Low, Ball & Lynch’s
WEEKLY LAW RESUME
July
7, 2005 Issue By: Ray Coates
Coverage - Malpractice Policy -
Claims Made and Reported
Walter R. Root v. American Equity
Specialty Insurance Company
Court of Appeal, Fourth
District
(June 28, 2026)
A “claims made and reported” policy is generally interpreted very strictly
with respect to the reporting of claims. This case examines whether
equity can excuse those provisions under certain circumstances.
Walter Root was insured by American Equity Specialty Insurance Company under
a legal malpractice policy from February 28, 2026 to February 28, 1999.
On February 25, 1999, Farideh Jalali filed a malpractice suit against
Root. On that date, Root received a telephone call from a person
identified as an employee of a legal journal who sought Root’s reaction to this
suit. Root thought the call was a prank. On March 2, Root read an
article in the legal journal describing the lawsuit. He immediately
notified American Equity of the claim. American Equity denied coverage
because Root had not reported the claim during the policy period. Root
defended himself and sued American Equity for breach of contract. American
Equity obtained summary judgment based upon the lack of reporting during the
policy.
The policy required the claim to be have made in and reported by the insured
during the policy period. The policy obligated the insured to notify the
company as soon as he became aware of any act which could form the basis of a
claim. If notice was immediately given during the policy period, coverage
was extended for any lawsuit subsequently filed, even after the policy
period. American Equity did not offer an extended reporting period
endorsement, which would have extended the time to report claims.
On appeal to the Court of Appeal, the judgment was reversed. The Court
stated that a claim was made against Root during the American Equity policy
period. The filing of the lawsuit, even if unserved, fit the definition
of a claim against Root. The issue before the Court was whether a report
of the claim, after the expiration of the policy and where the insured was
unaware of the claim prior to the policy’s expiration, with no extended claim
reporting endorsement, was fair under all the circumstances.
The Court noted that under traditional “occurrence” policies, the notice -
prejudice rule applies. This rule holds that late notice is not a defense
to coverage as long as there is no prejudice to the insurer. The notice -
prejudice rule has not traditionally been applied to “claims made and reported”
policies.
Under a “claims made and reported” policy, the reporting provision is a
condition precedent of the policy. Most professional malpractice
insurance has been traditionally written on a “claims made and reported”
basis. This different form of coverage affects the costs of such policies.
The Court stated that a condition precedent could be excused where an
inequity would result. This is different from an application of the
notice - prejudice rule. The notice - prejudice rule requires that an
insurer show that the delay in reporting has prejudiced it. This is
a fairly inflexible standard. However, application of an equitable excuse
to the condition precedent would not result in the application of a bright line
test. Rather, its’ application would vary with the particular facts of
each case.
In this case, the fact that the insured could not buy an extended reporting
endorsement was one factor of significance. Other factors were whether
Root had sufficient time to conduct an investigation as to whether indeed a
claim had been made against him or whether he simply delayed in reporting the
claim until after he received confirmation of it. The Court felt that the
record indicated sufficient facts to support an equitable excuse for not
reporting the claim. Therefore, summary judgment should not have been
granted. The Court reversed the case and returned it to the trial court
to conduct further hearings to determine whether an equitable excuse should be
applied to the condition precedent required for reporting during the policy
period.
COMMENT
The “claims made and reported” policy has been traditionally considered a
policy that requires strict compliance with the reporting requirements.
This decision, which the Court acknowledged is narrow, provides an exception to
that rule.
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