E-Alert Case Updates
Insurers Score a Victory with Decision that Maryland’s Actual Prejudice Requirement Did not Apply to a Claims-Made and Reported Policy
Minnesota Lawyers Mut. Ins. Co. v. Baylor & Jackson, PLLC
In Minnesota Lawyers Mutual Insurance Co. v. Baylor & Jackson, PLLC, Judge Bredar of the United States District Court for the District of Maryland held that Minnesota Lawyers Mutual Insurance Co. (“MLM”) was not required to show actual prejudice in declining insurance coverage for the alleged legal malpractice of Baylor & Jackson, PLLC (“Baylor & Jackson”). The decision is significant because it held that Maryland’s notice prejudice statute did not apply to the claims-made and reported insurance policy at issue.
Minnesota Lawyers Mutual Insurance Co. v. Baylor & Jackson, PLLC arose out of the alleged legal malpractice of Baylor & Jackson, which occurred in 2006. Specifically, in representing a client, Baylor & Jackson failed to support an opposition to a motion for summary judgment with any sworn testimony or affidavits. The Judge granted judgment against Baylor & Jackson’s clients and issued an opinion in which he explained that one of the main reasons for his ruling was Baylor & Jackson’s failure to support the opposition with sworn testimony. Baylor & Jackson did not report the decision to its malpractice carrier, MLM. Instead, through separate appellate counsel, Baylor & Jackson’s clients appealed the decision to the Maryland Court of Special Appeals. The Maryland Court of Special Appeals, however, affirmed the trial court.
Baylor & Jackson did not report the unfavorable trial court ruling to MLM until after the Maryland Court of Special Appeals affirmed the trial court, which was approximately three (3) years after the malpractice. Shortly thereafter, Baylor & Jackson’s clients filed a malpractice claim against Baylor & Jackson. Baylor & Jackson maintained a claims-made and reported insurance policy with MLM, which it renewed on a yearly basis. Pursuant to the policy, a claim is deemed made when the insured should reasonably expect that a malpractice claim could be forthcoming and the insured reports the claim to MLM. MLM declined coverage for the malpractice claim under its 2006 policy because Baylor & Jackson failed to notify MLM of the malpractice in the same policy period in which it should have reasonably expected that a malpractice claim should have been forthcoming.
This declaratory judgment action revolved around whether Maryland’s notice prejudice statute applied to the insurance policy at issue and whether MLM was require to show actual prejudice when it declined coverage. MD. CODE ANN., INS. § 19-110 (“Section 19-110”) requires that insurers show actual prejudice when declining coverage on the grounds that its insured breached the policy by failing to give timely notice. The issue was whether Baylor & Jackson breached the policy by failing to give timely notice, or whether the failure to provide notice was really the non-occurrence of a condition precedent. If a condition precedent does not occur, then no obligation arises under the contract and, thus, there cannot be a breach. Without a breach, Section 19-110 does not apply.
While Maryland case law has seemingly long-held that Section 19-110 does not apply to claims-made and reported insurance policies, this area of law was recently complicated by the Maryland Court of Appeals decision of Sherwood Brands, Inc. v. Great Am. Ins. Co., 13 A.3d 1268 (Md. 2011). In Sherwood Brands, the Court of Appeals held that Section 19-110 converted the notice provision in the policy, which was labeled as a “condition precedent,” to a covenant. Since the condition precedent was converted to a covenant, the failure to provide notice was a breach of the policy and Section 19-110 applied.
In this case, however, Judge Bredar distinguished between insurance policies that have a separate notice provision and insurance policies that define a claim as being made when it is reported to the insurer. Judge Bredar held that the former was converted to a covenant, but the latter is a condition precedent. Since the 2006 Policy expired without Baylor & Jackson providing notice to MLM, the condition precedent never occurred and MLM was not required to cover the malpractice claim. As such, Judge Bredar granted summary judgment in favor of MLM.
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