Benefits & ERISA Law

Depends on What You Mean By "Related"

Well, here's a story on an unpublished Ninth Circuit decision on the impact on the duty to defend of related claims provisions in claims made insurance policies. Although policies vary in the language and structure they use to accomplish it, these provisions essentially declare a claim made during a policy period to be linked to earlier events or an earlier claim if they all arise from related events, with there being no coverage if the earlier related events occurred before the policy period of the policy under which coverage is being sought. The operation of these provisions is of crucial importance for the operation of claims made insurance policies and for insurance programs built on them, in that a claims made policy is built around the idea that the policy will only provide coverage for claims - such as lawsuits - actually first made against the insured during the effective period of that policy, and that the policy won't provide any coverage if the loss for which coverage is sought relates to a claim that began before the commencement of that policy period. Claims made policies are priced on only covering claims actually first arising during the policy period - and not on covering those that started before the policy period or were not made until after it ended. By precluding coverage when a particular claim actually stems from events or another claim that predated the policy, the related acts language is the mechanism for effectuating this intent. I will warn you up-front that this is a very simplistic introduction to a fairly complicated subject, but it captures the idea.

The article discusses an example of a court refusing to apply such language in that way, by instead finding events that predated the policy to not be related to the claim made during the policy period and for which coverage is sought. The article, however, overstates the case by making it sound as though there is some sort of blanket prohibition against this approach to limiting coverage under claims made insurance policies, and that courts simply won't find a claim during a policy period to not be covered when it is related to events that occurred before the policy period. That is, however, overstating the case. This issue is inevitably highly fact specific, and courts look closely at the factual interrelationship of the events at issue to decide this, rather than simply rejecting outright the assertion of such a linkage or denying the legitimacy of policy terms voiding coverage in the presence of such a linkage. While it is fair to say that, to some extent, such linkage is in the eye of the beholder and thus the denial of coverage on this ground is never simply an easy, mechanistic activity, it is simultaneously unfair to present it - as the article at least intimates - as a policy defense that is not accepted by the courts or ever applicable.

Full post as published by Boston ERISA Law Blog on October 18, 2010 (boomark / email).