Michael A. Amato | Saxe Doernberger & Vita
While analyzing liability policies, courts grapple with a common issue: what constitutes a claim under a claims-made or claims-made-and-reported provision? When third-party claimants file suit, the analysis is often straightforward; the complaint itself is the claim. The analysis becomes murkier, however, when courts must determine whether a pre-suit notice—such as a demand letter—constitutes a claim.
While insurers often argue that attorney demand letters do not constitute claims—and thereby do not trigger coverage—under liability policies, two recent cases, one from the Delaware Supreme Court and one from the Second Circuit Court of Appeals, analyzed insurers arguing the opposite: that because attorney demand letters were claims asserted before the policy period, the insureds should not be entitled to coverage.
The Delaware Supreme Court Finds an Attorney’s Demand Letter Too Vague to Constitute a Claim for Damages
In Zurich Am. Ins. Co. et al. v. Syngenta Crop Protection LLC1, the Delaware Supreme Court analyzed whether an attorney’s demand letter2 threatening litigation on behalf of unidentified clients before the inception of the claims-made umbrella policy’s3 policy period constituted a claim for damages. Zurich argued that the demand letter constituted a claim and that because Syngenta did not receive the letter during the policy period, there was no coverage for subsequent lawsuits brought by claimants during the policy period. Syngenta argued that the attorney’s demand letter did not constitute a claim for damages because it was a mere “threat of a future claim for damages, which . . . does not constitute an actual claim of damages.” In so arguing, Syngenta focused on the letter lacking specific information such as who the prospective plaintiffs were, how they were exposed to an allegedly toxic herbicide, when they received a Parkinson’s diagnosis because of the alleged exposure, whether they retained any expert witnesses, and when they would file suit.
At the trial court level, the parties moved for cross-summary judgment regarding whether the attorney’s demand letter was a “claim for damages[.]” The trial court granted summary judgment in favor of Syngenta and denied it on behalf of Zurich. The trial court opined that the demand letter’s failure to “identify any individual claimant or clarify any facts” was insufficient to put Syngenta “on notice that there [was] an actual person or persons who [were] intending to file a claim for damages.”4 Accordingly, while the letter “constituted a threat of future litigation,” it was “too unclear or amorphous. . . to constitute a claim for damages.”5 The Delaware Supreme Court affirmed the ruling, holding that “in the absence of a contractual definition, a ‘claim for damages’ is a demand or request for monetary relief by or on behalf of an identifiable claimant.”6 According to the Delaware Supreme Court, the attorney’s demand letter did not satisfy this criterion.
The Second Circuit Holds a Pre-suit Demand Letter was “Sufficiently Clear” to Constitute a Claim
In a similar context, the Second Circuit recently analyzed the issue of when an insured first received a coverage-triggering claim within the meaning of its claims-made-and-reported professional liability policy.7 The policy at issue defined a “[c]laim” as a “written demand received by [an insured] for monetary, nonmonetary, or injunctive relief” and arising from a “Wrongful Act[.]” In Pine Mgmt., Inc. v. Colony Ins. Co.8, the policy Colony issued to Pine had a policy period of August 1, 2018, to December 1, 2019. In July 2019, third-party claimants filed suit against Pine, alleging that Pine mismanaged certain apartment buildings owned by the claimants. Pine tendered coverage for the July 2019 complaint, which attached a July 17, 2018, demand letter written by attorneys for the claimants. After receiving the complaint with the attached demand letter, Colony denied coverage, stating that because the July 2018 attorney demand letter constituted a claim predating the policy’s August 2018 inception date, no coverage was available under the current policy.
At the District Court level, the Southern District of New York agreed with Colony’s argument that the attorney demand letter was a claim predating the relevant policy period. The District Court dismissed Pine’s argument, as Pine contended that the attorney demand letter was not a claim because it (1) did not contain a sufficiently apparent demand for relief and (2) contained precatory language that failed to put Pine on proper notice of the demand.
Ultimately, the Second Circuit affirmed the District Court’s ruling, holding that the attorney demand letter did constitute a claim because the letter set out specific legal claims, including facts, legal theories of liability, and sufficiently clear demands for relief. In so holding, the Second Circuit focused on the letter’s final line, which referenced future litigation and underscored the legal consequences that would likely result from non-compliance with the demand letter.
Key Takeaways for Insureds
Interestingly, while the Syngenta court found that the threat of “future litigation” did not constitute a “claim for damages[,] the Pine court found that a threat of future litigation did satisfy the policy’s definition of “claim[.]” The opposite outcomes of these suits highlight an essential lesson for policyholders with claims-made or claims-made-and-reported liability policies: while considering whether a pre-suit demand letter constitutes a claim, it is critical to err on the side of caution and provide immediate notice to the insurer. The failure to do so may result in a denial of coverage due to the failure to provide timely notice during the policy period.
12020 WL 5237318 (Del. Super. Ct. Aug. 3, 2020), aff’d, No. 135, 2023, C.A. No. N19C-05-108 (Del. Feb. 26, 2024).
2Syngenta and its predecessor companies manufactured and sold a compound called “paraquat[,]” a chemical herbicide that the letter alleges has been linked to the onset of Parkinson’s disease.
3Zurich issued three “claims-made” Umbrella Policies that apply only to “claim[s] for damages . . . first made against [an insured] . . . during the policy period.” (Emphasis added.) The policy does not, however, define the term “claim for damages[.]” The Umbrella Policies were at issue after Syngenta sought reimbursement from Zurich for defense costs that exceeded the limits of the applicable primary policies.
4Syngenta, 2020 WL 5237318 at *8.
5Id. at 9.
6Syngenta, No. 135, 2023, C.A. No. N19C-050108 at *20.
7Under the policy, Colony agreed to provide coverage only for “[l]oss result[ing] from a Claim first made and reported in writing during the Policy Period.”
82024 WL 1266244 (2d Cir. March 26, 2024).
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