Court rules on professional liability insurance policy.
In January 1990, the insurer wrote to the firm and noted that its extended reporting coverage would expire on October 1, 1990. It asked the firm to furnish a list of any other clients who might sue the firm for its role in recommending the failed tax shelters. The firm responded in September 1990, listing more than 700 parties who might still sue. The firm reported these matters as claims under the policy. After the extended reporting period expired in October 1990, 3 of the 700 listed parties filed suit against the firm. The insurer denied coverage for these claims, saying that the firm's September 1990 letter reported only potential claims, and the policy required the reporting of actual claims. The firm sued the insurer for coverage for these claims.
Both the trial and appellate courts ruled in the firm's favor. The appellate court noted that the policy defined "claim" broadly to include potential claims. The court further stated that the firm's September 1990 letter constituted sufficient notice of potential claims. The insurer did not object to this notice at the time or request additional information. Therefore, coverage was appropriate for the insured's claims.
This case points out the need for firms to full7 report all claims and potential claims to their insurance underwriter as soon as they have enough facts to determine an action may resuLT. Failure to do this may lead to the claim's denial. (United States Fire Insurance Co. v. Fleekop, no. 95-1726, Fl. App. 10/30/96)
Editor's note: Thanks to Dennis Zaragoza for submitting the McGann case.
--Edited by Wayne Baliga, CPA, JD, CPCU, CFE, president of Aon Technical Insurance Services.
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|Publication:||Journal of Accountancy|
|Article Type:||Brief Article|
|Date:||May 1, 1997|
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