Policyholders and their representatives have long pushed to have the definition of “claim” in professional and management liability insurance policies expanded, to bring an increasingly larger kinds of circumstances within the policies’ coverage. However, there are consequences when more kinds of circumstances constitute a “claim,” such as, for example, with respect to the claims-made date and notice obligations. A recent insurance coverage ruling by a New York state court interpreting a lawyers’ professional liability insurance policy underscores how an expanded definition of the term “claim” — in this case, pertaining to a request to toll the statute – can affect the availability of coverage. The court, applying New York law, determined that a tolling request prior to the policy period met the applicable policy’s definition of claim, and therefore, because the claim was first made before the policy incepted, the subsequent claim during the policy period was not covered.

The New York Supreme Court, Commercial Division’s October 27, 2023, opinion and order in the case can be found here. A November 1, 2023, post on the Wiley law firm’s Executive Summary blog discussing the case can be found here.

Background

Golenbock Eisenman Assor Bell & Peskoe, LLP (Golenbock) is a law firm. Workspace, Inc. was one of the law firm’s clients. In 2017, Workspace was sued in an action brought against the company by 106 Spring Street LLC. In 2018, Golenbock and Workspace entered into a tolling agreement.

Among other things, the tolling agreement recites that Golenbock and Workspace wish to preserve any claims they may have against each other until the 106 Spring Street litigation has been finally adjudicated. The tolling agreement also recites that the parties “desire to enter into this Agreement to toll the statute of limitations on their claims against one another at this time.”

Golenbock was insured under a lawyers’ professional liability insurance policy for the policy period from August 2021 to August 2022. During the policy period, Workspace sued Golenbock asserting claims pertaining to the 106 Spring Street matter. Golenbock submitted the Workspace litigation to its professional liability insurer. The insurer accepted the defense of the Workspace litigation subject to a reservation of its rights under the policy.

The insurer then filed an action against Golenbock in New York state court seeking a judicial declaration that there was no coverage under the policy because the tolling agreement constituted a “claim” which was made prior to the policy period, and because the policy’s “no prior knowledge” condition was not satisfied. The insurer filed a motion for summary judgment. Golenbock filed a cross-motion for summary judgment.

The Relevant Policy Language

The professional liability insurance policy at issue defined the term “Claim” to mean, inter alia, “a request to toll or waive a statute of limitations.”

The policy provided further that “a Claim shall be deemed to have been first made when an insured receives written notice of a Claim.”

The policy also provides that “all Claims based upon or arising out of the same Wrongful Act or Related Act or Omission shall be considered a single Claim and shall be considered first made at the time the earliest Claim arising out of such Related Act or Omission was first made.”

Finally, the Policy provides, in pertinent part in the “No Prior Knowledge” condition, that it is a condition precedent to coverage under the Policy that “prior to August 1, 2019, no Insured had any basis (1) to believe that any Insured had breached a professional duty; or (2) to foresee that any fact, circumstance, situation, transaction, event, or Wrongful Act might reasonably be expected to be the basis of a Claim against any Insured.”

The Court’s Ruling

In a short October 27, 2023, Opinion and Order, Justice Joel M. Cohen granted the insurer’s summary judgment motion and denied the law firm’s cross-motion for summary judgment.

In disputing that the tolling agreement constituted a “claim” that was made prior to the inception of the relevant policy, Golenbock had argued that the tolling agreement itself was not specific enough to meet the definition of claim. Justice Cohen disagreed, saying that the only claim that the agreement reasonably could have related to was one for a “Legal Services Wrongful Act,” as defined by the policy. Justice Cohen also held that the terms of the policy “do not require the Tolling Agreement to spell out the proposed claims in detail.”

Accordingly, because the tolling agreement preceded the inception of the policy, the claim subsequently asserted in Workplace’s action against Golenbock was deemed to be first made prior to the policy’s effective period, and therefore there is no coverage under the policy for the subsequent lawsuit, and the insurer is entitled to summary judgment on the issue.

Justice Cohen also rejected the law firm’s arguments that the “No Prior Knowledge” condition did not apply. He found that on both a subjective and objective basis, the insurer had established that the law firm had prior knowledge of the circumstances that subsequently gave rise to the claim, noting, among other things, that the tolling agreement specifically recited that “Workspace believes it may have claims against Golenbock.”

Discussion

At one level, it could be argued that Justice Cohen’s rulings in this coverage dispute are unexceptional. Although I understand that the law firm believed it had arguments to the contrary, the facts at least as recited in Justice Cohen’s opinion seem to show that the tolling agreement was entered prior to the policy period, and that the tolling agreement directly related to the same circumstances as were the subject of the subsequent lawsuit during the policy period. Under these circumstances, and by operation of the relevant policy provisions, the subsequent claim was deemed first made at the time of the tolling agreement; because the tolling agreement was entered before the inception of the policy, there is no coverage for the subsequent claim under this claims-made professional liability insurance policy.

The reason I thought it was worth considering this case, notwithstanding the arguably unexceptional character of the court’s ruling, is that it illustrates the kind of latent problems that an expanded definition of the term “claim” can create for policyholders.

To be sure, it is generally considered to be the case that an expanded definition of the term “claim” is in the policyholder’s interest, as it brings an increased number of circumstances within the policy coverage. And, as far as this analysis goes, it is true that an expanded definition of the term “claim” is to the policyholder’s benefit.

However, as this case illustrates, there are consequences when an increased number of circumstances constitutes a “claim.” Just to consider this point in another context, if the tolling agreement had been entered during the policy period of the policy in dispute in this case, the policyholder would have had to have given notice of claim to the insurer pursuant to the notice requirements of the policy in order to preserve coverage. Justice Cohen expressly noted this point in footnote 1 to his opinion. It is in fact the failure to recognize that various circumstances that may arise may constitute a “claim,” and therefore may trigger notice obligations under the policy, that frequently lead to coverage denials based on the late or absent notice of claim.

This case shows another way that a broader definition of the term “claim” can raise problems for an insured. When an increased number of circumstances constitute a “claim” within the meaning of a policy, this broader definition of the term “claim” can have important implications for the determination of the claims-made date – a determination that can be, as this case shows, outcome dispositive on the question of coverage under a claims-made policy.

The inclusion within the definition of the term “claim” of a request to toll or waive the statute of limitations is not a new innovation. It has in fact been a more or less standard term for years. However, the fact that it is standard does not change the fact that the expansion of the tolling agreement provision in the definition of claim can affect the way the policy will operate.

At the heart of the problem here is the fact that, notwithstanding the now relatively standard expansion of the definition of claim in most professional liability insurance policy, most policyholders think of a “claim” as a lawsuit. The practical consequence is that there is a continual education need for policyholder to be reminded of the circumstances that can constitute a claim. Not to put too fine a point in it, but how many times have we been in renewal meetings with a policyholder when something will come up that reminds the policyholder to say, “Oh yeah, there was this one thing that happened….” Although there may be nothing we can do to ensure that this never happens, we all still need to do what we can to help policyholders understand the practical implications of the expanded definition of the term claim.

The bottom line here is that while an expanded definition of the term claim is of course in the policyholder’s interest as a general matter, there are important practical consequences, and these practical concerns need to be managed and addressed.