The California Court of Appeal has held that a letter from a claimant’s attorney to the insured threatening litigation was a “claim” within the meaning of the insured’s “claims made and reported” policy. ( Westrec Marina Management, Inc. v. Arrowood Indemnity Company (2008) WL 2406143)
Facts
Arrowood Indemnity Company issued two consecutive directors and officers liability insurance policies to Westrec Marina Management, Inc. The first policy was effective from July 1, 2002 to July 1, 2003, and the second policy was effective from July 1, 2003 to July 1, 2004. Each policy provided coverage for losses incurred in connection with claims “first made” against the insured during the policy period and reported to the insurer within 30 days after the expiration of the policy.
Bette Clark was a former employee of Westrec. In June 2003 (during the first policy period), Clark’s attorney faxed a letter to Westrec stating that Clark had been subjected to sex discrimination at Westrec, had been wrongfully terminated from Westrec, and had received a “right to sue” notice from the Department of Fair Employment and Housing allowing her to sue Westrec. The letter from Clark’s attorney stated that Westrec might prefer “to resolve or mediate this matter” rather than become involved in expensive litigation, and asked Westrec to contact Clark’s attorney to discuss the matter. Westrec did not notify Arrowood of this letter within 30 days after the expiration of the first policy.
In December 2003 (during the second policy period), Clark sued Westrec for employment discrimination and wrongful termination. Westrec promptly tendered the lawsuit to Arrowood for defense. However, Arrowood rejected Westrec’s tender on the ground that the letter from Clark’s attorney to Westrec in June 2003 constituted a “claim” made against Westrec during the first policy period, and Westrec had failed to provide notice of that claim to Arrowood within 30 days after the expiration of the first policy.
Westrec then filed a breach of contract/bad faith lawsuit against Arrowood alleging that Arrowood had wrongfully refused to defend Westrec in the underlying lawsuit brought by Clark. The trial court ruled in favor of Arrowood, and Westrec appealed.
Holding
The Court of Appeal affirmed the judgment in favor of Arrowood.
According to the appellate court, the letter that Clark’s attorney sent to Westrec in June 2003 constituted a “claim” that was made against Westrec during the first policy period. Both Arrowood policies defined a “claim” so as to include “ a written demand for civil damages or other relief ,” and the June 2003 letter from Clark’s attorney to Westrec was “a settlement demand seeking monetary compensation” from Westrec. The appellate court stated that “although the [June 2003] letter did not expressly demand payment or refer to any specific amount, its meaning was clear that, absent some form of negotiated compensation, Clark would commence a lawsuit against Westrec .” In short, the letter Clark’s attorney sent to Westrec in June 2003 constituted a “claim” that was made against Westrec during the first policy period, and Westrec failed to provide notice of that “claim” to Arrowood within 30 days after the expiration of the first policy.
Moreover, the court concluded that the letter Clark’s attorney sent to Westrec in June 2003 (during the first policy period) was the “same claim” as the lawsuit Clark filed against Westrec in December 2003 (during the second policy period). In that regard, both Arrowood policies stated that “all claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events , shall be deemed to be a single claim .” According to the court, the December 2003 lawsuit and the June 2003 letter “constituted a single claim that was first made at the time of the [June 2003] letter.” Because Westrec failed to provide Arrowood with notice of that claim within 30 days after expiration of the first policy, Arrowood had no duty to defend or indemnify Arrowood.
Comment
This case should serve as a warning to insureds under “claims made and reported” policies. If there is any doubt as to whether the third party is making a “claim” against the insured, the insured should put its insurer on notice. Here, the June 2003 letter from the claimant’s attorney to the insured did not expressly demand payment in any specific amount. Nevertheless, according to the court, the letter made it clear that unless the parties reached a settlement, the claimant would sue the insured. That being the case, the letter constituted a “claim” that the insured was required to report to its insurer within the time specified in the policy.