A Landmark Decision Regarding Claims-Made Commercial Insurance

Litigation partner Robert Bodzin’s successful representation of insurance provider CNA’s Columbia Casualty division resulted in one of the most significant Pennsylvania appellate decisions regarding commercial insurance coverage in recent years. Bob’s keen sense for which arguments and approaches will be most persuasive in state and federal courts, developed over the course of over 30 years litigating major commercial insurance coverage disputes, proved critical to this landmark outcome.

The issue at hand was one of first impression in the Pennsylvania Supreme Court – namely, in a denial of coverage under a claims-made liability insurance policy based upon late notice, does the insurer need to prove that it was prejudiced by the policyholder’s untimely notice of the claim? The Pennsylvania courts had previously ruled that, in the context of an occurrence-based policy, the insurer is required to prove it was prejudiced by the late notice.

CNA provided errors and omissions coverage to another insurance company, ACE American. The claims-made policy insured ACE against bad faith claims made against it by its own policyholders. In connection with ACE’s denial of coverage under an insurance policy it had written for the operators of a trash-to-steam plant in western Massachusetts, ACE was sued for bad faith by this policyholder and later settled the claim for $37.2 million. ACE failed to notify CNA about the bad faith claim until after the expiration of the policy period and CNA denied coverage based upon the untimely notice.

Bob secured a verdict for CNA after a two-week jury trial in Philadelphia Common Pleas Court. ACE appealed and the Superior Court ruled in favor of CNA, basing its decision on the inherent nature of claims-made policies – i.e., that they are designed (and priced) to provide coverage for claims that are commenced during a specific time period. The Court found that to permit a commercial policyholder to file claims under a claims-made policy long after the policy period expired would violate the basic economic deal between the parties.

ACE then appealed to the Pennsylvania Supreme Court, which affirmed the Superior Court decision, thus establishing important new precedent regarding claims-made policies.