Extended Reporting Period Does Not Apply to Replacement Policy

JAMES RIVER INSURANCE COMPANY v. GARCIA (S.D. Fl., April 13, 2012)

Garcia, an architect, purchased a claims-made and reported policy from James River to cover his professional liability. In January 2010, James River notified its surplus lines broker who, in turn, notified Garcia’s insurance agent, that a condominium exclusion would be placed in the policy at renewal. James River sent a notice of non-renewal for the 2009 policy on March 1, 2010.

Pursuant to Garcia’s application, James River offered a quote for replacement coverage which listed the new condominium town home exclusion. Garcia eventually accepted the new policy which cost 30 percent less than the 2009 policy due to the new residential condominium/town home exclusion. The terms of the exclusion excluded coverage for any damages arising directly or indirectly out of the performance or failure to perform professional services relative to residential condominiums or town homes.

Both the 2009-2010 policy and the 2010-2011 policy contained a provision entitled “extending reporting period.” This section of the policy applied in the event of cancellation or non-renewal and allowed an extended claim reporting period up to sixty days within the effective date of a cancellation or non-renewal and included two separate provisions extending the time to report a claim.

On May 24, 2010, 200 East sent a notice of claim to Garcia for deficiencies and delay in his work on the condominium project located at 200 East Palmetto Park Road, Boyertown, Florida. The underlying lawsuit filed by 200 East on November 12, 2004 asserted claims against Garcia for breach of contract and professional negligence regarding Garcia’s architectural services.

In the resulting coverage action, the plaintiff, James River, sought a declaration that it was not required to provide coverage in response to the underlying action based upon the condominium exclusion. Garcia, in response, argued that the claim fell under the prior policy which did not include the exclusion because of the extended reporting provision in the 2009 policy.

Initially, the court noted that under Florida regulations, an insurer is required to provide 45 days notice of a non-renewal of an insurance policy to an insured. In this case, James River timely gave the required statutory notice of non-renewal. In fact, at the time of this notice, the parties were already negotiating a replacement policy that would exclude coverage for condominiums. The court noted that the parties then bargained for and agreed upon a replacement policy that incepted on May 29, 2010.

Despite this, Garcia still asserted that he was entitled to a 60-day automatic extended reporting provision of the 2009 policy because that policy was the subject of a non-renewal notice. James River cited the last sentence of the relevant provision which states, “a change in policy terms and conditions and/or premiums shall not be considered nonrenewal for the purposes of triggering either extended reporting period.” The court rejected Garcia’s contention that this provision and the use of the word “either” rendered the policy ambiguous. The court stated that the language used in the provision was not ambiguous, and it was clear that neither extended reporting period provision was triggered by a change in the policy terms and conditions.

Accordingly, the court held that the insurer complied with the Florida regulations and that Garcia would not have the benefit of the 60-day late reporting provision. Accordingly, James River was not required to provide coverage in response to the underlying action.

Impact: This case is unique given the timing of the policy renewal and the underlying claim for which the insured sought coverage. Regardless, this case highlights the importance of regulatory compliance by an insurer. Although the court concluded that the policy language was unambiguous and applied it to bar coverage, the court specifically highlighted James River’s compliance with Florida regulations regarding notice of a non-renewal. Maintaining proper statutory compliance from each jurisdiction is key for an insurer, especially in the context of disclaimers or non-renewals.