The hallmark of a claims-made liability policy is coverage exclusively for claims “first made” during the policy period, thus limiting the insurer’s risk to new claims asserted against the policyholder during a finite time period. Insurers further reduce their risk by “deeming” related claims to be a single claim made on the earliest date the first claim was made, rather than multiple claims that could reach the policy’s aggregate limit.
These deemer clauses typically appear in the policy’s “general conditions” section in provisions explaining retentions or limits of liability, with variations of wording such as:
Most deemer clauses are reasonably interpreted as applying to related claims within the policy period – a reading that benefits the insurer by capping related claims to one policy limit as intended, provides value to the policyholder in return for the payment of premium, and comports with the signature characteristic of a claims-made policy.
Unfortunately, some insurers unfairly attempt to convert deemer clauses into hidden coverage exclusions. They contend that a new claim relates to a prior claim made before the policy period and is therefore not covered. If the policyholder procured prior coverage from a different insurer, the current insurer argues that prior insurer is liable. If the current policy is a renewal and the policyholder did not timely provide notice of the prior claim, the insurer argues that all coverage for the new claim is forfeited due to the failure to timely report the so-called prior claim.
This argument is a perversion of the very nature of claims-made policies, often requiring the insurer to resort to semantic gamesmanship with no sound basis in the policy wording or structure. Under most claims-made insuring agreements, the new claim was “first made” during the current policy period because it did not exist during the prior policy period, related or not. Similarly, the policy definition of “claim” focuses on commencement of new legal processes.
Most claims-made policies exclude coverage for prior acts and prior and pending litigation before a designated date. These exclusions further evidence that deemer clauses were never intended to operate as coverage exclusions. Likewise, insurers can require policyholders applying for new or renewal coverage to list recent claims in policy applications prior to issuing coverage. If insurers intend to exclude new claims related to the listed claims, they should be required to say so.
While it’s always a best practice to promptly provide notice of claims to insurers – and have a regular protocol for doing so in place – policyholders may have valid practical reasons for declining to give notice. Deeming related claims to be a single claim does not ipso facto mean that the new claim falls within a prior policy period or that coverage is unavailable under the current policy. Policyholders can address this issue on the front end by asking the insurer to clarify whether an unreported claim could preclude coverage for a similar claim under a subsequent claims-made policy.