have been rendered....subsequent to the retroactive date set forth in the Declarations, but prior to the termination of this policy."

The insured argued that the policy language was misleading and ambiguous, and that the coverage restrictions "do not comport with the reasonable expectations of the insured." They complained that the effect of the insuring provisions was "not conspicuous," as they were disjointed. They said that the Declarations page did not "notify" the reader that there was no coverage for prior acts.

Although the appeal court said that it would be better if the absence of retroactive coverage were made crystal clear on the Declarations page, it concluded that the policy "passes the conspicuous test because the cover page directs the insured to the coverage provisions." The spelling out of the retroactive date in the Declarations and the reference (in that cover page) to the terms of coverage in the attached form combine to reasonably inform the reader of the absence of coverage for prior acts.

It was deemed unnecessary to consider the "reasonable expectations" of the insured, as the policy language was found not ambiguous. The judgment of the trial court was affirmed in favor of the insurance company and against the insured.

Merrill & Seeley, Inc. Et Al., Plaintiffs, Appellants V. Admiral Ins. Company Et Al., Defendants, Respondents. California Court of Appeal, First District, Division Four. No A045974. November 26, 1990. 225 Cal. App. 3d 624. CCH 1991 Fire and Casualty Cases, Paragraph 3089.