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The Office of General Counsel issued the following opinion on July 31, 2003 representing the position of the New York State Insurance Department.
Re: Claims Made and Reported Policies
May an insurer issue a liability insurance policy in New York that limits coverage to incidents for which the claims are made and reported during the policy term ("claims made and reported" policies)?
A claims-made and reported policy may not be issued in New York except by an unauthorized insurer through an excess line broker.
The inquiry stems from a dispute between the inquirer's client and its employment practices liability insurer. The insurer maintains that is not required to provide coverage on the grounds that the policy in question is a "claims-made and reported" policy and that the claim in question was not made to the insured and reported to the insurer during the same policy period. The inquirer contends that such policies are not permitted under the New York Insurance Law.
Claims-made policies are governed by New York Insurance Regulation 121, N.Y. Comp. Codes R. & Regs., tit. 11, § 73.0 et seq. (1997). A "claims-made policy" is defined therein as follows:
(a) Claims-made policy means an insurance policy that covers liability for injury or damage that the insured is legally obligated to pay (including injury or damage occurring prior to the effective date of the policy, but subsequent to the retroactive date, if any), arising out of incidents, acts or omissions, as long as the claim is first made during the policy period or any extended reporting period.
N.Y. Comp. Codes R. & Regs., tit. 11, § 73.1(a)(1997).
This definition leads to the question of the point at which a claim is considered to have been made. The Regulation defines the making of a claim as follows:
(a) A claim will be deemed first made when the insurer receives written notice of a claim or suit from the insured or a third party, but this shall not preclude an insurer from utilizing written notice of an incident as the trigger of coverage under the policy.
N.Y. Comp. Codes R. & Regs., tit. 11, § 73.3(a)(1997).
Under the definition above, a claim is considered made only when it is reported to the insurer. The policy at issue herein is purportedly a "claims-made and reported" policy, and requires that the claim and the reporting of the claim to the insurer both take place during the same policy term. The policy therefore imposes additional reporting requirements not permitted under the statute.1
Claims-made and reported policies thus would violate Regulation 121. Such policies will not be approved by the New York Insurance Department. See New York Insurance Department Claims Made Policies Form Filing Checklist [Form CLMADE (Ed. 3/2003)], available at http://www.ins.state.ny.us/acrobat/clmade.doc, which specifically provides that policies written on a claims-made and reported basis will not be in compliance with Regulation 121. Authorized insurers are not permitted to write such policies chiefly because of the risk of gaps in coverage inherent in such policies.
Although claims-made and reported policies may not be written by New York authorized insurers, an excess line broker may procure such a policy from an unauthorized insurer. This is permissible because Regulation 41, N.Y. Comp. Codes R. & Regs., tit. 11, § 27 et seq. (1999), which sets forth the governing standards for excess line placements, specifically provides that policies issued by unauthorized insurers are exempt from the provisions of Regulation 121. See N.Y. Comp. Codes R. & Regs., tit. 11, § 27.10(a)(1999). In the instant case, it appears that the policy in question was placed by an excess line broker with an unauthorized insurer, and would therefore be permissible.
The Department notes further that the inquirer has alleged that certain irregularities exist with respect to the policy, specifically that the legend required by N.Y. Comp. Codes R. & Regs., tit. 11, § 27.18 (1999) was missing from the policy and that the policy neglected to include language appointing the Superintendent of Insurance as agent for service of process as required by N.Y. Comp. Codes R. & Regs., tit. 11, § 27.16 (1999). Although such omissions are problematic, the policy nevertheless remains an excess line policy governed by Regulation 41, and thus exempt from the provisions of Regulation 121.
For further information one may contact Supervising Attorney Michael Campanelli at the New York City Office.
1 One commentator has noted that the term "claim" has been defined as both "any act, error or omission known to the insured and reported to the insurer which the insured believes might ultimately lead to a claim;" and as "a written or formal demand for damages sent to the insured during the policy period." See New York Insurance Law § 39.03[d] (Wolcott B. Dunham, Gen. Ed., 2002). The former definition is consistent with that contained in the Regulation. The latter definition comports with the concept of claim as envisioned in a "claims-made and reported" policy.