Coverage Not Illusory Where Coverage is Unavailable for Claims Failing to Satisfy a Claims-Made-and-Reported Policy’s Requirements

The United States District Court for the Southern District of Indiana has held that coverage under a claims-made-and-reported policy is not illusory where coverage is unavailable for claims that do not satisfy the policy’s claims-made, reporting, and retroactive date requirements.  Sunshine v. Gen. Star Nat’l Ins. Co., 2016 WL 5371848 (S.D. Ind. Sept. 26, 2016).

The insured, a real estate appraisal service, was sued for alleged misrepresentations and inaccuracies in a real estate appraisal.  The insured maintained errors and omissions policies from two insurers and sought coverage for the lawsuit under both policies.  The appraisal was performed by the insured during the policy period of one insurer, and the claim was first made during the policy period of the second insurer.  The insurers denied coverage because the claim was either not made during the policy period or the underlying wrongful act occurred before the later policy’s retroactive date.  The insured filed a suit against the insurers for breach of contract, or alternatively, that coverage under the policies was illusory.

The court granted the insurers’ motions to dismiss the insured’s claims.  The court dismissed the insured’s breach of contract claim because the insured failed to satisfy the policies’ requirements that (1) the alleged wrongful act occur after the retroactive date; (2) the claim be made during the policy period; and (3) the claim be reported during the policy period.  Because the insured failed to plead a breach of contract claim, the court also dismissed the insured’s bad faith and deception claims against the insurers.  In addition, the court held that coverage under the policies was not illusory, and that the retroactive dates limiting coverage to wrongful acts two or three years before the start of the policy periods was reasonable.