SDNY Holds Deficient Notice on Claims-Made Policy Precludes Coverage for Construction Project Delays at University of Pittsburgh
The University of Pittsburgh v. Lexington Ins. Co., 1:13-CV-00335, 2016 WL 4166173 (S.D.N.Y September 16, 2016). The Southern District of New York held that Lexington Insurance Company (“Lexington”) does not have to cover a claim arising from delays associated with a $40 million project on the University of Pittsburgh (“Pitt”) campus, finding that Lexington’s policyholder, The Ballinger Company (“Ballinger”), the architect in charge, failed to provide sufficient notice of a claim.
Ballinger purchased a claims-made insurance policy with Lexington covering the period from February 1, 2011 to February 1, 2012. Ballinger switched insurance companies to Axis following the termination of the Lexington policy. On the last day of the coverage period for the Lexington policy, Ballinger filed a notice of claim. Previously, in an order denying Pitt’s partial motion for summary judgment, the court held that Ballinger’s “notice,” which expressed Ballinger’s concerns about the project’s “problems and delays” and of “trouble brewing at Pittsburgh,” was insufficient to meet the conditions precedent to coverage. In particular, the court found that the Lexington policy required the insured to provide: an indication of the actual or alleged breach of any professional duty; a description of the professional services rendered which may result in the claim; or a description of the injury or damage that has or may result in a claim.
Following the court’s decision on Plaintiff’s motion for partial summary judgment, and as directed by the court, Lexington filed a motion for summary judgment on the issue of whether there is coverage for Pitt on Ballinger’s claim. In its opposition, Pitt argued that Ballinger’s failure to comply with the specific requirements of the contract’s notice provisions should be excused because Ballinger’s compliance was “substantial.” The court rejected this argument outright, noting that if Pitt’s argument were “credited, any purchaser of a claims-made policy could effectively transform it into a broader (and typically more expensive) occurrence policy by asserting nebulous ‘claims’ with specificity to be filled in only later, on the last day of the policy.” In response to Plaintiff’s argument that Ballinger should not be punished for submitting notice of a potential claim on the last day, the court responded that the timing of the notice has nothing to do with the rationale for the result – the problem is that the notice is sorely deficient, not that it was made on the last possible day. Finally, Pitt contended that precluding recovery under the Lexington policy may create a “Catch-22” of no coverage under either the Lexington or the Axis policy, because under the Lexington policy Ballinger did not have enough knowledge of potential claims, and under the Axis policy, Pitt speculates that Ballinger had too much knowledge of potential claims. The court found this argument similarly unavailing, noting that whether Pitt can recover against Axis is not before the court, and that the claims against Lexington and Axis do not “rise and fall together,” as they involved different contracts and different facts. Furthermore, the court reasoned that granting Lexington’s motion for summary judgment does not necessarily preclude Pitt from pursuing recovery from Axis under that separate policy. Thus, the court granted Lexington’s motion for summary judgment and Lexington was terminated as a defendant in the case.