Reliance on Retroactive Date Insufficient to Eliminate Coverage
BERENYI, INC. v. LANDMARK AMERICAN INSURANCE CO. (S.C. Jan. 14, 2010)
The policyholder, Berenyi, Inc., was named as a defendant in an underlying action alleging professional negligence and breach of implied warranty. The underlying action alleges that Berenyi, a professional corporation and licensed engineering firm, provided land surveying, civil engineering, and irrigation/landscape planning for the construction of a hotel in South Carolina. The complaint seeks damages in the form of repair costs, loss of use, diminution in value, and consequential damages.
Landmark had insured Berenyi since May 18, 2005, and at the time the underlying action was filed, Berenyi held a professional liability claims-made policy with effective dates of May 18, 2008 to May 18, 2009. The policy included a retroactive date of May 18, 2005. While the insurer initially assumed the defense of Berenyi, on May 13, 2009, Landmark sent a letter to the policyholder denying coverage and any further obligation to provide a defense and/or indemnity based, in part, upon the applicability of the retroactive date. According to Landmark, the alleged negligent act took place in April 2005, approximately one month prior to the retroactive date.
The basis of Landmark’s decision was an expert report alleging that Berenyi prepared an erroneous flood zone survey in April 2005. In response, Berenyi argued that even assuming this allegation is correct, the complaint included allegations of negligence that occurred after the retroactive date. Accordingly, the duty to defend was triggered. The court agreed, concluding that since some of the negligent acts, errors, and omissions may have occurred after the retroactive date, there was a possibility of coverage under the policy and Landmark was therefore obligated to defend Berenyi in the underlying action.
Landmark also argued that the denial of coverage was proper because the underlying action involved a claim made before the inception of the 2008-2009 policy. Landmark argued that even though the underlying action was not filed until September 2008, the policyholder had notice of the claim as of September 2006. The basis of this argument was a letter advising that the building was two feet below the specified and necessary elevation level, and a resulting meeting between the claimant and Berenyi regarding the same issue. The court, however, held that the letter and meeting did not constitute a "claim" as defined by the policy given that there was no demand for money or services made upon Berenyi. Therefore, there was no obligation to provide notice.
Further, the court went on to hold that since there was no demand for payment or services, the policyholder appropriately did not expect a claim to arise from this dispute. Accordingly, the court held that Landmark failed to provide evidence to dispute Berenyi’s position and failed to present sufficient evidence that Berenyi did not comply with the notice provisions of the policy.
Impact: In this case, while the insurer had various defenses to individual claims within the underlying complaint, these individual defenses were not sufficient to totally eliminate the duty to provide coverage. Although the retroactive date or a policy exclusion may preclude any obligation to indemnify the policyholder for a specific aspect of the underlying lawsuit, that does not eliminate the duty to provide coverage where other covered claims may exist. To avoid coverage it remains incumbent upon an insurer to demonstrate that all of the allegations in the complaint are outside the scope of the policy or fall strictly within the applicable exclusion.
For a copy of this decision, click here: http://insurancecoverage.typepad.com/insurance_and_reinsurance/2010/02/cases-for-professional-liability-monthly.html