by Christopher Graham and Joseph Kelly

When is a Claim first made within the meaning of a professional liability policy? This is a recurring issue under claims-made policies. And that was the issue in Regency Title Company, LLC v. Westchester Fire Insurance Company, et al, Case No. 4:11-cv-390 (E.D. Tex. Nov. 15, 2013).

This time the controversy involved whether a written demand sent to a third party rather than to the insured, albeit addressing the insured’s alleged misconduct, qualified as a Claim made against the insured. If it did qualify as a Claim, then the insured would have no coverage — because the Claim would have been made before rather than within the policy period, as required for coverage.

Westchester denied coverage for a July 29, 2010 suit against Regency for breach of contract, negligence, conversion and breach of fiduciary duty. Regency then sued Westchester Fire for a declaratory judgment and breach of contract.

Claimant sued Regency within the September 1, 2009-2010 policy period. But Westchester argued that the “Claim” was first made before the policy period, on September 30, 2008 — because claimant filed a complaint on that date with the Texas Department of Insurance alleging the same facts as in the July 29, 2010 suit.

The policy defined “Claim” as including:

“a written demand against any Insured for monetary or non-monetary damages;”

and

“a civil, administrative, or regulatory investigation against any Insured commenced by the filing of a notice of charges, investigative order, or similar document.”

Written demand

Regency argued claimant made no written demand before filing suit during the September 1, 2009-2010 policy period; that claimant’s pre-policy period complaint with the Texas Insurance Department wasn’t a “demand against an insured” because it was sent to a third party.

Westchester argued the Insurance Department complaint was a written demand.

The Court sided with Westchester: Claim wasn’t defined as “demand to an insured”, “demand sent to insured”, or “demand on an insured,” but rather as a “demand against any insured.” Claimant’s Insurance Department complaint was a written demand against an insured, namely, Regency — whether sent to Regency or not.

Civil, Administrative, or Regulatory Investigation

Regency argued the Insurance Department didn’t undertake any an “investigation;” the Department characterized its actions as “evaluation” in a letter to Regency; and it did very little, namely review the claimant’s complaint and Regency’s response and suggest claimant seek a private remedy. The Department, moreover, found no violations of Texas insurance laws and wasn’t taking action against Regency.

The Court disagreed. The Department referred to its actions as an “investigation” in certain correspondence. And “a cursory investigation is still an investigation within the plain meaning of the word.”