{"id":900603,"date":"2022-11-17T14:47:35","date_gmt":"2022-11-17T21:47:35","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=900603"},"modified":"2022-11-17T14:47:41","modified_gmt":"2022-11-17T21:47:41","slug":"claims-made-broad-view-of-relatedness","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/claims-made-broad-view-of-relatedness\/","title":{"rendered":"Seventh Circuit Takes Broad View Of Relatedness Under D&O \u2018Claims Made\u2019 Policies"},"content":{"rendered":"\n

Kian Hudson, Kevin B. Dreher and Kathryn Lee Wilhoit | Barnes & Thornburg<\/a><\/p>\n\n\n\n

Highlights<\/h5>\n\n\n\n
\n

Federal appeals court holds a complaint that originally has one declaratory-relief claim against one company and is amended to add damages claims against additional companies and directors constitutes a single claim for the purposes of a \u201cclaims made\u201d D&O policy<\/em><\/p>\n\n\n\n

The defendants were required to notify their insurer when the original complaint was filed<\/em><\/p>\n\n\n\n

The concurring opinion observes that the decision gives policyholders a powerful incentive \u201cto flood the D&O insurer with notice of even seemingly minor claims (even well within a policy deductible)\u201d<\/em><\/p>\n<\/div><\/div>\n\n\n\n

On Oct. 24, the U.S. Court of Appeals for the Seventh Circuit adopted a broad view of \u201crelated claims\u201d and \u201crelated wrongful acts\u201d in a decision that could affect numerous holders of \u201cclaims made\u201d insurance policies<\/a>.<\/p>\n\n\n\n

The Seventh Circuit\u2019s decision, denying coverage under a directors and officers (D&O) \u201cclaims made\u201d policy, provides an important reminder to policyholders: send, send, send the insurer notice, even for seemingly minor claims. Failure to submit notice may result in losing out on valuable coverage if and when the claim evolves. Indeed, the decision includes a concurrence that gives policyholders remarkably candid advice on how to respond to claims.<\/p>\n\n\n\n

The panel opinion explained: \u201cThe distinguishing feature of \u2018claims made\u2019 insurance is that the insured must notify the insurer of a \u2018claim\u2019 in the same policy period in which it is first \u2018made.\u2019 If a claim goes unreported in the relevant policy period, then the insurer owes no duty to defend or indemnify.\u201d<\/p>\n\n\n\n

In this case, the claims made policy covered a handful of affiliated family construction companies and those companies\u2019 directors and officers. Multiple family members retained ownership shares in one of the covered companies. When a dispute arose over the size of one family member\u2019s share in the company, the shareholder\u2019s estate filed a state court complaint against the company. The complaint solely sought a declaration that the plaintiff owned a certain percentage of the company\u2019s shares.  <\/p>\n\n\n\n

The company did not notify the insurer of the original complaint. And about a year later, the plaintiff amended the complaint to add new allegations and new codefendants: It added 1) additional covered companies and individual directors as defendants, and 2) new damages claims against the directors for breach of fiduciary duty, fraud, and conspiracy (including for serious alleged misconduct many years removed from the conduct alleged in the original complaint).<\/p>\n\n\n\n

The panel opinion unanimously held that the original complaint stated a \u201cclaim\u201d of which the policyholder was obligated to notify its insurer. It also held that the amended complaint\u2019s new allegations were \u201crelated wrongful acts\u201d and the claims against new parties were \u201crelated claims.\u201d As a result, none of the defendants were entitled to coverage under the policy, including the newly added policyholder-defendants.<\/p>\n\n\n\n

Judge David Hamilton concurred and noted \u201cthree practical implications\u201d of the panel\u2019s decision:<\/p>\n\n\n\n

  1. The decision \u201ccreates a powerful incentive for any company with a claims-made D&O policy to give the insurer notice of even the most minor claims, including those against only the company.\u201d Thus, policyholders should consider acting with utmost prudence in order to preserve coverage under claims made policies: \u201cAs this case shows, \u2026. failure to give notice of the original minor claim against only the company will leave the insureds without defense or coverage for the larger threat that emerges later.\u201d<\/li>
  2. The decision gives \u201coutside directors incentives to pressure management to make sure the company gives notice of \u2026 minor claims asserted against only the company.\u201d Indeed, the decision means \u201cdirectors can lose coverage for their personal defense and personal liability if, through no involvement or fault of the directors, the company fails to give the insurer timely notice of a minor claim against only the company.\u201d<\/li>
  3. The decision \u201ccuts both ways\u201d \u2013 when insureds do give notice of initially minor claims, they can \u201ctrigger coverage for the much larger, more extensive, and more complex \u2018related claims\u2019\u201d that may arise down the road. Essentially, although the initial claim may not seem significant, by providing notice, the policyholder can make certain the insurer will be on the hook later \u2013 if and when the claim evolves. <\/li><\/ol>\n\n\n\n

    Claims that start small can often grow large, so it is best practice to not hesitate to send notice \u2013 even for seemingly minor claims. Policyholders must proceed with caution or otherwise risk losing out on the valuable claims made coverage for which they paid.\u00a0<\/p>\n\n\n\n

    \n\n\n\n

    When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    Kian Hudson, Kevin B. Dreher and Kathryn Lee Wilhoit | Barnes & Thornburg Highlights Federal appeals court holds a complaint that originally has one declaratory-relief claim against one company and is amended to add damages claims against additional companies and directors constitutes a single claim for the purposes of a \u201cclaims made\u201d D&O policy The… Continue reading Seventh Circuit Takes Broad View Of Relatedness Under D&O \u2018Claims Made\u2019 Policies<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[10721],"tags":[9895,9980,10422],"class_list":["post-900603","post","type-post","status-publish","format-standard","hentry","category-insurance","tag-advise-consult","tag-claims-made-insurance-policy","tag-directors-officers-liability-insurance","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nSeventh Circuit Takes Broad View Of Relatedness Under D&O \u2018Claims Made\u2019 Policies - 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