In Centurion Med. Liab. Protective Risk Retention Grp., Inc. v. Gonzalez, No. CV 17-01581 RGK (JCx), 2017 BL 392431 (C.D. Cal. Nov. 1, 2017), Centurion Medical Liability Protective Risk Retention Group sought a declaration that it owed no duty to defend a lawsuit alleging that its insureds—a group of medical practitioners—committed professional negligence during the delivery of a newborn child. Centurion argued that it had no defense obligation because its insureds did not notify Centurion of the lawsuit within 20 days after it was filed, as required under the policy.
The Centurion policy is what is typically known as a “claims-made-and-reported” policy. Professional liability insurance policies generally fall into one of two categories: “occurrence” policies and “claims-made” policies. “Occurrence” policies provide coverage for events that take place during a policy period even if they do not lead to lawsuits or claims until many years after the actual policy period. However, “claims-made” policies provide coverage only for the claims or lawsuits that are actually asserted within a particular policy period, regardless of when the events that caused a claim first occurred, thus limiting the insurer’s exposure to a lengthy tail of lawsuits. “Claims-made-and-reported” policies are a subset of “claims-made” policies that also require that claims be reported to the insurer within a certain period.
In Centurion, the insureds argued that Centurion could not disclaim coverage based on late notice unless Centurion could also demonstrate that it suffered prejudice as a result of the late notice. Nonetheless, the Central District of California held that the “notice-prejudice” rule advocated by the insureds applies only in the context of “occurrence” policies, and that insurers need not demonstrate prejudice in the context of “claims-made” policies. The court also rejected the insureds’ argument that its notice was adequate because it was still given within the policy period, even if it was not within the 20-day time limit. The court explained that California law requires strict enforcement of notice periods in these types of “claims-made” policies, and thus Centurion had no duty to defend.
Centurion should serve as an important reminder that policyholders with “claims-made” policies should make sure to give timely notice of claims, and may want to avoid purchasing such policies entirely if timely notice is likely to be a challenge. Additionally, companies that require their vendors, manufacturers, and partners to agree to purchase insurance coverage as a condition to a business engagement should consider structuring their contracts to specify that such insurance must be purchased on an “occurrence” basis. For these business relationships, a carefully structured insurance and indemnity agreement can help avoid the costly result of a future coverage denial.