under the terms of the policy, and fell squarely within the policy period. I disagree with the second part of their argument, however. C&S and Mueser are not covered by the policy because they did not report the claim (which transforms a "claim" into a "claim made" under the policy definitions) within either the policy period or the discovery period. The policy explicitly covers claims made, not claims, and the term "claims made" expressly includes a reporting requirement in its definition. Plaintiffs' reliance of the second sentence of Conditions I.A of the policy is flawed as well because it takes the sentence out of its context. When read with the sentence that immediately precedes it, it makes clear that claims must be reported to the insurer within sixty days after the cancellation of the policy, as long as the claim had arisen during the term of the policy. Far from extending coverage as the plaintiffs claim, this clause operates to provide a limited, sixty-day window within which an insured may transform a claim arising within the policy period into a "claim made," but specifies that the insurer will not be responsible for claims reported outside that window, even if the insured was informed of the claim squarely within the policy period.
Plaintiffs also argue for their interpretation of the policy language on fairness grounds, positing that the only fair and rational interpretation of the policy language is that Prudential agreed to cover any "claim" that arose during the policy period or the discovery period, so long as prompt notice of any lawsuit was given to the insurer whenever that claim ripened into a lawsuit. They maintain that because the "claim" arose during the policy period and because they demanded coverage within days of being sued, they must be covered by the policy. This argument, however, is supported by neither the policy language nor the interpretations of claims-made insurance policies by courts.
In Hasbrouck v. St. Paul Fire and Marine Ins. Co., 511 N.W.2d 364 (Iowa 1993), for example, the Supreme Court of Iowa addressed a case with similar facts. An insured doctor had claims made professional liability insurance coverage beginning September 23, 1985 and continuing until September 23, 1990, when it was cancelled. On August 31, 1990, a former patient filed a malpractice action against the doctor for alleged malpractice occurring in 1988. The doctor did not report the lawsuit to the insurer, but instead hired his own attorney, who answered the complaint on September 10, 1990. On December 6, 1990, this attorney first notified the insurer of the lawsuit and demanded coverage, which the insurer refused.
The Supreme Court of Iowa held that the insurer had no coverage obligation, noting that "an extension of the notice period in a 'claims made' policy constitutes an unbargained-for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against in the policy." Id., 511 N.W.2d at 367. The Court thus applied the rule that the date that a claim is reported to the insurer is the determinative date for claims made policies. The Court, in its analysis, listed several decisions from various jurisdictions applying the same analysis to "claims made" policies.
Similarly, in St. Paul Fire and Marine Insurance Company v. Hunt, 811 P.2d 432 (Colo. Ct. App. 1991), the Colorado Court of Appeals addressed whether the mental incapacity of an insured excused his failure to report a claim during the policy period of a claims-made policy. The Court held that it did not, reasoning that notice to the insurer constitutes the trigger for coverage in a claims made policy and that notice was therefore a material part of the agreement that and could not be excused. Id. at 435.
I agree with the reasoning of both Hasbrouck and Hunt. Plaintiffs are attempting to evade the essence of the "claims-made" policy by arguing that the policy only required prompt notice to the insurer after filing of the suit based upon a claim. Although Iacobelli's DSC demand in May 1984 constituted a "claim", C&S and Mueser are not covered because neither notified Prudential until after both the policy period and the discovery period had expired.
To construe the discovery clause to provide for open-ended coverage for any claims asserted against the insureds during the policy period or discovery period, but which went unreported until after the policy had expired would transform this claims made policy into a quasi-occurrence policy, dramatically shifting the contracted risks. Prudential would be held responsible for any occurrence for which a claim was given to any insured during the policy period, regardless of when this ultimately ripened into an actual suit, or if the insured did not report the claim until several years after the policy period had ended. Such an interpretation would severely limit the usefulness of claims made coverage, because insurers would be subjected to similar risks as those present with occurrence coverage.
It would be contrary to both the language of the policy and the essence of the contract to allow the insureds to extend the term of their policy indefinitely by allowing them to demand coverage for any and all claims that arose during the policy period but that went unreported until after the period had lapsed.
3. Waiver/Estoppel Argument
Plaintiffs claim that because Prudential has provided a defense to two other named insureds under the policy (H&A and LST), Prudential should be held to have either waived its right to deny coverage to plaintiffs or be estopped from asserting that right. I disagree.
Plaintiffs argue that in supplying coverage to H&A and LST, Prudential waived its right to deny coverage to C&S or Mueser. Put differently, by providing coverage to H&A and LST, Prudential had intentionally relinquished a known right, i.e. the requirement that they be given written notice of the claim within the policy period, and therefore cannot now claim that defense.
The Plaintiffs' argument finds no support under New York law. In Albert J. Schiff Associates, Inc. v. Flack, 51 N.Y.2d 692, 435 N.Y.S.2d 972, 417 N.E.2d 84 (1980), the Court of Appeals, after discussing general principles of forfeiture, noted that
[waiver] does not create coverage, for the underlying coverage must be subsisting if the forfeiture is to serve any purpose. So, where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable.
Thus, only a defense to coverage may be waived, and the doctrine does not create coverage where there had been none. In this case, because the timing of notice is the trigger for coverage in a claims made policy and is thus material to the existence or nonexistence of coverage, the waiver doctrine cannot apply because it would go beyond merely extinguishing a defense to underlying coverage, and cause Prudential to extend coverage beyond the period for which the policy provides. Because waiver doctrine cannot create such a duty on the part of the insurer, it does not apply in this case.
Alternatively, plaintiffs argue that, in providing coverage to H&A and LST, Prudential is estopped from denying coverage to C&S and Mueser. Prudential's response is that estoppel does not apply because C&S and Mueser have never been prejudiced by Prudential's providing a defense to H&A and LST. They maintain that both companies are merely fortunate beneficiaries of Prudential's mistaken extension of coverage. C&S and Mueser had been told from the beginning that they were not covered, and thus were not prejudiced. Prudential maintains that H&A and LST are no more entitled to coverage than are C&S and Mueser, but because Prudential had actually began to defend H&A and LST, they could be estopped from denying coverage at this time.
I agree with Prudential. Their apparent mistake with regard to only two named insureds under the policy should not effectively impose responsibility upon Prudential to incur additional defense costs and possible liability as to the entire group of insureds, even though all were insured under the same policy. While it may be unfair that H&A and LST benefit from Prudential's error, C&S and Mueser may not, because they fail to demonstrate any conduct by Prudential that led them also to believe that either or both would be covered. Because they have not shown the necessary prejudice for estoppel to apply, plaintiffs' argument must also fail. Hartford Insurance Group v. Mello, 81 A.D.2d 577, 578, 437 N.Y.S.2d 433 (2d Dept 1981) ("An estoppel will lie only if the insured has been prejudiced by the insurer's actions.")
Both plaintiffs in this action were covered by "claims made" insurance which, unfortunately, ran out before they "made their claim" to Prudential. Because the plaintiffs did not give notice of Iacobelli's claim to Prudential within the policy period or the discovery period, they were not covered under that policy. Finally, the doctrines of waiver and estoppel cannot extend the period of the policy to provide for coverage beyond the bargained for period. Defendant Prudential's motion for summary judgment is granted, Plaintiffs' cross-motions for summary judgment are denied, and the actions are dismissed.
ALL OF THE ABOVE IS SO ORDERED.
MICHAEL A. TELESCA
United States District Judge
DATED: Rochester, New York
July 8, 1994