Mr. Bower can be reached at 212-599-7764 or [email protected]. Comments or questions concerning this topic are welcomed.

Topics covered:
Introduction
A grievance or complaint is not a claim
Notice of a potential future claim is not a claim
Notice of an occurrence is not a claim
A claim and the demand for money
Suggestions

Introduction

Under a claims-made policy, coverage is usually triggered when a claim is first made against the insured during the policy's effective date. In disputes over when a claim was first made, parties sometimes take differing views of what the word claim means. This is particularly likely to happen if the underlying dispute developed gradually, escalating through a series of contacts and confrontations before emerging as a full-blown lawsuit. At what point in that sequence of events was a claim first made within the meaning of the policy?

Although most people would understand the word claim to encompass something more than just a lawsuit, parties often disagree over whether that “something  more” might include such things as: a letter from a lawyer seeking information (e.g. a “Dear Doctor” letter, asking for a copy of a physician's records relating to the lawyer's client); a letter expressing a grievance, complaint, or accusation; a threat of possible future litigation; a demand for some kind of monetary compensation or other relief; or, a demand that someone re-do unsatisfactory work at no cost.

Dictionary definitions make it clear that the word claim may be used in a number of senses, meaning different things in different contexts. And, some policyholders have relied on such definitions to argue that the word claim is inherently ambiguous and should therefore be construed against the insurer and in favor of coverage. So, to minimize disagreements over the meaning of the word claim, some claims-made policies attempt to define it. Such policy definitions have varied significantly among different companies and different lines of coverage. As examples, the following are a few policy definitions of claim quoted in reported cases.

In Specialty Food Systems, Inc. v. Reliance Insurance Company of Illinois, 45 F. Supp. 2d 541 (E.D. La. 1999), a claim is “any written demand or notice received by an Insured from a person or from any administrative agency advising that it is the intention of a person to hold the Insured responsible for the consequences of a Wrongful Employment Practice and includes any demand received by an Insured for damages and/or the service of suit.”

In Insite Properties, Inc. v. Jay Phillips, Inc., 638 A.2d 909 (N.J. App. Div. 1994), a claim is “a demand for money or money damages received by the Insured during the Policy Period and forwarded to the Company during the Policy Period.”

In Evanston Insurance Company v. GAB Business Services, Inc., 521 N.Y.S.2d 692 (1st Dep't 1987), a claim is “a demand received by the Insured for money or services, including the service of suit or institution of arbitration proceedings against the Insured.”

However, many policies make no effort to define claim. As a result, a number of coverage lawsuits have required courts to determine the meaning of the undefined word claim in a claims-made policy. Although the resulting case law is not unanimous, the vast majority of courts considering the issue have held that the undefined term claim in a claims-made policy is (a) not ambiguous and (b) contemplates a demand, made under an assertion of legal right, for compensation in the form of money, services, or something else of value. This has often been expressed by the observation that, to be a claim, such a demand must, as noted in the Evanston case, “relate to an assertion of legally cognizable damage, and must be a type of demand that can be defended, settled and paid by the insurer.” The actual filing of a lawsuit or service of a demand for arbitration is usually not required (especially where the policy language distinguishes between claims and suits), but something more than merely airing a grievance or giving notice of a potential future claim is necessary.