If it walks like a duck, looks like a duck, and quacks like a duck, is it a claim?

When is a demand, or a threat, or another communication from a potential claimant a claim? The answer matters, particularly in corporate insurance programs built upon claims made policies. Normally, courts either apply the specific definition of the term claim contained in the policy at issue or else, in the case of a policy that does not contain such a definition, a general common law rule that the term claim means a demand for something as of right.

Not too long ago, I litigated a case in which an insured received a demand from an aggrieved party, but that demand did not qualify as a claim as defined in the claims made policy in effect at that time; as a result, it did not trigger coverage under that policy because claims made policies are generally only triggered by claims, as defined either by the policy or common law, that are made while they are in force.

The next year, when that demand evolved into the filing of a lawsuit, a different carrier insured the company, under a policy with a different definition of the term claim. The demand made the year before qualified as a claim under the definition of that term in the policy in force that year. The policy in force that year did not cover the lawsuit as a result, because for purposes of that policy, the claim was made before the policy took effect and claims made policies do not cover claims made before they take effect.

Both insurers correctly denied coverage, based on the definition of the term claim in their policies, and the insured, despite having purchased policies that were in effect both when the demand was made and when a subsequent lawsuit arising out of the same events was filed, lacked coverage for the lawsuit. In that particular instance, the insured eventually had to sue, and recover from, its own insurance broker, for having set up a program that would allow such a gap in coverage.

The United States District Court for the Northern District of West Virginia just released a memorandum opinion deftly applying these rules to claims made policies that contained a detailed definition of the term claim. The court, correctly, broke down the specific textual requirements of the definition of claim in the policies, such as the requirement that it be in writing and seek damages, and applied them to the notice that the insured received during the policy period about the events at issue, concluding that certain communications during the policy period did not constitute a claim that would trigger coverage because they did not satisfy those requirements. The case is Cornett Management Company v. Lexington Insurance Company, Fireman's Fund Insurance Company, Brady Risk Management, Inc. and Hartan Brokerage, Inc., a copy of which is available here: Download file