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Abstract

The claims-made insurance policy has become the dominant form of liability insurance, overtaking the once-popular occurrence policy. Due in part to an easily identifiable coverage trigger and affordable premiums, the benefits of a claims-made insurance policy are enjoyed by both the insured and the insurer. A unique type of claims-made policy—the pure claims-made policy—developed to protect an insured against claims made during the policy period or soon thereafter, ensuring that coverage is provided if a claim is made during the final hours of an insured’s policy period even if it is reported after the expiration of the policy. As claims-made insurance policies became more prevalent, so did litigation involving coverage disputes. The typical case involved an insurer’s denial of coverage following an insured’s unreasonably late notice of a claim. In deciding some of these late notice cases, courts applied the notice-prejudice rule—a rule traditionally used in the occurrence policy context—to pure claims-made policies. When applied, the rule prohibits an insurer from denying coverage due to unreasonably late notice unless it can show it was prejudiced by the delay. This Note argues that application of such a rule undermines the pure claims-made insurance form, as such policies are priced based on an insurer’s knowledge that claims will be made and reported within the policy period or soon thereafter. If unable to rely on this basic assumption, the insurer will be unable to sell such policies, and insureds will no longer benefit from this insured-friendly insurance format.

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