Coverage Gap Created by Inept Changes in Insurers and Policy Wording
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Often insureds will change insurers to save premium or obtain promised additional coverages. However, switching insurance providers can be tricky and dangerous to the insured. The separate insurance policies-drafted by, and entered into with, different providers-may not necessarily align. Gaps in coverage may appear that can leave even the best intentioned policyholders entirely exposed. A “Claims Made” policy provides different coverages than an “occurrence” based policy.
In Derek Slaughter, Gabriel Campana, And City Of Williamsport v. The Charter Oak Fire Insurance Company, State National Insurance Company, Inc., and Steven Helm, No. 4:21-CV-01284, United States District Court, M.D. Pennsylvania (June 17, 2022) the USDC explains why changing insurers and policy types needs the assistance of a professional risk manager and insurance coverage expert.
The City of Williamsport found itself in a problem of coverage created by its changes of coverage without first determining that the coverages do not conflict.
The City switched providers for its public entity liability insurance in January 2019. It was then sued in 2021 by a police officer who claimed retaliation based on prior suits he filed against the City in 2017 and 2018. After an officer filed two suits during the coverage period of the City’s former insurer, State National Insurance Company, Inc. he then filed a 2021 suit during the coverage period of the City’s current insurer, The Charter Oak Fire Insurance Co.
The current insurer disclaims coverage for claims in any way factually connected to prior suits filed outside its coverage period. The former insurer does not follow this same practice, and, critical here, disclaims any obligation to defend or indemnify the City for any future claims arising out of pending or prior litigation. The City placed itself squarely upon the horns of a dilemma and a place where no insurance applies.
BACKGROUND
Specifically, Officer Helm sued Williamsport and its Police Chief in April 2017 for violating his First Amendment freedom of association rights by allegedly retaliating against him for his activities as the president of the police officer’s union. Helm then filed a second, one-count suit in November 2018, raising the same claim based on similar conduct. Ultimately, Helm and Williamsport resolved these suits by settlement agreement.
The Insurance Policies
To safeguard the City’s finances from employee lawsuits like those filed by Helm, Williamsport maintains public entity liability insurance that covers, among other things, losses resulting from “wrongful employment practice[s].” From January 1, 2016, to December 31, 2018, the City contracted with State National for this coverage. Under its public entity liability insurance policy, State National committed to “pay on behalf of [Williamsport] all ‘loss’ resulting from ‘employment practices wrongful act(s)’ but only with respect to ‘claims’ first made against [Williamsport] during the ‘policy period.’” That said, State National disclaimed any “obligat[ion] to make any payment [or] to defend any ‘suit’ in connection with . . . future ‘claims’ arising out of any pending or prior litigation or hearing.”
After its agreement with State National expired in December 2018, Williamsport switched insurers. The City contracted with Charter Oak for public entity liability insurance, with coverage beginning on January 1, 2019, and continuing through the present. Charter Oak’s basic agreements were the same as those by State National.
However, Charter Oak’s coverage extends only to suits “first made or brought against [the City] . . . during the policy period.” And the Charter Oak policy contains an important qualifier regarding the concept “first made or brought” and that was it excluded similar prior acts.
ANALYSIS
In its motion for judgment on the pleadings, Williamsport asks the Court to declare that both Charter Oak and State National possess two distinct but related duties: (a) the duty to defend the City in the lawsuit Helm initiated in April 2021; and (b) the duty to indemnify the City for any losses stemming from the April 2021 suit.
Duty to Defend
Under Pennsylvania law, determining whether an insurer has a duty to defend its insured involves the court to endeavor to ascertain the intent of the parties as manifested by the language of the written instrument, which requires reading the policy as a whole and construing the contract in accordance with the plain meaning of terms. The court must enforce language that is clear and unambiguous; if language is ambiguous, it must be construed against the insurer and in favor of the insured.
Charter Oak
Charter Oak contended that Helm’s 2021 claims do not trigger coverage because they fall within an enumerated exception.
Charter Oak’s policy establishes a duty to defend claims or suits seeking damages for wrongful employment practice offenses-such as discrimination, retaliatory action, and wrongful failure to promote-that were “first made or brought” during the policy period (i.e., starting January 1, 2021). The 2017 and 2018 lawsuits were indisputably “first made or brought” prior to the Charter Oak coverage period. The court next determined if the 2017 and 2018 lawsuits involve wrongful employment practice offenses “related” to those in the 2021 action.
The Court concluded that Helm “connects the retaliatory actions occurring between 2018 and 2020 [i.e., the basis of his 2021 claims] to the retaliatory actions against him referenced in [the 2017 and 2018 lawsuits], ” thereby establishing “a common connection and link of related causes, facts and circumstances.” Therefore, the Charter Oak policy was faced with lawsuits that involve “related wrongful employment practice offenses.”
Although the city properly notified the insurer of the claim within the policy period, which began in July 2005, the policy clearly and unambiguously excluded any claim “alleging, based upon, arising out of or attributable to any prior or pending litigation . . . filed on or before the effective date of the [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 suits filed within the coverage period if a separate suit involving “related” wrongful employment practice offenses was “first made or brought” prior to the coverage period. Since the 2017 and 2018 suits were “first brought or made” prior to the Charter Oak coverage period, Helm’s 2021 suit does not trigger coverage.
State National
The City probably thought that because Helm’s 2017 and 2018 suits were considered “related” to his 2021 claims, thereby absolving Charter Oak of its duty to defend Williamsport, the prior suits would necessarily compel coverage by State National, Williamsport’s public entity liability insurance provider from January 2016 through December 2018. But that was not the case.
State National’s public entity liability insurance policy contains several exclusions, explaining that State National “will not be obligated to make any payment nor defend any . . . future ‘claims’ arising out of any pending or prior litigation or hearing.”
This language is clear and unambiguous: State National’s coverage obligations extend only to claims first made against Williamsport during the policy period; claims brought after the coverage period-even those that arise out of pending or prior litigation first brought during the coverage period-do not trigger coverage.
Duty to Indemnify
The duty to defend is broader than the duty to indemnify, and, therefore, if an insurer has no duty to defend, it likewise has no duty to indemnify. Because the Court found that neither Charter Oak nor State National must defend Williamsport from Helm’s April 2021 claims, neither Defendant must indemnify Williamsport for these claims.
CONCLUSION
Read together, the Charter Oak and State National insurance policies leave the City without coverage. Despite maintaining public entity liability insurance without interruption, the City has no coverage for the officer’s 2021 suit.
ZALMA OPINION
Individuals, businesses, corporations, and governmental entities must never assume that a new policy will protect them in the same way as an earlier policy. It is essential that the insured, the city in this case, read both policies and if they don’t understand – as most people insured do not – employ an expert in insurance coverage and risk management before agreeing to replace one policy with another that may have different terms and conditions. In this obligation the City of Williamsport failed and must defend itself to the claims of the officer and, if it loses, pay the judgment out of city funds.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...