When Claims-Made Primary and Occurrence Excess Policies Clash

Decades ago, professional liability policies, like most liability policies, were written on an occurrence basis. If a claim was incurred during the insurance policy period, the policy would respond to the claim regardless of when the claim was made against the defendant and noticed to the insurance company. As we know from environmental and asbestos claims, that can take decades.

Then along came claims-made polices. Under a typical claims-made policy, if a claim is made against the defendant and reported to the insurance company during the policy period, that insurance policy will respond to the claim regardless of when the occurrence took place (as long as the claim occurred after the policy’s retroactive date). If the claim was made after the policy period and , that policy would

In New York, legislative and regulatory efforts to keep medical professionals practicing in New York led to a quirky medical malpractice insurance system where most primary medical malpractice policies were claims-made policies, but New York medical professionals were provided with excess policies written on an occurrence basis.

This leads to a recent case that explored the issues that arise when occurrence-based excess policies sit on top of claims-made primary policies.

In Steele v Healthcare Professionals Insurance Co., No. 2019-54012 (N.Y. Sup. Ct. Dutchess Cty, Oct. 13, 2020), underlying plaintiff obtained a judgment against a doctor for medical malpractice (this doctor had over 200 medical malpractice claims against him). The doctor had a series of primary claims-made policies and a series of occurrence-based excess policies. The doctor had purchased extended reporting endorsements (also known as tail policies) for the last several years underlying the excess policies.

The primary insurer paid the part of the underlying plaintiff’s judgment (its aggregate limits were exhausted by the multiple claims in most years), but its payment was not sufficient to satisfy the judgment. The underlying plaintiff sought payment from the excess insurer. The excess insurer denied coverage, which prompted this case.

The excess insurer moved to dismiss the complaint and the court converted the motion to one for summary judgment. After an exhaustive analysis of the facts and the law, the court granted summary judgment to the underlying plaintiff and held that the excess insurer had to pay the remainder of the judgment.

The big issue in the case was whether and how the excess policies were triggered based on the exhaustion of the primary coverage, including the tail policies. The court agreed with both parties that the policies were not ambiguous, but each party had a very different view on how the occurrence-based excess policy worked above a claims-made primary policy. The court analyzed both the primary and excess policies and found that the excess policies clearly contemplated coverage of both the primary policies and the tail policies in each claim year.

The court found that the excess policies were triggered upon exhaustion of the primary policies in the claim year. The court found that the clear language of the excess policies provided that the coverage supplied to the doctor was excess to a policy issued to him by the primary carrier, so long as that policy provided primary coverage in the requisite amounts. The court noted that the excess policy contemplated claims being made well after the occurrence year, with claims outside the occurrence year nonetheless being covered by the excess policy.

Thus, found the court, if the claims-made policy in the occurrence year was exhausted, the excess policy was triggered. This was also true for claims-made tail coverage. If the tail coverage was exhausted, then the excess policy for that occurrence year was triggered. The court rejected the excess insurer’s argument that both the primary claims-made policy in the claim year and the primary claims-made policy in the occurrence year would have to be exhausted. 

The court concluded as follows:

[The] excess policy was triggered when the individual or aggregate limits of [the] primary policy was exhausted for the year that a claim was made. Further, in the years in which the primary coverage was pursuant to a tail, when the tail coverage was exhausted for the year the claim was made, excess coverage was similarly triggered. Because the excess policy was an occurrence policy, coverage under that policy was necessarily determined by the year in which the malpractice incident occurred. There is no requirement anywhere in [the excess] policy that the occurrence year must be the same as the claim year. Moreover, there is no requirement that two claims-made policies must be exhausted, the one in effect in the occurrence year and the one in effect in the claim year, in order to trigger excess coverage. There is no exclusion of tail coverage from [the excess] policy; to the contrary, it is expressly included.