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The problem of blindly changing insurance companies



Insured will often change insurance companies to save premiums or get promised additional insurance. However, changing insurance provider can be tricky and dangerous for the insured. The separate insurances prepared by and entered into with different suppliers may not necessarily agree. There may be gaps in the coverage that can leave even the most well-meaning policyholders completely exposed. A “claims” policy provides coverage other than an “instance” -based policy.

IN Derek Slaughter, Gabriel Campana, And City Of Williamsport v. Charter Oak Fire Insurance Company, State National Insurance Company, Inc., and Steven Helm, Nr. 4: 21-CV-01284, United States District Court, MD Pennsylvania (June 17, 2022) USDC explains why changing insurance companies and types of insurance needs the help of a professional risk manager and insurance coverage expert.

The city of Williamsport ended up in a coverage problem created by its changes in coverage without first establishing that the coverage is not in conflict.

The city changed supplier for its liability insurance for public companies in January 2019. It was sued since 2021 by a police officer who claimed retaliation based on previous lawsuits he filed against the city in 2017 and 2018. After an official filed two lawsuits during the monitoring period of the city former insurer, State National Insurance Company, Inc., he then filed a lawsuit in 2021 during the coverage period for the city’s current insurer, The Charter Oak Fire Insurance Co.

The current insurer waives coverage for claims in any way that is actually linked to previous claims filed outside of its coverage period. The former insurer does not follow the same practice and, critically here, disclaims all obligations to defend or reimburse the city for future claims that arise as a result of ongoing or past litigation. The city placed itself right on the corners of a dilemma and a place where no insurance applies.

BACKGROUND

More specifically, in April 2017, Officer Helm Williamsport and its Chief of Police sued for violating his Freedom of Association rights in the First Amendment by allegedly taking revenge on him for his activities as chairman of the police union. Helm then filed a second lawsuit, a lawsuit in November 2018, and filed the same claim based on similar conduct. In the end, Helm and Williamsport resolved these processes through a settlement agreement.

The insurance terms

To protect the city’s finances from employee lawsuits such as those filed by Helm, Williamsport maintains liability insurance for public entities that, among other things, covers losses due to “incorrect employment practices”[s]. ” From January 1, 2016 to December 31, 2018, the city entered into an agreement with the State National for this coverage. Under its public liability policy, State National undertook to “pay on behalf of [Williamsport] any “loss” resulting from “inappropriate conduct in employment procedures”, but only in respect of “claims” first made against [Williamsport] during the “insurance period.” With that said, the State National renounces all “obligatory[ion] to make any payment [or] to defend any ‘goal’ associated with. . . future “claims” arising from ongoing or past litigation or interrogation. “

After the agreement with State National expired in December 2018, Williamsport changed insurance company. The city entered into an agreement with Charter Oak for liability insurance for public entities, with coverage beginning on January 1, 2019 and continuing even now. Charter Oak’s basic agreements were the same as those of the State National.

However, Charter Oaks coverage only extends to lawsuits “first made or brought against.” [the City] . . . during the insurance period. ” And the Charter Oak policy contains an important concept of qualification when it comes to the concept of “first done or joined” and that was that it excluded similar previous actions.

ANALYSIS

In its request for a judgment on the pleadings, Williamsport asks the court to declare that both Charter Oak and the State National have two distinct but related tasks: (a) the obligation to defend the city in the process that Helm began in April 2021; and (b) the obligation to compensate the city for all losses arising from the April 2021 lawsuit.

Obligation to defend

Under Pennsylvania law, the assessment of whether an insurer has an obligation to defend its insured means that the court must seek to establish the parties’ intentions manifested by the language of the written instrument, which requires reading the insurance in its entirety and interpreting the agreement in the simple sense of terms. The court must enforce a language that is clear and unambiguous; if the language is ambiguous, it must be interpreted against the insurer and in favor of the insured.

Charter also

Charter Oak claimed that Helm’s claims from 2021 do not trigger coverage because they fall within a listed exception.

Charter Oak’s policy establishes an obligation to defend claims or lawsuits seeking damages for unlawful misconduct – such as discrimination, retaliation and erroneous failure to market – that was “first made or brought” during the insurance period (ie, as of January 1, 2021). The 2017 and 2018 trials were indisputably “first made or brought” before Charter Oak’s coverage period. The court then determined whether the 2017 and 2018 trials involve illegal employment offenses “related” to those in the 2021 document.

The court concluded that Helm “links the reprisals that occurred between 2018 and 2020 [i.e., the basis of his 2021 claims] to the retaliation against him referred to in [the 2017 and 2018 lawsuits].

Although the city correctly notified the insurer of the claim within the insurance period, which began in July 2005, the insurance clearly and unequivocally excluded all claims “based on, arising from or attributable to any previous or ongoing litigation… Filed on or before its entry into force [insurance] policy “or” the same or substantially the same wrongful act, fact, circumstance or situation underlying or alleged therein. “

The Charter Oak policy does not cover claims or lawsuits filed within the coverage period if a separate action involving “related” illegal employment offenses was “first committed or brought” before the coverage period. Because the 2017 and 2018 suits “first came or were made” before the coverage period for Charter Oak, Helm’s suit does not trigger 2021 coverage.

State citizen

The city probably believed that since Helm’s lawsuits in 2017 and 2018 were considered “related” to his 2021 claim, thereby relieving Charter Oak of its obligation to defend Williamsport, the previous lawsuits would necessarily force coverage by State National, Williamsports’ public liability insurance provider. units from January 2016 to December 2018. But that was not the case.

State National’s public liability insurance policy contains several exceptions, which state that State National “will not be liable to make any payment or defend any… Future” claims “arising from ongoing or past litigation or interrogation.”

This language is clear and unambiguous: State Nation’s coverage obligations extend only to claims first made against Williamsport during the insurance period; Claims raised after the coverage period – even those arising from ongoing or previous litigation that were first raised during the coverage period – do not trigger coverage.

Obligation to make amends

The obligation to defend is broader than the obligation to compensate, and therefore, if an insurer has no obligation to defend, it also has no obligation to compensate. Since the court found that neither Charter Oak nor the State National must defend Williamsport from Helm’s claim of April 2021, none of the defendants must hold Williamsport indemnified for those claims.

CONCLUSION

Read together, Charter Oak and State National insurance policies leave the city without coverage. Although it maintains liability insurance for public entities without interruption, the city has no coverage for the civil servant’s lawsuit in 2021.

Individuals, companies, corporations and government agencies must never assume that a new policy will protect them in the same way as a previous policy. It is important that the insured, the city in this case, reads both insurances and if they do not understand – which most insureds do not – hire an expert in insurance coverage and risk management before agreeing to replace one insurance with another who can have different conditions. In this obligation, the city of Williamsport failed and must defend itself against the official’s claim and, if it loses, pay the judgment with the city’s funds.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance misconduct and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an attorney for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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