The Differences Between a Claim and a Suit
A Claim Can Be Made Without a Suit Being Filed
This article was adapted from my book, “Zalma on Insurance Claims Part 103 Third Edition” availble from Amazon.com at Available as a paperback and Available as a Kindle Book.
Liability policies generally contain language promising “to defend any suit against the insured.”
The policies will generally distinguish between a claim and a suit by compelling the insured to give notice of claims as well as suits. Courts usually recognize that there is a difference. A claim can be made without a suit being filed.
A mere statement by a claimant to an insured that he or she was injured as a result of the negligence of the insured is sufficient to give notice of a claim. A “suit,” on the other hand, usually requires the filing of allegations in a court of competent jurisdiction responding to the allegations made in the suit.
Most insurance policies require that the insured promptly or “as soon as possible” report a claim to the insurer even if there is no suit. By so requiring the insurer has the ability to investigate and try to resolve claims before expensive litigation begins.[1]
Liability insurers prefer claims made policies to limit their exposure. The person or entity insured must, under such policies, report a claim as long as it is made during the policy period or an extended reporting period or lose coverage.
In Crowley Maritime Corporation v. National Union Fire Insurance Company of Pittsburgh, PA, 931 F.3d 1112, No. 18-10953, United States Court of Appeals for the Eleventh Circuit (July 23, 2019) Crowley Maritime sued its insurer, National Union, seeking reimbursement in legal defense fees paid on behalf of an employee of Crowley. The district court granted National Union’s motion for summary judgment on grounds that Crowley failed to timely report the claim at issue in the appeal to National Union as required by the policy. The trial court held that, with respect to the reporting period Crowley was bound by the arbitration panel’s finding that Crowley had not reported a claim to National Union as required by the policy.
Crowley Liner is a wholly owned subsidiary of Crowley Maritime. National Union is among the largest providers of directors and officers insurance policies. As it relates to the case, Crowley Maritime purchased liability insurance from National Union which provided coverage on a “claims made” basis, meaning that National Union insured Crowley “solely with respect to Claims first made against an Insured during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of the Policy.
During the initial Policy Period Crowley Liner’s then-Vice President of Price and Yield Management, attracted the attention of federal law enforcement officers. On April 17, 2008, a search warrant was executed at Crowley Liner’s Jacksonville headquarters.
On April 16, 2008, the day before federal law enforcement officers executed the search warrant, an FBI special agent signed and delivered an affidavit supporting the search warrant (the “Affidavit”) to a federal magistrate judge in the Middle District of Florida. The Affidavit—which spans forty-eight pages and describes in great detail an ongoing FBI/DOJ antitrust investigation involving several water freight carriers—asserted that Farmer and others had been involved in communications and agreements to allocate customers and coordinate pricing in violation of the Sherman Act. The affidavit was sealed.
A little over a week later Crowley’s insurance broker sent National Union a notice it characterized as a notice of a Claim. National Union responded and concluded that the Policy did not provide coverage because, in part, no one had been identified in writing as a target of the investigation as required by the Policy. National Union also encouraged Crowley to send additional information that might be relevant to its coverage determination.
Crowley eventually initiated arbitration with National Union. The proceeding addressed whether, based on the information provided to National Union at the time of the arbitration hearing, the FBI/DOJ investigation constituted a Claim under the Policy. The arbitration order noted that the evidence of a Claim presented to National Union at that time included only the search warrant, the Farmer and Crowley subpoenas, several documents relating to a plea agreement entered into by Crowley, and the investigation relating to those documents.
A majority of the arbitration panel entered a decision in favor of National Union. The arbitration order observed that “the triggering event for a Claim . . . is when the DOJ identifies in writing an Insured Person as one against whom a criminal proceeding may be commenced.” It continued, ultimately concluding that “[t]he materials Crowley submitted to National Union did not constitute a Claim for Insured Persons as the term ‘Claim’ is defined in the Policy. The triggering event specified in the Policy had not yet been presented to National Union.”
Crowley notified National Union of the Plea Offer and National Union agreed to treat the FBI/DOJ investigation as a Claim under the Policy as of February 18, 2013 (the date it received the February 2013 Notice). National Union agreed to provide coverage for future Defense Costs relating to the investigation (i.e., those incurred on or after February 18, 2013), but took the position that Crowley was not entitled to reimbursement of its earlier Defense Costs.