Drop It in the Mail: When Is a Claim “Received” in a Claims-Made Policy?

07.25.2013

Insurance policies come in two general types: “claims made” and “occurrence.”  An “occurrence” policy provides coverage for the act when it occurs – regardless of when the claim is reported.  A “claims made” policy, on the other hand, only provides coverage for claims made during the period when the policy is in force.  As one might expect, in the latter, the date the claim is made is of critical importance. 

A case was recently analyzed in the Court of Appeal, Second District, Division 2, California that really analyzed this issue of when the “claims made” claim is actually made.  The Court had unique circumstances before it in Evanston Insurance Co. v. 155 Hamilton Dev., LLC, 2013 WL 3201679 (Cal. Ct. App. June 25, 2013).  Evanston Insurance issued a professional liability policy to The Structural Engineering Consultants, Inc. (“SEC”) and Greg Riley, P.E.  Greg Riley (“Riley”) was the principal, owner, and president of SEC – who provided structural engineering services for Hamilton.  The policy provided indemnity coverage and defense against claims during the policy period of June 1, 2007 to June 1, 2008 and was a “claims made” policy. 

The policy’s insuring provision said “The Company shall pay on behalf of the Insured all sums in excess of the Deductible amount . . ., which the Insured shall become legally obligated to pay as Damages as a result of Claims first made against the Insured during the Policy Period . . . and reported to the Company . . ., by reason of a Wrongful Act. . . .”  The policy defined “Claim” as “a written demand received by the Insured for money or remedial Professional Services involving this Policy.”

During the summer of 2007, Hamilton discovered structural problems in the project.  Hamilton notified SEC, who then prepared plans to address the problems.  In July 2007, SEC moved its office to a new location, however within the same city and zip code.  SEC placed a mail forwarding order with the post office.  It did not, however, change its address on the SEC website or on the website for the California Secretary of State.

In the fall of 2007, SEC began experiencing financial difficulties.  By February 2008, SEC had laid off all employees except Riley.  In March and April 2008, Hamilton sent four letters to SEC advising SEC that structural problems at the project had resulted in increased costs ranging from $700,000 to $1 Million and requested SEC put its insurance company on notice of the claim.  The letters were dated March 10, 2008, March 15, 2008, March 27, 2008, and April 29, 2008.  Because SEC failed to update it address on its website, or the California Secretary of State website, all letters were sent to SEC’s old address.  Of the four letters, Reilly only admitted to seeing the April 29, 2008 letter, which he received at the new SEC headquarters.  SEC’s insurance was cancelled on March 21, 2008 for nonpayment of premium.

Hamilton sued SEC in October 2009 for engineering defects.  SEC tendered the lawsuit to Evanston, who notified SEC that no coverage was available under the policy.  Thereafter, SEC filed a declaratory relief action against Evanston, seeking a declaration that Evanston had a duty to defend SEC in the Hamilton lawsuit.  During the Evanston litigation, Reilly testified that, of the four letters, he only saw the April 2008 letter, however described the conditions at SEC as “chaotic” and admitted that mail may have remained unopened for months.

The Court held that the term “received” in the policy was ambiguous, and could be interpreted to mean deposited in SEC’s mailbox, either at its first address, or second.  The Court further found that Reilly received the April 2008 letter and it was likely that Reilly received the earlier letters, despite having no recollection of them, because he placed a forward order at the post office, remained in the same town and zip code, and recalled receiving one of the four letters.  The Court combined this with a California Rule of Evidence which states that “a letter correctly addressed and properly mailed is presumed to have been received in the ordinary course of the mail.”  Based on all these factors, the Court found that SEC had received the notice of claim while the policy was still in effect, and therefore coverage existed.

Evanston appealed the decision arguing that the trial court erred in interpreting the meaning “received by the insured.”  Specifically, Evanston asserted that the “deposit-without-awareness” interpretation adopted by the trial court precludes an insured from ever rebutting the presumption afforded by the California Evidence Rule because the recipient can never testify that the letter was not deposited.  The Court of Appeals held that the mailbox rule applied by the trial court benefits both the insurer and insured by setting a uniform standard, the parties are able to determine with more certainty if the claim has been “received.”  Based on these rulings, the Court affirmed that a claim is presumed “received” when delivered in the ordinary course of mail, unless rebutted by evidence to the contrary.

Such a holding has a tremendous impact on “claims made” insurance policies.  In short, so long as testimony is made that a claim was placed in the mail, and properly addressed, then it is presumed received absent evidence to the contrary.  As noted in Evanston, however, few situations can be imagined where contrary evidence can be made.  Logically, if the recipient acknowledges receipt, then no question exists that it was received.  But if the recipient alleges he never received the letter, it is still deemed “received” provided the claimant testifies that the claim was placed in the mail and properly addressed.  Consider, however, the alternative: no presumption of receipt.  In such a situation, the reverse scenario occurs.  The claimant testifies he sent it, but the recipient claims he never received it – and the Court holds that the claim was never received.  The claimant is unlikely able to rebut such a statement as it is a “he said – she said” matter.  Accordingly, regardless the way the Court’s holding came down, one party would enjoy such presumption to the other’s detriment.  Such holding makes sense, however, considering the basic construction of insurance law:  any ambiguity in an insurance policy is interpreted in favor of the insured.  Accordingly, given the situation where there must be an unbalanced presumption arising from an ambiguous insurance policy – as here – the Court made the correct decision in holding in favor of a broad interpretation of “receipt.”

Frank Cragle is a trial lawyer and a member of Hirschler Fleischer’s Insurance Recovery Team. He handles a variety of commercial business disputes, including insurance recovery and policyholder claims. Frank also devotes a substantial portion of his time to business tort litigation and intellectual property claims. For more information, contact Frank at 804.771.9515 or fcragle@hf-law.com.