No Coverage Under Primary Policy for Potential Claim Reported During Extended Reporting Period or Under Excess Policy Based on Applicability of “Retroactive Date” Exclusion

The United States District Court for the Eastern District of Michigan, applying Michigan law, granted a primary insurer’s motion to dismiss, determining that a professional liability policy required potential claims to be reported during the policy period, and not during the policy’s extended reporting period. Bridges v. Maxum Indem. Co., 2024 WL 4682691 (E.D. Mich. Nov. 5, 2024). The court also granted an excess insurer’s motion to dismiss, holding that the excess policy’s retroactive date exclusion applied to the claim.

The insured law firm purchased a primary professional liability policy and two excess liability policies. During the two-year extended reporting period of the primary policy, the insured notified the insurers of a potential legal malpractice claim against it for failing to respond to motions for summary judgment in a medical malpractice action. After the insured had failed to respond to the motions, the court entered judgment against the insured’s client, but it subsequently reinstated the case. After the appellate courts ruled against the insured’s client, remanding the action for judgment against the insured’s client in the medical malpractice action, the client filed a professional negligence action against the insured, and the insured sought coverage under the policies. The insurers denied coverage for the professional negligence action, and the plaintiff filed a complaint for declaratory judgment against the insurers. The primary insurer and one excess insurer moved to dismiss the complaint.

The primary insurer argued that the claim was made when the professional negligence action was filed against the insured, after the primary policy and extended reporting period expired. The plaintiff argued that coverage should be provided because the insured placed the primary insurer on notice of a potential claim during the extended reporting period of the primary policy. In granting the primary insurer’s motion to dismiss, the court noted that the policy required a “claim” to be reported during the policy period or extending reporting period, not a “potential claim,” which must be reported during the policy period (and not during the extended reporting period). As such, coverage was not available for a potential claim reported during the extended reporting period, which subsequently gave rise to a claim.

The excess insurer moved to dismiss based on the excess policy’s retroactive date exclusion, which barred coverage for claims “based upon, arising out of, directly or indirectly resulting from, or in any way involving any Wrongful Act prior to the Retroactive Date or any subsequent Related Wrongful Act.” The excess insurer argued that the Wrongful Acts at issue in the legal malpractice suit occurred prior to the Retroactive Date, when the insured failed to respond to the motions for summary judgment in the medical malpractice action. The insured argued that because the trial court reinstated the medical malpractice action and vacated the judgment in that suit, there were no Wrongful Acts as of the effective date of the excess policy and no Wrongful Acts until the appellate court reversed the lower court’s ruling reinstating the action. The court ruled in favor of the excess carrier, holding that the act, error, or omission giving rise to the claim was the failure to respond to the motions for summary judgment, and thus the retroactive date exclusion barred coverage under the excess policy.