be something other than a lawsuit, for "loss" is not defined as only amounts incurred in the defense of a suit. (See Policy P 2(c).) However, it is also clear that a claim is something more than the threat of a lawsuit. The policy distinguishes between "claims made" upon the directors and officers, notice to the directors and officers of a third party's intention to hold them responsible for the results of a specific Wrongful Act, and the directors' and officers' awareness of an occurrence which may subsequently give rise to a claim against them. (See Policy P 7) Thus, the policy itself confirms that neither notice to the directors and officers of a third party's intention to make a claim nor awareness on the part of the directors and officers of an occurrence that may subsequently give rise to a claim is the equivalent of a claim having been made. They are something different from and antecedent to a claim. See Winkler, 930 F.2d at 1366 (citing Bensalem Township v. Western World Insurance Co., 609 F. Supp. 1343, 1348 (E.D.Pa. 1985) and construing a National Union policy with the same terms); see also Insurance Corp. of America v. Dillon, Hardamon & Cohen, 725 F. Supp 1461, 1470 (N.D. Ind. 1988) (similar policy provisions held to indicate that notice of an alleged injury is something different from a claim). Upon examination, it is apparent that the letter dated October 17, 1984, is nothing more than notice to National Union from the Vermont Commissioner acting as Ambassador Insurance that certain unspecified directors and officers were likely guilty of Wrongful Acts. Despite the declaration in the letter that the letter constitutes notice of a claim, the letter in substance is a notice of occurrence, not a claim or notice of a claim. The second letter adds nothing to the first to transform the two into a claim made. Indeed, the Vermont Commissioner acknowledges in the November 21, 1984, letter that the October 17 letter was a notice of occurrence. The Vermont Commissioner also states that he is aware that he must present claims pressed against the directors and officers directly to them. Thus, the November 21 letter could at best constitute notice of a party's intention to make a claim as defined in section 7(c)(i). However, the letter, like the October 17 letter, does not specify a Wrongful Act, a required element of section 7(c)(i) notice.
Relevant case law supports the conclusion that the letters substantively do not constitute a claim. Consistent with the terms of the policy, a claim may be something other than a formal lawsuit. See, e.g., Phoenix Ins. Co. v. Sukut Construction Co., 136 Cal.App.3d 673, 677, 186 Cal. Rptr. 513 (1982); Williamson & Vollmer Engineering, Inc. v. Sequoia Ins. Co., 64 Cal.App.3d 261, 270, 134 Cal. Rptr. 427 (1976). However, a claim is not merely a contention that some wrongdoing occurred. See MGIC Indemnity Corp. v. Home State Savings Association, 797 F.2d 285, 288 (6th Cir. 1986) (letter to saving association's attorney identifying individual officers as targets of a grand jury investigation constituted a claim that a wrongful act had occurred, but not a claim for payment on account of a wrongful act, and, therefore, was not a claim within the meaning of the policy) Rather, a claim is a demand for specific relief owed because of alleged wrongdoing. See Id.; Insurance Corp. of America v. Dillon, Hardamon & Cohen, 725 F. Supp 1461, 1469 (N.D. Ind. 1988) ("claim requires a demand for money or property or some specific relief, accompanied by an allegation of negligence, malpractice, or some kind of wrongdoing."); Insurance Corp. of America v. Dillon, Hardamon & Cohen, 725 F. Supp. 1478 (N.D. Ill. 1989) (letter to insureds containing a specific demand for relief and enumerating various acts of negligence, as well as explicitly using the word claim, presented a claim); Phoenix Ins. Co. v. Sukut Construction Co., 136 Cal.App. 3d at 677 (court defined a claim as a demand for something as of right, or as due, and held claim made when third party asked insured to cure without charge problems created by inadequate mechanics lien).
Evaluating the letters in light of the case law, it is clear that the substance of the letters does not amount to a claim. The letter dated October 17, 1984, lacks a specific demand for relief and lacks any enumeration of Wrongful Acts. It constitutes merely a general assertion that wrongdoing occurred. Similarly, the letter dated November 21, 1984, does not contain a specific demand for relief. The Vermont Commissioner does state that if he ultimately prevails on claims against Ambassador Insurance's directors and officers, he will contest any amount paid out by National Union under the policy in connection with the Michaels action.
Thus, he impliedly asserts a right to the maximum amount that could be paid out under the policy in satisfaction of his claims. However, he fails to demand specific or full relief from the directors and officers for some particular wrongful act. Therefore, the letters do not constitute a claim made within the meaning of the policy.
the Vermont Commissioner and the New York Liquidator contend that even if the letters from the Vermont Commissioner constitute only notice of an occurrence, the Vermont claim must nevertheless be satisfied with year one policy proceeds. They argue that pursuant to section 7(a) and 7(c), loss arising from the Vermont claim was incurred in year one when that notice was given to National Union. They further argue that the annual policy limit applies to losses incurred in each policy year, not losses arising from claims made in each policy year. The Michaels class counters that section 7(c) applies only to claims made after the expiration of the policy period and that the loss arising from the Vermont claim was incurred in year two when National Union was given notice of the claim made. The class further argues that the annual policy limit applies to losses arising from claims made in each year, not losses incurred in each year. The Court concludes that section 7(c) applies only to claims made after the expiration of the policy period and that, therefore, section 7(c) does not apply to the Vermont claim. The Court further concludes that the annual policy limit applies to losses arising from claims made each year. If successful, the Vermont claim, a claim made in year two, must therefore be satisfied with year two policy proceeds.
As the Court noted in National Union I, section 7(c) applies only in limited instances. It constitutes a savings or "claims after termination" clause, and it applies only to claims noticed pursuant to section 7(c)(i) or 7(c)(ii) and made after the expiration of the policy period.
See Helfand v. National Union Fire Ins. Co., 10 Cal.App.4th 869, 1992 Cal. App. LEXIS 1268, 34 (October 28, 1992) (construing section 7(c) of National Union policy as inapplicable to claims made during the policy period is consistent with the purpose of a coverage tail).
It provides "a mechanism for extending coverage beyond the policy period where 'facts and circumstances' that might give rise to a claim are known, but no 'claim' has been asserted against the insured." Harley, "Recent Decisions of Interest," in Director's and Officers' Liability Insurance, 333, 363-65 (Practicing Law Institute 1990). Typically, a claims after termination clause provides that if an insured becomes aware and gives notice to the insurer during the policy period of the occurrence of a specific wrongful act or of circumstances which could give rise to a claim, a claim subsequently made arising out of such wrongful act or circumstances will be deemed made "during the policy period." Id. Because section 7(c) does not apply to claims made during the policy period, notice pursuant to it does not alter the year in which such claims are considered made or fix the time at which losses arising from them are incurred.
Section 7(c) operates only to bring claims made outside of the policy period within the period so that losses arising from them, if not otherwise excluded, may be covered. Thus, section 7(c) does not apply to the Vermont claim.
The specific language of section 7(c) supports this construction. The clause provides that if the company or the directors and officers give written notice to National Union of (i) notice of a third party's intention to hold the directors and officers responsible for the results of a Wrongful Act, or (ii) an occurrence which may give rise to a claim, then any claim subsequently made "will be treated as made during the currency [of the policy]." Claims made during the policy period are, by definition, claims made during the currency of the policy; they need not be "treated as" or deemed such. Significantly, section 7(c) does not provide that if notice to the insurer is given pursuant to 7(c)(i) or 7(c)(ii) and a claim is subsequently made, the claim shall be deemed made at the time that notice was given. If the policy included such terms, section 7(c) could be meaningfully applied to claims made during the policy period to deem them made earlier in the period. Such provisions exist in other policies. See, e.g., Gilliam v. American Casualty Co., 735 F. Supp. 345 (N.D.Cal. 1990) (policy provides claim deemed made at the earlier of the giving of notice of the potential claim within the policy period or the filing of the actual claim within the policy period). Because such language is absent from the policy, section 7(c) has no effect when applied to claims made during the policy period. Accordingly, section 7(c) must apply only to claims made after the expiration of the policy.
Section 7(c) does not provide that notice pursuant to it satisfies the notice requirement set forth in section 7(b) as a condition precedent to indemnification. Thus, section 7(b) notice must be given to National Union when a claim previously noticed pursuant to 7(c) is actually made. Assuming arguendo that section 7(c) applies to claims made both during and after the policy period as part of the mechanism for fixing the time of loss pursuant to section 7(a), one type of notice, either notice pursuant to section 7(b) or notice pursuant to section 7(c), must be superior to the other in fixing the time. The policy does not supply any guidance for determining which type of notice should take precedence. National Union, the Vermont Commissioner and the New York Liquidator presume that notice pursuant to section 7(c) is superior. However, this presumption essentially transforms the policy into something akin to an "occurrence" policy.
As applied to a claim actually made after termination for which notice of occurrence was given during the policy period, the date on which the notice of occurrence was given would fix the time of loss and, therefore, the loss would always be incurred during the policy period. Thus, even if the directors and officers procured subsequent insurance that covered the claim, payment would be available under the National Union policy.
Section 4(g) of the policy, excluding payment of loss arising from a claim if at the time the loss is incurred, the claim is covered under another policy, would not apply. Because the policy is clearly a claims made policy, not an occurrence policy, the Court must reject the construction proposed by the Vermont Commissioner, the New York Liquidator, and National Union.
Finally, the Court rejects the argument that the annual policy limit applies to losses incurred in a given year rather than losses arising from claims made in a given year. Throughout the policy, "loss" and "claim" are used to denote different concepts. The two are related by the policy definition of loss, but, as reflected in the definition itself and in the insuring clause, they are not interchangeable. (See Policy P 2(c) ("'Loss' shall mean any amount which the insureds are legally obligated to pay for a claim or claims made. . . ."); Policy P 1 ("This policy shall. . . pay . . . loss . . . arising from any claim or claims which are first made . . . during the policy period. . . .") Section 5(b) explicitly states that National Union's "liability for any claim or claims made against it shall . . . be [$ 3,000,000] which shall be the maximum liability of [National Union] in . . . each policy year." It does not provide, as it could have, that the maximum liability for losses incurred in each policy year shall be three million dollars. Thus, for purposes of applying the annual limit of liability, the significant date is the date on which the claim is made. See National Union Fire Ins. Co. v. Continental Illinois Corp., 673 F. Supp. 300 (N.D.Ill. 1987) (court construed similar language and rejected argument that yearly policy limit applied to losses incurred in a given year); but see Helfand, 10 Cal.App.4th 869 (construing National Union policy and holding that time loss is incurred determines year for purposes of applying annual policy limit). Under this construction, a claim made near the end of the policy period for which timely 7(b) notice is given after the date of termination is paid with the proceeds available for claims made in the final year. If the annual policy limit applied to losses incurred in a given year, it is unclear which proceeds would be available; the loss arising from such a claim is a loss incurred after the date of termination. In addition, the Court's construction does not render the time a loss is incurred meaningless under the policy. As noted above, the policy does not cover loss arising from a claim which, at the time loss is incurred, is insured under another valid policy. (See Policy P 4(g).)
In sum, section 7(c) is a savings provision that applies only to claims made after the expiration of the policy period. It is designed to extend coverage under limited circumstances, and the Vermont Commissioner, the New York Liquidator and National Union cannot employ it to reshuffle to their advantage the competing entitlements to the policy proceeds. Because the Vermont claim was made in 1985, it is a claim against the policy proceeds available for year two.
For the reasons set forth above, the Court concludes that the claim underlying the Vermont action was made in 1985, year two of the policy, and is a claim against the year two policy proceeds. Accordingly, the Michaels class's motion for partial summary judgment is granted, and National Union's cross-motion for partial summary judgment is denied.
Dated: Brooklyn, New York
August 12, 1993
RAYMOND J. DEARIE
United States District Judge