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Vol. 3, Iss. 16
December 3, 2014

Minnesota Life Insurance Company v. Columbia Casualty Company, -- So. 3d --
(Miss. 2014)

The Extended Reporting Period: A Lesson Before Denying


A case involving an issue under a claims made policy is ordinarily not the stuff of the annual coverage top ten. Despite there being lots of cases decided every year involving claims made policies, they often-times involve such things as what is a claim, when was a claim first made and various timing issues. With such issues frequently turning on unique facts and policy language, claims made cases are not always good candidates for ones that have the ability to influence future decisions.

The Mississippi Supreme Court’s claims made decision in Minnesota Life Insurance Company v. Columbia Casualty Company involves a “timing” issue and policy language that may or may not be unique (the terms of claims made policies vary widely). For these reasons perhaps Minnesota Life should not qualify as one of the year’s ten most significant coverage decisions for the same reasons why other claims made cases do not. Nonetheless, I selected it because it offers a lesson of wide-reach concerning the drafting of an important provision in claims made policies.

The full facts of Minnesota Life are unbelievably lengthy and detailed. They are as eye-glazing as any you’ll see in a coverage case. To set them out here in such detail would be to lose the point that is intended to be made. I describe just enough of them to get to the reason why the case was selected as one of the year’s ten most significant.

Four individuals were employed by C. Douglas Gulley Jr. and Associates, Inc., as agents for Minnesota Life. The agents purchased claims made Insurance Agents Errors & Omissions Policies from Columbia Casualty covering the periods from March 1, 1997 to March 1, 1998 and March 1, 1998 to March 1, 1999.

On January 30, 1998, the agents resigned from the agency because of suspicions that Gulley was embezzling funds from clients. On February 2, 1998, the agents’ contracts with Minnesota Life were terminated. At that point, the agents’ coverage with Columbia Casualty terminated. The agents founded Cornerestone Group and obtained errors and omission policies from AIG.

It was determined that Gulley was misappropriating client funds. In July 1998, suits were filed against the agents and others alleging that the agents committed wrongful acts while employed by Minnesota Life. It was alleged that the agents should have known that Gulley was misappropriating funds.

To make an unbelievably long story short, at issue before the Mississippi Supreme Court was whether the claim-timing requirement of a Columbia Casualty policy had been satisfied for purposes of the agents’ claims for the suits filed against them. In particular, the issue was to be addressed in the context of a Terminated Insured Extended Reporting Period endorsement that provided as follows: “In consideration of the premium charged, it is hereby understood and agreed that upon termination, during the Policy Term or any Renewal thereof, of a contract of an Agent who was an Insured under this policy, said Insured shall have an automatic Extended Claim Reporting Period to report Claims (as long as this policy or a renewal thereof is in force) but only for Wrongful Acts which occur prior to the termination of the Agent’s contract and only if there is no other Life Insurance Agent’s Professional Liability coverage in force.”

The parties disputed the applicability of the Terminated Insured Extended Reporting Period endorsement. The competing arguments were as follows: “Throughout this entire litigation, the Ex–Agents and Minnesota Life have contended that the ERP provides coverage because the AIG policy did not provide coverage to the Ex–Agents for alleged wrongful acts occurring while they were Minnesota Life agents. Because coverage was denied by AIG, the Ex–Agents contend that Columbia should have concluded that there was no “coverage in force”. [quotes added] Columbia, however, contends that “coverage” is synonymous with “policy” and that it does not matter what type of “coverage” is provided under that “policy,” as long as the Ex–Agents have a “policy in force.”

The court rejected Columbia Casualty’s argument: “[I]t is clear from the record that Columbia was aware that there were different interpretations as to what “coverage in force” might mean. Reviewing the entire Columbia policy, there are numerous instances where the terms ‘insurance,’ ‘policy,’ ‘claim,’ ‘coverage,’ and ‘in force are used: ‘valid and collectible insurance available,’ ‘other insurance against a claim covered by this policy,’ ‘same or similar policy,’ ‘claim arising out of a wrongful act,’ ‘master policy remains in force,’ ‘as long as this policy ... remains in force,’ ‘coverage in force,’ ‘insurance in force which would apply to a claim also covered by this policy,’ and ‘coverage will not extend to ... any claim.’ While policy language clearly makes distinctions between these words, Columbia now argues that all are synonymous.”

The court concluded that “[c]overage applies to losses, damages, or claims afforded by an insurance policy. It is more than obtaining an insurance policy. One must look to the actual policy obtained to determine what coverage is in force.” This interpretation of “coverage” led to the court’s decision: “The Ex–Agents had coverage under the ERP endorsement for the underlying claims as long as they had no other coverage in force for those same alleged wrongful acts. The AIG policy did not provide coverage for wrongful acts that occurred while the Ex–Agents were employed by Minnesota Life and covered by Columbia; it covered acts only while the Ex–Agents were employed by [Cornerstone]. The Ex–Agents were covered by the ERP endorsement of the Columbia policies for the wrongful acts alleged in the underlying claims, because they had no other ‘coverage in force’ for those alleged wrongful acts which occurred before they were employed by [Cornerstone].”

Minnesota Life involves coverage for suits that were filed in 1998. Admittedly, I do not know why the answer to the coverage question didn’t come until sixteen years later. There may be more to the delay than the dispute over the Extended Reporting Period. Nonetheless, that’s a long time.

While Extended Reporting Periods vary widely in their terms, insurers that are drafting an ERP, or considering whether to litigate one’s applicability, should take a lesson from Minnesota Life. While policy language may be king when it comes to coverage determinations, policy purpose sometimes has a way of creeping in. The purpose of an ERP is to address the situation that the agents faced here. The Minnesota Life court found a way to make that happen.

 
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