A

Your concern is understandable but your question is really unexpected. Claims-made policies have been in use for quite a few years and there has been almost universal acceptance of such policies. However, based on your information, we did check the record on court decisions concerning claims-made forms.

The defining feature of a claims-made policy is, basically, the requirement that a claim against the insured has to be made during the policy period in order for the policy to apply. If a court does find this procedure unacceptable, it would probably be based on the issues of ambiguity or the violation of public policy. That actually did happen many years prior to the issuance of the current claims-made forms. In Jones v. Continental Casualty Company, 303 A.2d 91 (1973), a New Jersey superior court declared that a claims-made policy was void as against public policy. In Gyler v. Mission Insurance Company, 514 P.2d 1219 (1973), a California court struck down a claims-made policy on grounds of ambiguity. However, it should be pointed out that subsequent New Jersey decisions have explicitly narrowed the holding of the Jones case and the Gyler decision was based on particular wording that is not found in the current claims-made liability forms.

What may have prompted the rumors that so concern you are two cases, one from California and one from Maryland that, at first reading, may seem to attack the validity and the essence of claims-made policies. In the California case, Brown-Spaulding & Associates, Inc. v. International Surplus Lines Insurance Company, 206 Cal. App. 3d 1441 (1988), a California court of appeals declared that “a provision in a claims-made professional liability insurance policy requiring that notice be given to the insurer within the policy period is against public policy and, thus, void and unenforceable.” However, this opinion was pulled by the California Supreme Court; this means that the opinion is not officially published and is, therefore, of no precedential value. Courts are not bound by decisions having no precedential value.

The Maryland decision, St. Paul Fire & Marine Insurance Company v. House, 533 A.2d 301 (1987), upheld coverage under a claims-made professional liability policy even though the claim was not reported to the insurer until after the policy period. But, in this decision, the Maryland court of appeals focused not on whether claims-made policies violated public policy, but on just when the claim was made. The court decided that the claim was made when it was asserted by the injured person against the insured and not when it was reported to the insurer; thus, the claim was made during the policy period based on the court's interpretation of the wording of the policy. The words and phrases of that particular policy were seen to be ambiguous by the court so, of course, the insurer lost the decision. The St. Paul case in no way represents a trend towards wholesale attacks on claims-made policies.

As noted above, there is almost universal acceptance of claims-made insurance policies. State courts have upheld such policies for many years. Even the United States Supreme Court, in St. Paul Fire & Marine Insurance Company v. Barry, 438 U.S. 531 (1978), stated that “a claims-made policy protects the holder only against claims made during the life of the policy.” So there is really no need to worry about the viability of the claims-made policy. Of course the terms in a particular claims-made policy may be the basis for a of finding coverage against the wishes of an insurer, but claims-made policies in general do not violate public policy.