Shower the insurers you have with notice, as James Taylor may or may not have sung in the 1970s. Notify the insurers of a claim sooner rather than later, as litigation attorneys actually do say. A recent decision from an Ohio court of appeals, Blazek v. Ohio Bar Liability Insurance Co., 10th Dist. Franklin No. 22AP-473, 2023-Ohio-1722, is of interest because it adds a new twist on what can happen when notice to the insurer is delayed: notice seemed timely under the policy, but the court held that, in reality, the insureds had entered into a series of policies with the insurer, and the sole relevant policy in that series had expired before the insurer was given notice of the claim.
The claim at issue in Blazek arose out of an incident in 2016, in which a title company was scammed out more than $90,000. The title company, Pillar Title, had issued a check for $93,532 to the sellers in a real estate transaction. Blazek, 2023-Ohio-1722 at ¶ 5. An employee of Pillar Title then received an email that appeared to be from the sellers' real estate agent. The email said the sellers preferred the money to be wired, and gave instructions on where to wire it, and added that the sellers had torn up the check for $93,532. The employee wired the funds. As it turned out, the email came from an imposter who had accessed a previous communication; Pillar Title, though, did not learn that fact until after the actual sellers deposited their check. Id. at ¶¶ 5-6. On the same day that that check was deposited, the seller in a different real estate transaction attempted to deposit another check issued by Pillar Title but was told that the Pillar Title account had insufficient funds (due to the account recently paying out the $93,000 twice). Id. at ¶ 6. While Plaintiff Blazek, an attorney and the owner of Pillar Title, was able to cover the bounced check from other resources, id., the money lost in the scam was never recovered, id. at ¶ 7.
Mr. Blazek did not report the incident to OBLIC immediately. Based on advice he received at the time, he did not believe he had potential coverage under his OBLIC policy for a loss that was "akin to a loss from a cyber-security attack." Id. After attending a seminar in 2010 that suggested the contrary, Blazek gave notice under the OBLIC liability insurance policy for "the claim made against him for money damages in September 2016." Id. at ¶ 24 (The court opinion glosses over exactly what the claim "for money damages" was, but in reading the parties' briefs, it is clear that the seller's check that bounced was the basis of the claimed loss.)
OBLIC argued that denial was proper because "the claim against Mr. Blazek and Pillar Title was not made during the same policy period as when it was reported." Id. at ¶ 9. The trial granted OBLIC summary judgment on that basis, and the 10th District Court of Appeals affirmed. Id. at ¶ 11.
Key to the Court of Appeals' analysis was the fact that OBLIC's policy was a "claims made and reported" policy. "Insurance policies include both claims made policies and occurrence policies. Under an occurrence policy, coverage exists for acts committed during the policy period regardless of when the claim is brought." Garrison Southfield Park L.L.C. v. Aspen Specialty Ins. Co., 10th Dist. Franklin No. 21AP-21, 2022-Ohio-709, ¶ 29. "However, under a claims made policy, coverage exists only when the insured presents a claim to the insurer within the policy period, or an extended period as allowed by the policy." Id. (internal quotations and citation omitted). "Professional liability policies . . . are commonly claims made policies . . . ." Elkins v. Am. Int'l Special Lines Ins. Co., 611 F. Supp. 2d 752, 762 (S.D. Ohio 2009).
"Notice is a particularly important matter in claims-made policies. Claims made policies, unlike occurrence policies, are designed to limit liability to a fixed period of time." Wright State Physicians, Inc. v. Doctors Co., 2d Dist. Montgomery No. 27084, 2016-Ohio-8367, ¶ 21 (internal quotation and citation omitted). "The notice requirements in claims made policies allow the insurer to close its books on a policy at its expiration and thus to attain a level of predictability unattainable under standard occurrence policies. Thus, notice provisions are integral parts of claims made policies." Elkins, 611 F. Supp. 2d at 762 (internal quotations and citation omitted).
"Accordingly, coverage under a claims made policy is triggered only by the presentation of a claim during the policy period." Mueller v. Taylor Rental Center, 106 Ohio App.3d 806, 667 N.E.2d 427, 810 (8th Dist.1995).
Plaintiffs in Blazek accepted the above principles, but argued that, even though the loss occurred in 2016, by giving notice in 2018 they provided timely reporting within the "policy period" because they enrolled in the OBLIC professional liability policy in 2015, and renewed the policy annually through 2019. Blazek, 2023-Ohio-1722 at ¶ 3. "Mr. Blazek and Pillar Title argued the 'policy period' ends on the 'date of termination, expiration or cancellation of coverage,' and the policy has remained continuously in effect through ongoing annual renewals." Id. at ¶ 10. According to Plaintiffs, "because the policy had never been cancelled or permitted to expire, it never terminated, which would allow the wire fraud loss to be reported at any time so long as the policy remained in effect and uninterrupted." Id. at ¶ 18.
However, OBLIC argued, and the court agreed, that the OBLIC policy defines the "Policy Period" as beginning on the inception time and date shown in the Declarations, and every year a new Declaration page "contained an updated inception date reflecting the date of renewal" (id. at ¶ 19). The language of the policy, according to the court, clearly provides that "each renewal creates a separate contract of insurance rather than the continuation of the same policy. . . . [E]ach policy renewal operates as a new contract of insurance," at which point the previous policy expires. Id. at ¶ 23 (emphasis added). "[T]he length of the policy period stated on the Declarations page is not affected simply because the policy systemically renews at the end of each one-year term." Id. at ¶ 20. Thus, when Mr. Blazek reported the loss in August 2018, the report was outside the "policy period" for the policy in place when the claim was made, which occurred in September 2016; the policy period for the policy in place in September 2016 had expired on May 1, 2017. Id. at ¶ 24.
Although perhaps within the letter of the policy, the result seems harsh to the extent policyholders reasonably view themselves as having "a" policy renewing on an annual basis rather than a series of annual policies. Those reasonable expectations may also be affected by the fact that "claims made and reported" policies typically cover claims based on activities that occur well before the most recent policy year, due to a "retroactive date" provision. The retroactive date is the earliest date of an occurrence that can be covered by the policy; in professional liability policies, it is commonly set at the date that the covered entity (or even a predecessor) began operating. Blazek does not discuss whether the OBLIC policy included a retroactive date, but even if it did the court was correct to ignore it, since the retroactive date is irrelevant to determining whether a claim was timely reported if timeliness is tied to the definition of "policy period." Mueller, 106 Ohio App. 3d at 810 (the insurance agreement in that case "clearly provide[d] that the 'policy period' and the 'retroactive date' are separate and distinct.").
Ultimately, regardless of the specific contract interpretation issues in Blazek and policyholders' expectations in general, the decision re-affirms the importance of providing notice of claims early and often, even where coverage seems doubtful.
