Claims made insurance policies generally allow for the provision of notice of potential claim. However, for which insureds is the notice effective? In the following guest post, Lucas Roberts, Wholesale Broker, Anzen Insurance Solutions, reviews a recent court decision discussing these notice-related issues. I would like to thank Lucas for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Lucas’s article.

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Picture this: your client is put on notice for a potential claim. They notify the carrier per the conditions of the policy. Carrier acknowledges receipt. Later the potential claim evolves into a lawsuit, everything proceeding like a normal claim so far. The carrier notifies the insured that, while the named insured will have coverage under the policy, the individual insureds will not. Why? Because the insured never notified the carrier that the individual insureds were named in the claim.

While this distinction might seem superfluous and semantic, it held up in court (Evanston Insurance Company v. Frederick, 2025 WL 2019379 (C.D. Cal. June 12, 2025)). Since the insured failed to notify the carrier, the individual insureds will have to pay out of pocket if the court decides that the individual insureds must indemnify the claimant.

This one’s a bit of a head scratcher, so let’s walk through it chronologically.

Background:

HRC Fertility is a fertility clinic management company. The underlying dispute involved allegations of wrongful termination and claims that individual physicians participated in various alleged kickback schemes, including arrangements with a pharmacy vendor that allegedly prioritized financial incentives over patient care.

The Timeline:

• 8/29/2018 – 8/29/2019: HRC Fertility’s D&O/EPL policy period
• 3/14/2019: Claimant, a doctor whose employment at HRC Fertility had been terminated, puts HRC on notice for wrongful termination. This notice was sent and accepted by the carrier.
  • At this point, it appears only the named insured was listed as the subject of a potential claim.
• 11/27/2019: 90 days from policy expiration comes and goes without any further developments
• 12/4/2020: The claimant filed their action against the insured.
  • It’s here where the list of defendants expanded to include the individual doctors.

I believe any normal insurance consumer or professional would expect the carrier to go ahead and handle the claim completely without squabbling over allocations between the named insured and the individual insureds. After all, the individuals are classified as insureds in the policy. The insured dutifully notified the carrier that the named insured was potentially facing legal action. Is distinguishing between the named insured entity and the individual insureds really that important?

According to the court, yes, this is an important distinction, and shame on you for assuming otherwise.

The Court’s Reasoning

One of the first things the court addresses is the insured’s reporting requirements. The insured was required to give written notice “as soon as practicable, or within ninety (90) days after expiration of the Evanston Policy.” Because the initial notice only named the entity and not the individuals, the individual insureds failed to comply with the reporting requirement of the policy according to the court:

“Here, the evidence shows that the Physician Defendants did not comply with the Policy’s notice provisions. (See Policy at 9-10.) Rather, the notice Evanston received of the Ghazal Claim was on behalf of HRC Fertility alone.”

You might be saying to yourself, “But the insured COULDN’T have notified the carrier that the individuals were being sued DURING the policy period (or 90 days after expiration) because the individual insureds were sued almost 2 years later!” This is a correct observation. Unfortunately it’s an observation that was not considered by the court.

Something else that wasn’t explained by the court; what impact would these defendants’ inclusion have had on the case? Their inclusion would not have increased damages awarded to the plaintiff. The damages would only be allocated amongst the Defendants, and as employees, the Entity would still have the obligation to indemnify them.

Moving on, the court then explains the sanctity of claims-made coverage, and how the integrity of claims-made forms must be protected from actions that would expand the coverage far beyond what they were designed to cover. If the court allowed the insured to modify or “apply constructive notice concepts” to the claim, it would be “tantamount to an extension of coverage to the insured gratis, something for which the insurer has not bargained.”

Whether or not the claim evolved from the original notice to the actual lawsuit seems to be wholly irrelevant! As far as the court is concerned, all that mattered was that the insured failed to report that the individuals were named in the claim. The fact that the individuals were named almost 2 years from the original notice does not seem to matter at all.

The carrier then tried to argue that since the lawsuit named other uninsured entities for which the individuals worked, and the uninsured entities were named in the first cause of action, the carrier was off the hook for these individuals. The court disagreed and said that, while the uninsured related entities were of course denied coverage, the individual defendants were acting on behalf of the insured, litigated against for their actions working for the insured, and therefore qualified as insured persons.

Which raises the question: if these individuals are all insured persons, then why didn’t the original claim notice suffice to provide coverage for them later when the claim evolved to name them individually?

The Unsettling Precedent This Court Decision Sets

This decision makes for some incredibly uncomfortable conclusions:

1) If you fail to report within the policy period, your claim can and will be denied, no matter if it’s practically impossible for you to report.

This insured received notice in 2019 for the named insured. The lawsuit naming all of the individuals came almost 2 years later. Because the insured failed to report the 2020 lawsuit during the 8/29/2018 – 8/29/2019 policy period, they failed to meet the reporting requirements of the policy. Which means:

2) Do insureds need to consider tailing out policies when potential claims have been reported in order to retain the ability to adjust their notice based on how the potential claim might evolve?

It appears the only way the insured could have met the reporting requirement of this policy is if they (a) purchased an extended reporting period for the 8/29/2018 – 8/29/2019 policy period or (b) entered a time machine once they received the 2020 lawsuit.

3) Do related claim definitions only matter when it’s to the carrier’s benefit?

Loyal readers of this blog are very familiar with related claims decisions. You’d expect in a case like this, where a claim evolved from what was originally alleged, that the related claim definition in the policy would have at least been addressed. It’s jarring to read this court decision where other aspects of the policy were meticulously reviewed such as the reporting condition, yet the related claim definition wasn’t addressed a single time.

In fact the related claim definition could have simplified this otherwise needlessly complicated denial of coverage. You wouldn’t need to tail out a policy period where a known matter was reported while you waited for it to evolve into a claim, hoping you reported it with the proper omniscience and name everyone you’re supposed to name. As long as whatever evolves from the original known matter is related to that known matter, insureds can rely on the policy language as written and report as soon as practicable whenever any new information arises.

Where Do We Go From Here?

If the insured becomes aware of a claim, but it may take years for the claim to evolve, do we direct them to purchase tail for that particular policy period? Or should carriers allow insureds to report known matters “as soon as practicable”? It’s unfortunate that the court did not address the “as soon as practicable” aspect of the reporting requirement and instead hyper-focused on the 90-day time limit. Essentially this gave the insured until 11/27/2019 to report a claim they wouldn’t become aware of until 12/4/2020. The court decided that reporting the new development after the fact would have stretched out the policy beyond what it was designed to cover, and gave the insured a coverage gap it could not have anticipated or prepared for.

Moreover, how could the insured have identified which specific individuals to name in the original notice when no lawsuit had been filed yet? The court’s reasoning requires insureds to engage in speculation about future defendants, an impossible standard that transforms the notice requirement from a reasonable procedural condition into a coverage trap.

The Unintended Consequences

Beyond the coverage trap this creates for insureds, carriers should consider the strategic risks of denying individual coverage on such technical grounds. Once coverage is denied, the individual insureds’ duty to cooperate under the policy terminates. This opens the door to a particularly troubling scenario: the now-uninsured individuals could stipulate to judgment in exchange for a covenant not to collect from them personally, then the plaintiff pursues the covered corporate entity under respondeat superior liability. After all, the court in Frederick found that the individual defendants were acting on behalf of the insured entity,the very basis for vicarious liability.

Suddenly, the carrier faces exposure through the corporate entity’s coverage while having converted the individual defendants into potential hostile witnesses with no remaining obligation to assist in the defense. The individuals might even actively cooperate with the plaintiff to establish the corporate entity’s liability. By denying coverage to individuals based on notice technicalities, carriers risk creating the very adversaries who could help plaintiffs pierce through to the still-covered entity. This represents a pyrrhic victory for the carrier, saving a few defense dollars while potentially magnifying indemnity exposure and losing control over key witnesses.

Perhaps other court cases can provide clarification on what expectations a policyholder can have when the claim notice they initially reported evolves into something slightly different years after the fact.

Like the Insurance Industry’s Educator-In-Chief Frederick Fisher is fond of saying, the reporting provision of the policy creating a coverage gap for the insured is another “Gotcha That’ll Getcha!™”[1] These unexpected coverage gaps buried deep in the policy forms that a reasonable consumer expects to be covered are instead carved out as either uninsurable or covered by unreasonable measures such as tailing a policy period with a reported claim that an incumbent carrier is still providing active renewal coverage for.

This analysis is provided for educational purposes only. For specific insurance coverage questions, consult with competent coverage counsel.

[1]: “Gotcha That’ll Getcha!™” is currently the subject of an application for Trademark registration filed by The Fisher Consulting Group, Inc. who has consented to my usage of the phrase.