SDV Insights

"Multiple Claims" Provisions on Contractor's Professional Liability Policy Creates a Trap for Policyholders


In Berkley Assurance Company v. Hunt Construction Group, Inc., 465 F.Supp.3d 370 (S.D.N.Y., 2020), professional liability insurer Berkley sued its insured, Hunt, a construction management firm, seeking a declaration that it did not owe Hunt a duty to defend and indemnify against breach of contract claims. The United States District Court for the Southern District of New York granted Berkley’s motion for summary judgment and denied Hunt’s motion for partial summary judgment. Among other things, the court held that the policy’s automatic extended reporting period did not apply to Hunt’s first claim. The multiple claims provision barred Hunt’s second claim because the claims were related.

The court’s holding creates a potential trap for policyholders who wait to see how a claim develops before reporting it to their insurance carrier. This case demonstrates that waiting to see how a claim develops can result in a loss of coverage. Policyholders need to be aware of this trap and report all claims and circumstances immediately.

Hunt’s Subconsultant and the Owner Brought Separate Claims Against Hunt for Professional Negligence

Hunt purchased professional liability insurance policies insured by Berkley. The first policy had an effective period from June 15, 2016, to June 15, 2017, later extended to July 15, 2017, and the second policy had an effective period from July 15, 2017, to June 15, 2018. Id. at 374. After the second policy expired, Berkley issued another renewal policy for the period July 15, 2017, to July 15, 2018. Each policy covered claims made and reported during the Policy Period. Each policy also contained a provision stating that multiple related claims would be treated as a single claim and covered under the policy covering the first such claim:

‘Claims … arising out of one or more acts, errors, omissions, incidents, events … or a series thereof that are related (either causally or logically) will be considered a single Claim’ – that is, ‘first made on the date the earliest such Claim … was first made and is covered ‘only [by] a Policy providing coverage for the earliest such Claim.’

In 2014, Hunt was hired by South Florida Stadium, LLC (the “Owner”) to be the construction manager for the renovation of the Hard Rock Stadium in Miami, Florida. In turn, Hunt hired Alberici Constructors, Inc., d/b/a Hillsdale Fabricators (“Hillsdale”), to perform “design and steel fabrication for the stadium’s rooftop canopy structure.” Id. On October 18, 2016, Hillsdale asserted a claim against Hunt that alleged Hillsdale had incurred additional and unforeseen costs “because Hunt performed design and construction services improperly” Id. Hunt and Hillsdale executed a “Memorandum of Understanding” whereby they agreed to complete the project, and deal with the cost increase issues later. Hunt finished the project in July 2016.

The parties failed to reach an agreement on the issues, and The Owner and Hunt sued Hillsdale in Florida state court seeking a declaratory judgment. Id. Hillsdale filed a claim, in part, against Hunt in federal court, before voluntarily dismissing that claim, and then, on March 30, 2017, filed a counterclaim against Hunt for, in pertinent part, breach of contract in state court. (Together, these actions constitute the “Hillsdale Claim”). Hunt reported the Hillsdale claim to Berkley two months later, on July 20, 2017. Hunt reported the claim five days into the 2017-2018 Policy period and nine months after Hillsdale first asserted its claim against Hunt.

Then, on May 21, 2018, the Owner demanded that Hunt indemnify and hold it harmless from any damages resulting from Hillsdale’s counterclaim against the Owner. (The “Owner’s Claim”). Id. at 375. Hunt reported the Owner’s claim to Berkley two weeks later.

Berkley Denied Coverage for Both Claims Based on Hunt’s Untimely Notice of the First Claim

Berkley denied coverage for both claims. Berkley asserted the Hillsdale claim was not covered because the policy period expired before Hunt brought the claim. As for the Owner’s claim, Berkley alleged that the Owner’s claim was not covered because it was related to the Hillsdale claim, which is not covered.

The District Court sided with Berkley, Granting its Motion for Summary Judgment

In granting Berkley’s motion for summary judgment, the district court held that “the Hillsdale Claim is not covered by the 2016-2017 Policy, and Berkley has no duty to defend Hunt against it because Hunt failed to report that claim within the time allotted by the policy.” The court refused to accept Hunt’s argument that the claim, which was made five days after the 2016-2017 policy expired, was made within the sixty-day Automatic Extended Reporting Period. Id. at 378. The Court acknowledged that the AERP only applies when Hunt or Berkley terminated or non-renewed the policy. The court also disagreed with Hunt’s arguments that the policy is ambiguous. Berkley waived its right to argue that the claim was untimely when it originally only denied the Hillsdale claim on the basis of a Contractual Liability Exclusion; and that Berkley is estopped from asserting its timeliness argument.

The court also sided with Berkley with respect to the Owner’s claim – holding it was not covered because it should be considered together with the Hillsdale claim as a single claim. The parties admitted the claims were related, but Hunt disputed “any legal conclusion that the relationship between the Hillsdale Claim’” and the Owner’s Claim” ‘allow[ed] Berkley to disclaim coverage for both Claims.’” Id. at 383. The court held that because the claims were a single claim made on the date of the earliest claim as per the policy, where the earliest claim was untimely, both claims were untimely and consequently not covered.

The parties reached an agreement before Hunt’s appeal1 could be decided.

Implications for Contractors

The court’s holding has serious implications for policyholders. By refusing to apply the 60-day AERP when the policy is renewed, or even acknowledging the ambiguity in the language, the court adopts Berkley’s position that the policyholder is put in a worse position by paying the insurer more money and renewing the policy than by choosing to purchase insurance from another carrier. There is no question the AERP would have applied to Hunt’s claims and required Berkley to cover them if Hunt had not renewed with Berkley.

Second, in adopting Berkley’s interpretation of the Multiple Claims provision, the court has approved of Berkley’s reliance on a policy allocation provision as a basis to deny coverage for an otherwise covered claim. It was clear in this case that neither Hunt nor Berkley knew at the time of the Hillsdale claim that, almost two years later, the Owner would make a claim against Hunt. Thus, there was no way Hunt could possibly give notice of the Owner’s claim any earlier, and Hunt’s notice of the Owner’s claim was timely. Yet, because the court held that Hunt’s notice of the Hillsdale was untimely and that the two claims were “related,” Berkley did not have to cover the Owner’s claim.

This means that now, when policyholders have a claim, they will not only have to consider coverage for that claim but must also consider that failing to give notice may jeopardize coverage for unknown future claims that may be deemed to be “related.” Policyholders can no longer risk waiting to provide notice of a claim or potential claim, even if that claim may fall within a deductible or retention. To preserve coverage for future claims, policyholders must give notice of anything that may qualify as a claim.

Contractors should consider training for project teams to make sure that they understand what may qualify as a claim under their policy to ensure that risk managers and general counsel can make
timely notice to insurance carriers.

For more information, contact Michael V. Pepe at MPepe@sdvlaw.com.

*Special thank you to Kathryn Kellner, SDV Law Clerk. 

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1Berkley Assurance Co. v. Hunt Construction Group Inc., case number 20-1811, in the U.S. Court of Appeals for the Second Circuit. 

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