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(Article from Insurance Law Alert, April 2015)

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Our November 2010 Alert reported on a controversial Kentucky appellate court decision holding that a policyholder’s failure to report a claim during the period of a claims-made policy did not bar coverage for the claim. AIG Domestic Claims, Inc. v. Tussey, 2010 WL 3603844 (Ky. Ct. App. Sept. 17, 2010). There, although the policyholder failed to report a claim within the policy period in which it arose (and instead reported it in a subsequent policy period), the court allowed coverage, reasoning that the two policies created "seamless coverage over the two-year period." As the Tussey dissent observed, the majority’s decision "break[s] rank with the overwhelming majority of jurisdictions all over this country who have repeatedly held that failure to notify an insurer within the policy period in a claims-based policy defeats coverage under the policy." In a decision issued last month, a Kentucky federal district court expressly rejected Tussey and ruled that a policyholder forfeits coverage by violating an unambiguous notice provision in a claims-made policy regardless of whether notice is subsequently provided under a consecutive policy. C.A. Jones Mgmt. Grp., LLC v. Scottsdale Indem. Co., 2015 WL 1393261 (W.D. Ky. Mar. 25, 2015).

In Jones Management, the court discounted Tussey’s persuasive value, stating that it is undermined by basic principles of contract interpretation which require courts to afford an insurance policy its plain meaning. The unambiguous policy language at issue "requires that even if an insured purchases consecutive claims-made policies with the same insurer, he must nonetheless satisfy the reporting requirements provided in the policy." The court also criticized Tussey as improperly creating a "long and unbargained-for tail of liability exposure" under claims-made policies. In recent months, several other courts have also rejected the "seamless coverage" approach set forth in Tussey and held that claims-made reporting requirements must be strictly applied as written. See February 2015 Alert.