Triggering coverage under an "awareness clause" of a claims-made liability policy

Newman, Thomas R

I.

INTRODUCTION

A liability insurance policy written on an "occurrence" form1 will cover the insured for injury, damage or loss which takes place during the policy period and results from a covered occurrence. In the case of professional liability policies insureds are covered against a "wrongful act, error or omission," regardless of when the injury-causing act took place or whether the injury, damage or loss is reported to the insurer during the policy period.2

On the other hand, a "claims-made and reported" policy3 will provide coverage for "claims" that are: (a) first made against the insured during the policy period, and (b) reported to the insurer during the policy period, regardless of whether the injury, damage or loss took place before inception of the policy.4

The reporting requirement in such a claims-made policy serves a very different function than the notice required under an occurrence policy. In occurrence policies, the notice requirement is intended principally to aid the insurer in its investigation, defense and early settlement of claims, and to enable it to establish appropriate reserves.5

Under a "claims-made and reported" policy, it is the reporting of the claim to the insurer that is the coverage-triggering event. The notice provision of such a policy is "just as important to coverage as the requirement that the claim be asserted during the policy period."6 "It is the transmittal of notice of the claim that invokes coverage."7

The notice requirement in a claims-made policy provides the insurer with the knowledge that after a certain date it can "close its books" on a policy. It need not be concerned about a long tail of claims being reported for many years after expiration of the policy period or any extended reporting period.8 Accordingly, the insurer is able to fix more accurately its reserves for future liabilities, compute premiums with greater certainty and " `attain a level of predictability unattainable under standard occurrence policies."'9 Such a policy reduces the insurer's potential exposure to unexpected inflation, liability expanding changes in the substantive law, and escalating trends in jury verdicts. The policyholder also benefits from this greater certainty because it enables the insurer to offer coverage at a reduced premium.10

Since a claims-made policy provides the insured with no coverage beyond the final effective date of the policy (or any extended reporting period), the insured must strictly comply with the policy's notice of claim provisions." If the insured does not give notice within the contractually required time period, "there is simply no coverage under the policy."2 "[E]xcusing the insured from the notification provision or altering the provision is tantamount to a gratis extension of coverage to the insured."13

II.

WHAT CONSTITUTES A CLAIM"?

"Claim" is often a defined term in a claims-made policy. It is frequently broadly defined as "a demand received by the Insured. . . for money or services, including the service of suit or the institution of arbitration proceedings against the Insured."14

When the term "claim" is not defined in the policy,15 courts have interpreted it to mean "a demand for money or property or some specific relief, accompanied by an allegation of negligence, malpractice, or some kind of wrongdoing."16 It has also been defined as "an actual demand for something on the ground of a right,"17 or "a demand for compensation."18

The common thread running through these various definitions is that a "claim is not merely a contention that some wrongdoing occurred"19 or a letter from an injured party requesting information or an explanation from the insured.20 It is "something more than the threat of a lawsuit."21

III.

"AWARENESS CLAUSES"

Most claims-made and reported policies contain "awareness provisions"22 that allow the insured to report potential claims or events, acts or circumstances which the insured reasonably believes may give rise to a claim against it in the future. If such a notice is given and received by the insurer and, thereafter, a claim is made or suit brought arising out of what was reported, the claim will be deemed to have been made during the policy in effect when the notice was given.

Such a clause provides "a mechanism for extending coverage beyond the policy period when `facts and circumstances' that might give rise to a claim are known, but no 'claim' has been asserted against the insured."23 It provides the insured with valuable additional protection for a claim or suit that may not be brought until years after the policy has expired. This is so as long as the insured provided notice to the insurer, during the policy period, of the facts, circumstances or event out of which the claim or suit arises.24

Typically, such an "awareness provision" will allow the insured to report two distinct types of events or occurrences:

(i) the insured's receipt of written or oral notice from any third party that it is the intention of such third party to hold the insured responsible for the results of any specific25 wrongful act, error or omission by any insured;26 or

(ii) the insured first becoming aware of any event, fact or circumstance which may subsequently give rise to a claim being made against any insured for a wrongful act that arises out of the reported event, fact or circumstance.27

For an insured to take advantage of such an "awareness clause," it must comply with its "reciprocal responsibility of . . . [reporting] all acts and occurrences that could become future claims."28

Under a typical awareness clause in a D & O policy, the following elements must be present so as to permit the insured to give notice of a "potential" claim: (1) during the policy period or extended discovery period (2) the company or its insured directors and officers (3) receive written or oral notice (4) from any third party (5) that it is the intention of such third party (6) to hold the directors and officers or any of them (7) responsible for a wrongful act. Those provisions become relevant when a specific individual or entity threatens an insured director or officer with legal proceedings arising out of alleged wrongful acts.29

IV.

SPECIFICITY OF NOTICE

A notice that clearly informs the insurer of a covered claim alone satisfies the notice of claim provision in a claims-made policy. "Because notice of a claim or potential claim defines coverage under a claims-made policy, . . . the notice provisions of such a policy should be strictly construed."30

When an insured seeks to take advantage of an awareness provision, the notice provided to the insurer must identify with specificity and particularity the facts, circumstances or situations that lead the insured to believe a claim may subsequently be made arising out of specified wrongful acts. That is the only way for an insured to extend coverage to claims made after the expiration of the policy period. Thus, a bank president's letter to his insurer purportedly giving notice of the FDIC's intention to hold him responsible for alleged wrongful acts was held insufficient to afford coverage for a subsequently filed suit by FDIC.

[The letter] did no more than recite the language of the policy's notice provision and identify the FDIC as the source of potential claims. The letter said nothing of: the types of practices alleged to constitute "wrongful acts," the agents, officers or directors alleged to be involved in wrongdoing, or the time period during which the allegedly wrongful acts took place.

Failure to describe the basis of a claim in greater detail precludes coverage under the policy.31

Notice to the insured of a third party's intention to make a claim is not "the equivalent of a claim having been made. [It is] something different from and antecedent to a claim."32

General, vague, or incomplete information on the facts, circumstances or situations allegedly giving rise to potential claims for wrongful acts is not sufficient to preserve the right to coverage. Required is a specific threat by certain individuals or entities (i.e., an expressed intention to old directors and officers responsible for a wrongful act). Furthermore there must be the subsequent carrying out of that threat by the party that initially asserted it (i.e., the expressed intention is realized and an actual claim is asserted against the directors and officers for the specified wrongful act).33

V.

"LAUNDRY LIST" CASES

One category of cases that typically arises under an awareness provision involves an insured who is nearing the end of a claims made and reported policy period and is not certain whether to renew coverage with the same insurer.34 In such a case, the insured may provide its current insurer with a "laundry list" of purported facts, circumstances, and situations that may subsequently give rise to claims against it. Thus, a hospital may give its medical malpractice carrier notice of the birth of every baby born at the hospital , with a low Apgar score or any other documented problem at birth. This may oc cur regardless of whether it has received an indication from a third party that a claim may be made. It is hoped that in the event any claim is asserted against the hospital at some later date, the then-expired claims-made policy will provide coverage by virtue of such a "notice."

A. Information in A Renewal Application Insufficient

Often insureds who have not given specific notice to the insurer's claims department of circumstances likely to result in claims will seek to rely on information previously provided in an application submitted to underwriters as part of the renewal process. This has generally been held to be insufficient notice of potential claims to trigger coverage under an awareness clause for claims not made until after expiration of the policy period.35

In American Casualty Co. v. Continisio,36 the court held that "notice must be given through formal claims channels" and it "join[ed] a growing line of cases prohibiting an insured from insisting that its insurer's underwriting department sift through a renewal application and decide what should be forwarded to the claims department on the insured's behalf."37

The rationale of the court in Continisio about lack of an obligation to "sift through" material applies equally when the insured seeks to have a pleading sent to the insurer with notice of an existing claim also serve, under an awareness clause, as notice of some unspecified potential claim.38

B. Other Examples of Insufficient Notice

In F.D.I.C. v. Caplan,39 a bank insured under a D&O policy experienced deteriorating financial stability, resulting in an examination of the bank's lending practices by the FDIC. In October 1986, the FDIC issued a report criticizing the bank's officers, for their "liberal lending philosophy," and the bank's directors, for their failure to supervise adequately the lending function. The FDIC held a meeting with the bank's directors and officers in December 1986 to discuss the report. They were informed at that meeting that the FDIC considered the bank a "problem institution" and would probably pursue a "cease and desist" action against the bank to obtain regulatory compliance.40

Despite the pressure applied by the FDIC, the bank's financial stability continued to deteriorate. On March 31, 1987, shortly prior to the expiration of the bank's D&O policy, its president wrote the insurer stating that the bank had become aware of "`an act, error or omission, which may subsequently give rise to a claim being made against the directors and officers . . . for a specified wrongful act.'"41 The letter did not describe the underlying wrongful act upon which potential claims were based. However, it identified the source of such claims as the FDIC. The letter stated, "`the [b]ank has received written and oral notice. . . that it is the [FDIC's] intention to hold the directors and officers. . . responsible for any wrongful acts noted or in connection with [an examination performed by the FDIC].'"42

On May 21, 1987, the D&O insurer responded to the president's letter, requesting that he provide specific information regarding the "wrongful acts" that may give rise to claims being asserted against the bank's directors and officers. The insurer requested that the bank president inform it of the nature of any wrongful acts, or advise it of any notice he had received that the directors and officers would be held liable for wrongdoing. The bank president did not respond to the insurer's letter.

Over the next two years, the FDIC conducted three further examinations of the bank, issuing a report after each examination critical of the bank's directors and officers. On December 8,1989, the bank was declared insolvent and FDIC was appointed as the bank's receiver. Three years later, on December 7, 1992, the FDIC filed suit against certain former directors and officers of the bank as well as the D&O insurer, under the Louisiana Direct Action Statute. It alleged that the named directors and officers were grossly negligent and breached their fiduciary duties, causing the bank to sustain losses in excess of $5 million.

The insurer moved for summary judgment on the ground that the insureds did not give notice of the claim during the term of the 1986-1987 D&O policy. The FDIC opposed, contending that the bank president's letter of March 31, 1987 was sufficient to put the insurer on notice of a potential claim against the bank's directors and officers. The court disagreed:

The policy insured against claims which the insured discovered and reported to the insurer during the policy term; notice served to demonstrate the insured's discovery of claims. As such, the policy's notice provisions must be strictly construed to ensure that the insured could not, through a broadly phrased "notice of claims," unilaterally expand the insurer's risk beyond that agreed in the contract of insurance.

. . . .

. . . Marzullo's letter . . . did no more than recite the language of the policy's notice provision and identify the FDIC as the source of potential claims. The letter said nothing of: the types of practices alleged to constitute "wrongful acts," the agents, officers, or directors alleged to be involved in wrongdoing, or the time period during which the allegedly wrongful acts took place.

Failure to describe the basis of a claim in greater detail precludes coverage under the policy. The insured simply may not, through rote incantation of the policy terms, gain coverage under a claims-made policy for undiscovered wrongful acts that in some sense "occurred" during the policy term. The court concludes that Marzullo's letter was insufficient notice of claims to invoke coverage under the D&O policy.43

In Resolution Trust Corp. v. Ayo,44 the RTC claimed that between 1982 and 1985 the insurer received various regulatory, management and financial reports, and complaints and other materials in two lawsuits against the bank and directors. It argued that this constituted "notice" under the awareness provisions of the insurer's 1983 to 1986 policies. This was as to claims asserted in a 1992 RTC litigation against the bank's directors alleging a number of different deficiencies relating to loan underwriting, collection, and management practices on approximately fifty loan transactions.

The lower court found that there was no "evidence which suggested that [the bank] or the directors complied with the notice requirements of the policy, or that they even attempted to put [the insurer] on notice for the claims and alleged misconduct asserted in this case."45 It concluded that the insurer's possession of general information of the bank's improper lending practices and financial difficulties was legally insufficient to prove that the bank's officers and directors "attempted to comply with the literal terms of [the awareness provision] by providing [the insurer] with written notice of any specific wrongful acts they believed to have claim potential."46

The Fifth Circuit Court of Appeals affirmed on that point. It also held that to fulfill the notice requirement of an awareness provision, the notice provided to the insurer must be specific and particularized: "[T]he degree of specificity in the notice, includ[es] such detail as the particular subsidiary involved, the particular agents, officers or directors involved, the relevant time periods, the identity of potential claimants, and the specific unsound practices."47 The court held that the regulatory, management and financial reports, as well as the complaints and materials in two lawsuits, "did not show that the insureds gave notice of a specified wrongful act that might give rise to a claim according to the parameters" described above and were, accordingly, "deficient to trigger policy coverage."48

On the other hand, when an insured provides its insurer with "actual notice" under an awareness provision (i.e., a notice formally telling the claimsmade insurer that it is being notified of the insured's awareness of potential claims of wrongful acts for the purpose of locking-in coverage), and the insurer does not question the sufficiency of the notice, such notice will constitute sufficient notice of potential claims. This is so even though it may have been less specific than the insurer would have liked.49

In Sapp v. Greif50, the plaintiffs' claim against Greif, a former officer and director of Midland Bank, related to four separate loans they obtained from Midland on February 7, 1991. Sometime in late 1992, National Union issued a claims-made D&O liability policy to Midland covering the period July 1, 1992 to July 1, 1993; coverage under the policy could be triggered by notice during the policy period of "circumstances" that might lead to a claim.51

In April 1993, the FDIC took over as receiver of Midland, and on June 30, 1993, the FDIC provided notice to National Union of a variety of claims it might have under the policy. In April 1994, the plaintiffs filed an action against Midland, the FDIC, Greif, and another bank officer. As to Greif, they alleged fraud, negligence, misrepresentation, and breach of fiduciary duty relating to the February 1991 loans. In February 1995, Greif notified National Union of the plaintiffs' claims against him.

In October 1995, the plaintiffs obtained judgment against Greif based on his misapplication of loan proceeds of two loans (numbered 1 and 4), and in December 1995, they filed a garnishment action against National Union. Under Kansas law, the judgment-creditor or garnishor " `takes the place and stands in the shoes of his debtor, taking only what the latter could enforce."'52

The plaintiffs claimed that two letters provided adequate notice of their claim against Greif. The first was sent by Midland's president to National Union on March 30, 1993, and notified the insurer generally of potential claims for "`mismanagement of lending by the institution and for other activities which may constitute `wrongful acts' as defined in the. . policy."'53 The FDIC sent the second letter to National Union on June 30, 1993, after it had taken over as receiver of Midland. This letter was intended to provide notice to National Union of claims the FDIC may have against former bank directors and officers with respect to loan transactions involving eleven entities or groups of borrowers. One group included the Sapps and the letter referred to two loans made to the Sapps on February 7, 1991, the same day Midland made the two loans to the plaintiffs involved in their claim against Greif.

The Tenth Circuit agreed with the District Court that the letters, alone or combined, did not provide National Union with adequate notice under the policy to trigger coverage. The court found the bank president's letter "too general and vague to provide notice under section 8(c)" and, while the FDIC's letter is more specific, "plaintiffs' claims against Greif cannot be construed as 'alleging, arising out of, based upon or attributable to' the circumstances or wrongful acts reported in that letter."54

The plaintiffs did not produce any evidence "linking the conduct mentioned in the FDIC Letter to the conduct on which their [state court] lawsuit and judgment are based."55 Neither the "general relationship" among the four loans to the Sapps, nor the "general description of Midland's bad acts" was deemed sufficient to constitute notice to National Union of circumstances that might lead to the plaintiff's claims.56 National Union thus did not receive notice of their claims sufficient to trigger coverage under the policy.

VI.

CONSTRUCTIVE NOTICE CASES

Another category of cases that arises under an awareness provision involves the FDIC (or other government agency), after taking over a failed banking institution and asserting claims against the institution's directors and officers, then attempting to recover under the institution's D&O liability policies for the very claims it is asserting. Since the more recent D&O policies contain a "regulatory exclusion"57 precluding coverage for the FDIC's claims (and such exclusions are almost always upheld),58 the FDIC has attempted to obtain insurance recoveries (through the directors and officers which it has sued) under earlier policies. It uses, as a tool, the awareness provisions in those policies.

In these cases the FDIC points to various documents in the insurer's possession that contain information as to various "problems" at the banking institution. Such documents are claimed to have placed the insurer "on notice," during the term of the earlier policies, of the facts, circumstances or situations that gave rise to the later claims being asserted against the directors and officers by the FDIC.

Since the notice provision in a "claims-made-and-reported" policy is critical to the coverage provided by that policy, many courts have rejected such claims, insisting upon strict compliance with the notice provisions to ensure that the coverage afforded by the policy is not expanded beyond the parties' intent.59

A. The Requirements Of "Awareness" And "Notice"

In American Casualty Co. v. Continisio,6 the FDIC sued former directors of a failed banking institution in 1991 and sought coverage under the institution's D&O policies effective from 1981 to 1986. The FDIC claimed that the insurers received notice of acts by the directors that later formed the basis for the FDIC's lawsuit. This was through receipt of several financial reports sent to the insurers in connection with a renewal application. The court rejected the FDIC's claim:

The documents supporting [the bank's] renewal application may have notified the insurers that the bank had serious problems. They may also have alerted the insurers of the possibility of regulatory lawsuits [and prompted the insertion of a regulatory exclusion in a subsequent policy]. Whether the bank complied with the requirements of the policy by sending these documents is another question. The threshold question is whether the bank could satisfy the notice provision in the insurance contract by sending documents that contained information that alerted the insurers to potential problems, even though the information was not sent with the intention of complying with the notice provision and triggering coverage.61

The court answered that question in the negative:

[T]he term "notice" must be construed as requiring something more than an coincidental transmission of information .62

....

. . ."[N]otice" means information, an advice, or written warning, in more or less formal shape, intended to apprise a person of some proceeding in which his interests are involved, or informing him of some fact which it is in his right to know and the duty of the notifying party to communicate.63

The court held:

While the information supplied by the bank during the renewal process may well have provided "notice" in the sense of "knowledge," we read the provision as requiring some affirmative act on the part of the insured intending to provide written notice of the negligent acts and of their awareness of them. It is undisputed that [the bank] never sent anything purporting to be such affirmative notice.64

The Third Circuit Court of Appeals affirmed, stating:

[R]equiring a formal notice of claim that the insurer can easily recognize as such comports with the distinction between claimsmade and occurrence policies ....

. . . Because the notice of claim provision defines coverage under this policy, the only reasonable interpretation of the policy provision is that the insureds must regard the information they possess as a potential claim and formally notify their insurer through its claims liability department that a claim may be asserted....65

A claims-made insurer has no obligation to review pleadings and other documents submitted to it by the insured to search out any potential claims that could be asserted against any person or entity that qualifies as an insured under its policy.66

In Hampton's Residential Ltd. v. Field,67 the English Commercial Court similarly found that the insured must have intended to provide notice of the particular claim made after the policy period for which coverage was being sought. The Court of Appeal, however, reversed, based on subparagraph (c) of the awareness provision at issue which provided for notice "of the discovery, or reasonable cause for suspicion, of dishonesty or fraud on the part of a past or present . . . employee."68 That provision did not require notice of the particular claim that subsequently arises.

B. Pleadings In One Action As Notice of Subsequent Claim

A few cases have held that when an insured reports a claim during the policy period and transmits copies of the complaint or other pleadings filed in the action for which coverage is being sought to its insurer, "if the pleadings contain relevant material both to the reporting of a claim and to circumstances covered by the awareness provision, they can serve the dual purpose of both reporting a claim and giving notice of circumstances which may subsequently give rise to other claims."69 However, for the pleadings to serve such a dual purpose, the insured must "explicitly invoke the awareness provision," the pleadings must be "intended as written notice under the awareness clause" and they must contain sufficiently detailed information to "effectively carry out the function of written notice called for by the [awareness] provision."70

In KPFF, Inc. v. California Union Insurance Co.,71 the insured, KPFF, was the architect on a construction project to build a Marriott Hotel in Portland, Oregon. The floors and walls of the hotel were to participate in the vertical and lateral load-bearing systems. Floor slabs were to be reinforced by post-tension cables (tendons) which are encased in plastic sheathes, anchored to one side and then covered by concrete; the unattached ends of the cables are then pulled to an appropriate tension and anchored to the side of the floor slab.

California Union insured KPFF from December 15, 1982 to December 15, 1983, under a professional liability insurance policy which limited coverage to claims made against KPFF and reported to California Union during the policy period. The policy contained the following "awareness provision":

If during the Policy Period, the Insured shall first become aware of any circumstances which may subsequently give rise to a Claim against the Insured by reason of any act, error or omission for which coverage is otherwise provided hereunder, and if the Insured shall during the Policy Period give written notice to the Company of such circumstances, any Claim which may subsequently be made against the Insured arising out of such act, error or omission shall be deemed for the purpose of this insurance to have been first made during the Policy Period.72

Prior to KPFF's policy period, the general contractor, Moran, sued a subcontractor, Harlin, for $25,000 for the expenses it incurred in repairing cables in the lower floors of the hotel. During the policy period, KPFF and others were sued as third-party defendants for negligent design of the slabs and posttension cables. KPFF tendered the claim to California Union. The insurer accepted the defense and appointed counsel who, in September 1993, learned that the hotel's owner, Equitable, was preparing a much larger claim for construction defects. In April 1984, Moran settled its suit.

In August 1986, Equitable sued Moran for broken tendons and cracking in the hotel's parking garage. KPFF was again made a third-party defendant by Moran and California Union once again accepted a tender of KPFF's defense. In October 1987, Equitable amended its complaint to add a claim against KPFF as a defendant, alleging negligent design in that the building did not met the seismic provision of the building code. The seismic claim was asserted while the parties were in settlement negotiations concerning the original claims.

California Union represented KPFF until the non-seismic claims were settled and then denied coverage for the newly added seismic claim. KPFF then tendered the defense of the seismic claim to Security Insurance Co. of Hartford, which accepted, subject to a reservation of rights and its policy's $100,000 deductible. In December 1988 the remaining claims were settled, with KPFF's share being $420,000. KPFF and Security then sued California Union to recover what they had paid in the defense and settlement of the Equitable action. Their complaint was dismissed after a bench trial and the Court of Appeal affirmed.

KPFF contended that California Union's coverage for the seismic claim was triggered under the awareness provision by its receipt, during the policy period, of the pleadings in the first Moran action and defense counsel's letter reporting that Equitable was preparing a much larger claim. The Court of Appeal accepted, as a general principle, that the transmission of a pleading can serve the dual purpose of reporting a claim and giving written notice of circumstances which can subsequently give rise to other claims, sufficient to trigger coverage. However, on the facts before it, the court found this principle did not apply to KPFF.

The court also rejected KPFF's argument that the Moran pleadings "at least suggested the possibility of the sort of extensive structural damages to the floor slabs, which would impair the lateral load-bearing capacity of the building."73 It pointed out that the issue:

presented here -- whether the insured gave the kind of written notice which qualifies as an insuring event under the awareness clause -- is entirely distinct from the issue of an insurer's duty to defend under an occurrence policy. Hence we see no relevance in the line of cases. . . which hold that the insurer has a duty to defend whenever it "ascertains facts which give rise to the possibility or 'potential' of liability to indemnify . . ."74

The court further noted that by transmitting the Moran pleadings to the insurer, "the insured did not explicitly invoke the awareness provision by providing notice of `circumstances which may subsequently give rise to' a separate seismic claim."75 Finally, and most importantly:

the pleadings did not provide information that was sufficient to serve one of the intended functions of the written notice required by the awareness provisions - the establishment of necessary reserves. While the pleadings contained allegations presenting a speculative possibility of seismic claims, they did not give the insurer a reasonable basis to infer the likelihood of such a claim.76

In Harbor Insurance Co. v. Arthur Andersen & Co.,77 a suit against Arthur Andersen filed in 1975 was covered under a 1971 professional liability claimsmade insurance policy based upon an awareness clause.78 During 1971, Andersen, King Resources Company (KRC), a client of Andersen's, and certain directors and officers of KRC were sued by shareholders of the Dietrich Corporation (the Dietrich action). In holding that a 1975 suit brought by Fund of Funds arose out of the allegations in the earlier filed Dietrich action, the court focused on the fact that a significant issue in both suits was Andersen's failure to adequately disclose KRC's affiliations with the Natural Resources Fund Account. Additionally significant was the fact that they were not actually dealing at arms' length. Furthermore, both complaints alleged failure to disclose certain transactions between KRC and affiliated or non-independent parties.

The court found that, in significant respects, the dispute and the evidence in the Fund of Funds action arose out of the dispute in Dietrich.79 It therefore concluded: "Based on our finding that the subsequent Fund of Funds suit arose out of the allegations of the Dietrich complaint, we find that notification of the complaint constituted sufficient notice of an occurrence which might give rise to subsequent claims, as required by the policies . . ."80 Since the decision in Harbor was based upon the court's express finding that the subsequent action "arose out of" the earlier one of which the insurer had been notified, the decision should not be read as authority for the proposition that notice of a complaint in a earlier action may constitute sufficient notice of an unrelated claim asserted in a subsequent action.

American Casualty Co. v. FDIC,81 was a class action by shareholders of a bank holding company and subsidiary banks against the directors and officers of five failed banks. It was brought after an earlier noticed action (the Greenfield action) had been dismissed. The court found coverage for subsequent actions under an awareness clause because "[s]ome of the same wrongful acts are alleged against some of the same directors and officers in those complaints" as had been alleged in the earlier action. Here, as in Harbor, the court found a close relationship between the claims asserted in the later action and those in the earlier noticed complaint. Thus, the case does not hold that merely forwarding a complaint to the insurer is sufficient notice of subsequent unrelated claims.82

VII.

RELATED AND INTERRELATED" CLAIMS

Claims-made policies often contain provisions dealing with the treatment of claims and losses arising out of a common occurrence or a series of related or "interrelated" acts, errors or omissions. The following are examples of such clauses:

Losses arising out of the same act or interrelated acts of one or more of the Insureds shall be considered a single loss and only one retention amount shall be deducted from the aggregated amount of such losses.83

Two or more claims arising out of a single act, error or omission or personal injury or a series of related acts, errors or omissions or personal injuries shall be treated as a single claim.84

Depending upon the facts of the particular case, these provisions may inure to the benefit of either the insurer or the insured. Thus, it will be to the policyholder's advantage to group related claims made in different policy periods as a single claim under one policy and, therefore, subject to only one deductible for all of them. On the other hand, if each of the claims exceeds the deductible, it will be the insurer that seeks to combine them in one policy period so only one aggregate limit is at risk.

The issue of whether two claims are related also arises when there are policy exclusions,85 or exceptions in insuring agreements, for claims that were made before inception of the policy period and reported to a prior insurer. Thus, claims of legal malpractice by clients of the insured law firm which were noticed during the policy period did not relate back to a prior RICO claim against the law firm and its former clients for filing fraudulent workers' compensation claims. Therefore, the malpractice claims did not fall within an exception in the insuring agreement of the claims-made policy.86

Whether two claims assert, in part, seemingly overlapping factual allegations is not the test of "interrelatedness." The term "interrelated" is not "broadly construed" so as to encompass claims that involve "allegations of wrongdoing of one sort or another and relate, in some way," to a single result or harm.87 Rather, the test is whether the claims involve "legally distinct claims that allege different wrongs to different people."88

1. Ambassador

In National Union Fire Insurance Co. v. Ambassador Group, Inc.,89 National Union brought an interpleader action to resolve multiple claims that had been asserted against directors and officers of Ambassador Insurance covered by a D&O liability policy National Union had issued to Ambassador Group and its subsidiaries. The policy covered claims made and reported in the period December 22, 1983, to December 22, 1986. Each year of the policy had a separate $3 million limit of liability. The issue was whether National Union had one annual limit of liability "at stake" in the interpleader action ($3 million), which was required to be deposited with the court, or whether two annual limits were at stake ($6 million).90

The four underlying claims were as follows:

a. On June 15,1984, National Union was notified that claims were asserted against Ambassador Insurance's directors and officers in a shareholder class action suit (the "Michaels action"). It alleged that Ambassador Insurance, its officers, and directors had failed to disclose the improper conduct of the officers and directors and had misrepresented the financial condition of the parent holding company in violation of federal securities laws.

b. On October 17, 1984, National Union was notified of a second claim (ultimately asserted in a 1985 lawsuit) (the "Ambassador Insurance action"), brought by the Vermont Commissioner of Banking as receiver for Ambassador Insurance against its officers and directors for mismanagement of Ambassador Insurance.

c.On April 8,1985, a third-party action (the "Quaif action") was filed in an action in Georgia state court by insurance agents seeking compensation from officers and directors of Ambassador Insurance. The compensation was sought for premiums, commissions, and other unspecified business allegedly lost as a result of misrepresentations in financial statements and the insolvency of Ambassador Insurance.

d. On October 4, 1985, the New York Superintendent of Insurance commenced an action against former directors and officers of Horizon, a subsidiary of Ambassador Insurance. The suit alleged that the directors and officers permitted Horizon to be looted by Ambassador Insurance and otherwise mismanaged the company in derogation of their duty of loyalty to Horizon.

Ambassador Insurance (and its directors and officers) contended that National Union received notice of the Michaels and Ambassador Insurance actions in policy year 1984, and the Quaif and Horizon actions in policy year 1985. Thus, it contended this put two annual limits of liability at stake in the interpleader action. National Union argued that it had received notice of all four claims in 1984, thus implicating one policy year's limits. This was so because when it received notice of the Michaels action, it received notice of "'a wide range of alleged wrongful conduct by directors and officers of Ambassador Group and its subsidiaries . . . which caused the demise of Ambassador Group and the insolvency of its principal subsidiaries."'91 National Union also argued that the four claims all arose out of "the same or interrelated acts," so that notice of the first-filed Michaels claim in 1984 constituted notice of the subsequently filed claims.92

The court found first that the "notification" provision of the National Union policy was inapplicable to aggregate the claims noticed in 1985 to the 1984 policy year. The court then rejected National Union's argument that the four claims all arose out of "the same or interrelated acts":

Broadly construed, the claims are interrelated to the extent that they all involve allegations of wrongdoing of one sort or another and relate, in some way, to the demise of Ambassador Group and its subsidiaries. However, they are legally distinct claims that allege different wrongs to different people. The Michaels complaint alleges that the directors and officers of Ambassador Group, among others, violated the federal securities laws and state common law by failing to disclose certain information in documents disseminated by Ambassador Group. The Ambassador Insurance action, filed by the Receiver for Ambassador Insurance on behalf of its policyholders, claimants and creditors, alleges that the directors and officers of Ambassador Insurance negligently mismanaged the company, breached fiduciary duties to the company and its shareholders, and misrepresented the financial condition of Ambassador Insurance in its annual statements filed with the Vermont Department of Banking and Insurance. The Quaif action alleges that the directors and officers of Ambassador Insurance induced the third party plaintiffs, insurance agents, to sell Ambassador Insurance policies in reliance on false financial statements. The Horizon action, brought by the liquidator of Horizon Insurance Company, alleges that the directors or officers of Horizon negligently mismanaged Horizon, breached their fiduciary duties, and misrepresented the financial condition of Horizon in annual statements to the New York Department of Insurance.93

Accordingly, the court held that National Union had received notice of the Michaels and Ambassador Insurance actions in 1984, and notice of the Quaif and Horizon actions in 1985; therefore, $6 million represented the proper amount of National Union's "stake" in the interpleader action.94

2. Camalloy Wire

In Camalloy Wire, Inc. v. National Union Fire Insurance Co.,95 Camalloy had hired an environmental contractor, Greylag Technical Services, to "decommission" one of Camalloy's manufacturing sites. The project entailed removal of a 10,000-gallon underground fuel tank and other wastes. In connection with the project, Greylag purchased a pollution insurance policy from National Union covering it for claims made between March 13, 1989 and March 13, 1990. The policy included, under the rubric of "claims made," additional claims sharing "the same, interrelated, associated, repeated or continuous acts or omissions."96

On August 11, 1989, while removing the fuel tank, Greylag left open a manhole cover capping a heating oil tank. When rain flooded the jobsite, heating oil escaped from the uncapped tank and spilled into a nearby creek, resulting in $30,000 of remediation costs to Camalloy. Camalloy sued Greylag to recover the remediation costs, as well as to recover costs arising from an oil spill which occurred in June 1991. That resulted from Greylag's failure to cap pipes leading to the site of the by-then-removed heating oil tank. Also sought by Camalloy were damages against Greylag for its failure to fully discharge its asbestos removal obligations under the parties' agreement, and for damages arising from Greylag's negligent operation of machinery at the jobsite.

Camalloy prevailed in its action against Greylag. When Camalloy was unable to satisfy the judgment, as assignee of Greylag's interests, it sued National Union under the pollution insurance policy.

National Union did not dispute that it had received a timely claim from Greylag respecting the August 1989 spill. Also undisputed was that no distinct claim was made within the 1989-1990 policy period for coverage for damages arising from the June 1991 oil spill or for the breach of contract and negligence claims. Camalloy, however, maintained that the June 1991 spill and other claims were "subsumable" within the claim for the August 1989 spill. Hence, it was argued that as to each a claim was in fact made within the 1989-90 policy period. The trial court held that the issue was one of fact, thus, precluding summary adjudication.

The Appellate Division disagreed, stating:

It is clear that the August 1989 spill caused by the failure to cover a manhole and the June 1991 spill caused by the failure to cap a defunct oil pipe were entirely unrelated and, accordingly, that a claim for the former could not have constituted fair notice to the insurer of the latter. While both incidents occurred during Greylag's performance of its contract with plaintiff, plainly that circumstance alone does not render the two temporally distant and otherwise dissimilar occurrences sufficiently related to be covered by a single notification to the insurer. To admit the contrary proposition would, as a practical matter, radically recast the subject "claims made" policy into one covering any occurrence within the contract's performance, and that, of course, is something we may not do.

For the same reasons, plaintiff's claims for unperformed asbestos removal and structural damage cannot be said to have been timely interposed with defendant insurer....97

3. Zunenshine

In Zunenshine v. Executive Risk Indemnity, Inc.,98 Executive Risk Indemnity ("ERI") issued a claims-made D&O liability policy in May 1996 to SLM, a sporting goods manufacturer that had filed for bankruptcy protection in 1995. The plaintiffs, former directors and officers of the company, who had been sued by SLM noteholders, sought coverage for their defense costs and the judgment against them. ERI denied coverage on the ground of "pending litigation" and "prior notice" exclusions in its policy.99

On May 8, 1997, the plaintiffs notified ERI that a lawsuit had been filed against them by a group of institutional investors who had purchased $71 million in unsecured notes from SLM in March 1994 (the "Noteholders' Lawsuit"). That suit alleged that the plaintiffs had negligently misrepresented SLM's financial condition in a memorandum distributed in December 1993. That memo, it was claimed, falsely represented SLM's net income for the first three quarters of 1993, the amount SLM spent on television advertising, and that a pending trademark infringement action had not materially affected SLM's financial condition. The noteholders' suit was settled in March 1998.

On May 6, 1994, four of the plaintiff directors and officers were sued in a class action by former SLM shareholders alleging violations of the federal securities laws (the "Shareholders' Lawsuit"). The shareholders' suit was also based, in part, on false statements concerning SLM's net income for the first three quarters of 1993, the percentage of SLM's sales spent on television advertising, and the effect of the trademark infringement action on SLM's financial condition. In May 1994, the plaintiffs notified their prior D&O insurer of the Shareholders' Lawsuit. That action was settled in July 1996.

The court held that when a "pending litigation" or "prior notice" exclusion is at issue, "and there has been no judicial determination of liability in the underlying lawsuits, the insurer may rely on the facts as alleged in the complaints to demonstrate that an exclusion applies."m Finding a "strong factual nexus" between the Noteholders' and Shareholders' Lawsuits, the court granted ERI summary judgment dismissing the D&Os complaint and upholding the denial of coverage. The court rejected the plaintiffs' attempt to distinguish the two actions factually and the argument that "the two lawsuits involved different parties, legal theories, `Wrongful Act[s],' and requests for relief," stating:

To read the additional terms suggested by plaintiffs into these exclusions would be at the same time to render them virtually meaningless: a claim would be excluded only if it were based on an identical lawsuit or were the subject of an identical prior notice to another insurer.101

The court also found its reading of the exclusions to be consistent with the purpose of claims-made insurance, that is "`to limit [the insurer's] liability to a fixed period of time.'"102

3. S&L Cases

Courts have been called upon to interpret the term "interrelated acts" in the context of determining whether the underlying claims of wrongdoing in savings and loan failures constituted a single occurrence or separate occurrences under D&O insurance policies. They have consistently refused to find that claims of wrongdoing were "interrelated" when they involved disparate acts, by different individuals, resulting in differing injury.103

4. Gregory and Bay City

Two legal malpractice cases sometimes cited by proponents of an argument in favor of finding relatedness in a given case are Gregory v. Home Insurance Co.104 and Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Insurance Co.105 These cases must be confined to their facts, however, as neither decision purports to set forth a rule of law as to what constitutes "related" or "interrelated" acts.

In Gregory, the District Court found the defendant attorney's acts in drafting three documents (tax/security opinion letter, promissory note and production service agreement) to be used in an offering to investors were "causally" related. This was because "they were performed by a single individual, Mr. Gilbert, and involved legal advice and drafting three documents all of which `flowed from his structuring the deal to try to achieve certain tax and security consequences.'"106 The court found a causal connection between these three acts even though one did not cause the other.

The Seventh Circuit, while agreeing with the result, gave a more narrow meaning to "causal connection" - "one act caused the other." Since that was not the case, it looked for a "logical" connection between the attorney's acts. It found "related" in the "logical" sense was a meaningful term and, on the facts before it, that the acts were "related" in this sense. In the course of its discussion of a "logical" relationship, it stated: "At some point, of course, a logical connection may be too tenuous reasonably to be called a relationship, . ."107 Whether that point has been reached in a particular case will depend on the facts and is for the trier of the facts to say. The court's decision should not be read as setting down a rule of law that everything is related "unless the relationship was `so attenuated or unusual that an objectively reasonable insured could not have expected that they would be treated as a single claim under the policy. '"108

In Bay Cities, a general contractor was owed money for work on a construction project. The contractor's attorney recorded a mechanic's lien, but failed to serve a stop notice on the project's construction lenders and failed to file a complaint to foreclose the mechanic's lien. The attorney was then sued for malpractice. His professional liability policy had a per claim limit of liability and a unifying provision under which "[t]wo or more claims arising out of a . . . series of related acts, errors or omissions shall be treated as a single claim."109

The court held that the attorney's commission of two separate negligent acts in representing a single client, who had sustained a single injury, as a result of the same transaction, was a single claim for purposes of the "per claim" limits of the policy.110 If an attorney's error causes one or more other errors, the result is a chain of causation that leads to any injury, that is, a single claim."111 Bay Cities agreed with and followed Gregory.112

The principle to be abstracted from these cases is that acts may be said to be "related" within the meaning of a liability insurance policy when: (1) there is a causal connection between them in the sense that one causes the other, or (2) the facts are such that one would commonly think of the acts as being related. There comes a point, however, when the supposed connection between acts becomes so attenuated or unusual that no objectively reasonable insured (or court) would consider them to be related.

This does not mean that the trier of the fact must find a "relationship" whenever the far-fetched outer limit of what still would be considered reasonable has not been exceeded. In every case in which a relationship may be found, it is up to the trier of the fact to say whether, in fact, the acts are "related." VIII.

CONCLUSION

An "awareness clause" in a claims-made policy provides the insured with the opportunity to lock-in coverage for a claim or suit that may not be brought until years after the policy has expired, at which time, ordinarily, there would be no longer be coverage. To take advantage of this valuable additional protection, however, the insured must give notice to the insurer during the policy period or any extended reporting period, of the facts, circumstances or event out of which the claim or suit arises.

In fairness to the insurer, and so as not to defeat the purpose and concept of claims-made coverage, the notice should be: ( 1 ) intended and identified as such by the insured, (2) directed to the insurer's claims department, and (3) specific as to the facts and circumstances that the insured believes might give rise to a claim against it for a wrongful act, error or omission. A well-drafted awareness provision will include these requirements.

When the policy contains a unifying provision for claims and losses arising out of related or interrelated acts, errors or omissions, these terms may be held to cover a very broad range of connections, both causal and logical. However, just because two claims may have some elements in common, does not make them related. At some point, the logical connection may become too tenuous to reasonably be called a relationship. Where to draw the line will depend on the facts of the particular case.

Moreover, legally distinct claims asserted in different actions by different parties, that allege different wrongs to different people, and are based on breach of different duties, should not be considered as related or "interrelated" so as to bring the later claim within the coverage triggered for the earlier claim by a notice under an awareness clause.

1 For example, the Insurance Services Office ("ISO") Commercial General Liability policy "occurrence" form (CG 00 01 01 96) provides:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies....

b. This insurance applies to "bodily injury" and "property damage" only if: ( I ) The "bodily injury" or "property damage" is caused by an "occur

rence" that takes place in the "coverage territory"; and (2) The "bodily injury" or "property damage" occurs during the policy period...

"Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

2Coverage is subject to the insured's compliance with the policy's "notice" conditions. For example, the ISO CGL policy (CG 00 01 01 96) provides, in pertinent part:

2. Duties In The Event Of Occurrence, Offense, Claim Or Suit

a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim. To the extent possible, notice should include:

( 1 ) How, when and where the "occurrence" or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the "occurrence" or offense.

b. If a claim is made or "suit" is brought against any insured, you must:

(1) Immediately record the specifics of the claim or "suit" and the date received; and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or "suit" as soon as practicable.

3The least restrictive claims made policies only require that the claim against the insured be first made during the policy period. The most restrictive policies require not only that the claim be made and reported to the insurer during the policy period, but also that the wrongful act, error or omission giving rise to the claim take place during the policy period.

4See Home Ins. Co. v. Spectrum Info. Technologies, Inc., 930 F. Supp. 825, 829 n. 1 (E.D.N.Y. 1996). The policy may provide full retroactive coverage (i.e., coverage for claims arising out of wrongful acts, errors or omissions, no matter when those acts occurred), or it may limit coverage only to claims arising out of acts that take place after a "Retroactive Date" stated in the Declarations.

5 See Unigard Sec. Ins. Co. v. North River Ins. Co., 594 N.E.2d 571, 573 (N.Y. 1992).

6Resolution Trust Corp. v. Artley, 24 F.3d 1363, 1367 (11 th Cir. 1994). 7F.D.I.C. v. Barham, 995 F.2d 600, 604 n.9 (5th Cir. 1993); see also Medical Inter Ins. Exchange v. Health Care Ins. Exchange, 651 A.2d 1029, 1031 (N.J. Super. Ct. App. Div. 1995); McCullough v. Fidelity & Deposit Co., 2 F.3d 110, 112 (5th Cir. 1993); F.D.I.C. v. Mijalis, 15 F.3d 1314 (5th Cir. 1994).

8 An example of an extended reporting endorsement (ERP) is found in New York Amendatory Endorsement Regulation No. 121, N.Y. COMP. CODEs R. & REGs. tit. 11, 73 (West 1998) which provides, in part, as follows:

In the event of cancellation or non-renewal by either the named insured or the Company, or any change in coverage less favorable to the insured, the named insured shall have the right upon payment of an additional premium to have issued an endorsement providing an unlimited extended discovery period covering claims first reported during the extended discovery period arising out of acts, errors or omissions which took place prior to the end of the policy period and subsequent to the retroactive date and which are otherwise covered by the policy....

Note that the claims which may be reported under an ERP must be for "acts, errors or omissions which took place prior to the end of the policy period." The ERP does not extend the policy term, just the right to report claims first made after the policy period has ended.

This is expressly stated in the ISO claims made CGL form (CG 00 02 10 93) which provides in Section V(2) that:

Extended Reporting Periods do not extend the policy period or change the scope of coverage provided. They apply only to claims for:

a. "Bodily injury" or "property damage" that occur before the end of the policy period but not before the Retroactive Date, if any, shown in the Declarations; or

b. "Personal injury" or "advertising injury" caused by an offense committed before the end of the policy period but not before the Retroactive Date, if any, shown in the Declarations.

9Resolution Trust Corp. v. Ayo, 31 F.3d 285, 289 (5th Cir. 1994).

10 See KPFF, Inc. v. California Union Ins. Co., 66 Cal. Rptr.2d 36, 41 (Ct. App. 1997)("An insurance company can establish its reserves without having to consider the possibilities of inflation beyond the policy period, upward-spiraling jury awards, or later changes in the definition and application of negligence."); Home Ins. Co. v. Spectrum Info. Technologies, Inc., 930 F. Supp. 825, 829 n.l (E.D.N.Y. 1996); F.D.I.C. v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155, 158 (8th Cir. 1993).

"See Medical Inter Ins. Exchange, 651 A.2d at 1032.

12St. Paul Fire & Marine Ins. Co., 993 F.2d at 158.

13Resolution Trust Corp. v. Artley, 24 F.3d 1363,1367 n.8 (llth Cir.1994)(emphasis added); McCullough v. Fidelity & Deposit Co., 2 F.3d 110, 112 (Sth Cir. 1993) ("If the policy requirement for notice. . . is relaxed, then policy coverage actually expands"). 14Evanston Ins. Co. v. GAB Bus. Servs., Inc., 521 N.Y.S.2d 692, 695 (App. Div. 1987)(for a "claim" under this definition to trigger a claims-made policy it "must relate to an assertion of legally cognizable damage, and must be a type of demand that can be defended, settled and paid by the insurer."); see also Purcigliotti v. Risk Enterprise Management Ltd., 658 N.Y.S.2d 296, 297 (App. Div. 1997).

15 The fact that the term "claim" is not defined in the policy does not lead to the conclusion that it is ambiguous. "Ambiguities only exist where reasonably minded people have honest differences." Insurance Corp. of America v. Dillon, Hardamon & Cohen, 725 F. Supp. 1461, 1469 (N.D. Ind. 1988). There "is no rule of contract construction which requires that every term in an insurance contract must be defined. And the mere fact that a term is not defined does not render the contract ambiguous." Millspaugh v. Ross, 645 N.E.2d 14, 16 (Ind. Ct. App. 1994); see also Harleysville Mut. Ins. Co. v. Packer, 60 F.3d 1116,1121 (4th Cir.1995) ("an ambiguity does not exist simply because terms are not defined in the policy").

16 jnsurance Corp. of America, 725 F. Supp. at 1469. BLACK's LAw DICTIONARY 247 (6th ed. 1990) defines "claim" as a "[d]emand for money or property . . ., e.g., insurance claim." "Jensen v. Snellings, 841 F.2d 600, 616 (Sth Cir. 1988); Bensalem Tp. v. Western World Ins. Co., 609 F. Supp. 1343, 1348 (E.D. Pa. 1985). Safeco Title Ins. Co. v. Gannon, 774 P.2d 30 (Wash. Ct. App.1989). 191n re Ambassador Group, Inc. Litigation, 830 F. Supp. 147, 155 (E.D.N.Y. 1993). z"See Hoyt v. St. Paul Fire & Marine Ins. Co., 607 F.2d 864, 865-66 (9th Cir. 1979).

2'Ambassador Group, 830 F. Supp. at 155.

22"The awareness provision is clearly a coverage clause which extends the limits of insurance coverage in a claims-made policy." KPFF, Inc. v. California Union Ins. Co., 66 Cal. Rptr.2d 36, 42 (Ct. App. 1997).

23Ambassador Group, 830 F. Supp. at 154 (if the insurer "is given written notice of an inchoate claim, the claim subsequently made will be deemed a claim made during the policy period.").

2^See F.D.I.C. v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155, 158 (8th Cir. 1993). 25Today, most awareness provisions refer to a "specified wrongful act" or "specific wrongful act" see, e.g., Resolution Trust Co. v. Ayo, 31 F.3d 285, 288 (5th Cir. 1994); McCullough v. Fidelity & Deposit Co., 2 F.3d 110 (5th Cir.1993), rather than merely a "wrongful act." See, e.g., Slaughter v. American Cas. Co., 842 F. Supp. 376, 379 n.l (E.D. Ark. 1993).

26See, e.g., the awareness provision from National Union's D&O policy quoted in National Union Fire Ins. Co. v. Ambassador Group, Inc., 691 F. Supp. 618, 622 (E.D.N.Y. 1988).

27 In KPFF, Inc. v. California Union Ins. Co., 66 Cal. Rptr.2d 36, 39 (Ct. App. 1997), review denied Cal. LEXIS 6581 (1997), the claims-made professional liability policy contained the following awareness provision: "If during the Policy Period, the Insured shall first become aware of any circumstances which may subsequently give rise to a Claim against the Insured by reason of any act, error or omission for which coverage is otherwise provided hereunder, and if the Insured shall during the Policy Period give written notice to the Company of such circumstances, any Claim which may subsequently be made against the Insured arising out of such act, error or omission shall be deemed for the purpose of this insurance to have been first made during the Policy Period."

28 F.D.I.C. v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155, 158 (8th Cir. 1993); see also Federal Ins. Co. v. Sheldon, 150 B.R. 314, 317 (S.D.N.Y. 1993) ("the policy provides coverage in the instant case only if the Trustee provided Federal with written notice, during the policy period, of the material facts or circumstances giving rise to the claims at issue in the underlying action").

29E.g., Continental Ins. Co. v. Superior Court, 43 Cal. Rptr.2d 374, 377, 380 (Ct. App. 1995) (unsecured creditors committees of bankrupt corporation notified directors in writing "of their claims based upon the directors' `breaches of duty and mismanagement which has resulted [in] damage to [the] creditors' and that such `claims may be asserted against [the] directors;"' lawsuit later instituted by committees held covered by policy, where notice of threatened claims was provided to insurer within policy period).

3F.D.I.C. v. Barham, 995 F.2d 600, 604 n.9 (5th Cir. 1993); see also Medical Inter Ins. Exchange v. Health Care Ins. Exchange, 651 A.2d 1029, 1032 (N.J. Super. Ct. App. Div. 1995).

3'F.D.I.C. v. Caplan, 838 F. Supp. 1125, 1130 (W.D. La. 1993); see also Winkler v. National Union Fire Ins. Co., 930 F.2d 1364, 1366-67 (9th Cir. 1991 ) (heirs to controlling interest in corporation, upon learning that corporation was overdrawn by $3.2 million and that sale of some of corporation's assets might be necessary to avoid insolvency, announced their intention "to take whatever legal action necessary to recoup their supposed losses"; insurer not notified of threat and lawsuit against directors not instituted until after expiration of policy; held, coverage properly denied on grounds of late notice); F.D.I.C. v. Barham, 995 F.2d 600, 604-OS (Sth Cir. 1993)(letter agreement whereby insured bank agreed to "adopt and implement policies and procedures to prevent future violations of law and regulations," was not written notice of third party's intention to hold the directors responsible for breaches of contract and fiduciary duty in relation to the improper management and lending practices of the bank).

32In re Ambassador Group Inc. Litigation, 830 F. Supp. 147, 154 (E.D.N.Y. 1993); see also Winkler v. National Union Fire Ins. Co., 930 F.2d 1364, 1366 (9th Cir. 1991).

33E.g., Continental Ins. Co. v. Superior Court, 43 Cal. Rptr.2d 374 (Ct. App. 1995); Winkler v. National Union Fire Ins. Co., 930 F.2d 1364, 1366 (9th Cir. 1991); F.D.I.C. v. Barham, 995 F.2d 600, 604-OS (5th Cir. 1993) (1982 letter agreement between insured bank and Office of the Comptroller of the Currency, an agency of the Federal government it, whereby insured bank agreed to "`adopt and implement policies and procedures to prevent future violations of law and regulations,"' was not written notice of the FDIC's intention (realized in 1989 lawsuit) to hold directors responsible for breaches of contract and fiduciary duty in relation to the improper management and lending practices of the bank: "there is nothing in the 1982 letter . . . suggesting that [the bank] received notice of another party's [i.e., FDIC's] intention to hold the directors responsible for a specific wrongful act," i.e., breaches of contract and fiduciary duty in relation to the improper management and lending practices of the bank). 34The insured may be offered more advantageous terms or lower premium for the same coverage by another insurer.

35See, e.g., American Cas. Co. v. F.D.I.C., 944 F.2d 455, 460 (8th Cir. 1991)("We decline to hold that the information [the insurer] received during the [renewal] application process was effective notice to it of potential claims"); F.D.I.C. v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155, 159 (8th Cir. 1993)(information in renewal application did not provide notice of potential claims); F.D.I.C. v. Continental Cas. Co., 796 F. Supp. 1344,1353 (D. Or. 1991 )("standard bank financial information submitted on a renewal application does not constitute notice of potential claim").

3617 F.3d 62 (3d Cir. 1994). 3'Id. at 69.

38 See discussion in section VI.B, infra. 39838 F. Supp. 1125 (W.D. La. 1993). 40 Id. at 1128. 411d.

431d. at 1129-30 (citations omitted). See also, Resolution Trust Corp. v. Ayo, 31 F.3d 285, 290 (5th Cir. 1994) (regulatory, management and financial reports and copies of complaints and other materials associated with two lawsuits filed against bank and director; while such evidence reveals that insurer "possessed general information of [bank's] improper lending practices and financial difficulties," this was legally insufficient as "written notice of any specific wrongful acts they believed to have claim potential"); Resolution Trust Corp. v. Artley, 24 F.3d 1363, 1367 (1I th Cir. 1994) ("the documents (1) do not state what specific acts occurred, (2) name those who committed the acts, or (3) provide the date the events took place"); McCullough v. Fidelity & Deposit Co., 2 F.3d 110, 113 (5th Cir. 1993) (cease and desist order was insufficient to constitute notice that the insureds breached their duty to supervise properly banks' lending operations; court held that notice should have included such detail as "the particular subsidiary involved, the particular agents, officers, or directors involved, the relevant time periods, the identity of potential claimants, and the specific unsound practices"); F.D.I.C. v. Barham, 995 F.2d 600,605 (5th Cir.1993) (insurer, "at most, possessed information that regulators had disapproved and criticized some of [the bank's] banking relationships and loan transactions. This information did not identify which specific acts by [the bank] had claim potential") (citation omitted); American Cas. Co. v. F.D.I.C., 944 F.2d 455, 460 (8th Cir. 1991) (revelation of weaknesses in bank's loan portfolio during application process as well as expectation that bank losses for the year would exceed $400,000, admission that 200% of its capital was classified as problem assets, and that a cease and desist order had been issued did not suffice as notice). 4431 F.3d 285 (5th Cir. 1994).

41d. at 288. 46 Id. at 290. "Id. at 291.

4Id. See also F.D.I.C. v. Continental Cas. Co., 796 F. Supp. 1344 (D. Or. 1991) (express requirement of awareness provision that insured become aware of an occurrence during the policy period that may give rise to claims was not "satisfied"); American Cas. Co. v. Continisio, 819 F. Supp. 385, 396-97 (D.N.J. 1993) ("we read the provision as requiring some affirmative act on the part of the insured intending to provide written notice of the negligent acts and of their awareness of them"), aff'd, 17 F.3d 62, 69 (3d Cir. 1994) ("the only reasonable interpretation of the policy provision is that the insureds must regard the information they possess as a potential claim and formally notify their insurer through its claims liability department that a claim may be asserted").

49See Slaughter v. American Cas. Co., 842 F. Supp. 376 (E.D. Ark. 1993). Contrast Slaughter with F.D.I.C. v. Caplan, 838 F. Supp.1125 (W.D. La.1993), where, in response to the insured's uninformative, though "actual," notice, the D&O insurer requested more specific information from the insured (and the insurer's request went unanswered). The court found the notice provided by the insured insufficient relying on broad principles underlying "claims-made," as opposed to "occurrence," policies. Id. at 1130.

SaNo. 97-3200, 1998 U.S. App. LEXIS 6668 (10 Cir. Apr. 3, 1998). "The policy provided that it would "cover claims made following the policy period if, during the policy period, the insurer was provided notice of the circumstances giving rise to the claim, including `full particulars' regarding the circumstances and the reasons for anticipating a claim." Id. at 90 11.

52Curiel v. Quinn, 832 P.2d 1206, 1209 (Kan. Ct. App. 1992). 53Supp., 1998 U.S. App. LEXIS 6668, at 9012.

541d. at 90 12-13.

The FDIC letter refers only to loans 2 and 3 .... The letter does not mention loans 1 and 4, the only loans involved in plaintiffs' claims against Greif. The circumstances described in the letter that could lead to a claim -- insufficient collateral supporting and inadequate cash flow servicing the loans, . . . -- and the FDIC letter's general description of the "wrongful acts" that might give rise to a claim did not include anything like misapplication of funds, which is essentially the basis of plaintiffs' claims against Greif. The letter identifies a bank loan officer, Bruce Rhoades, as being involved in the relevant loan transactions, but does not mention Greif, and it identifies claims that the FDIC might have, not the Sapps. And finally, the circumstances described that might give rise to a claim occurred sometime after July 15, 1992, well after the date of Greif's alleged actions. Id. at 90 14-15. 55 Id. at 90 16. 561d.

57A typical regulatory exclusion provides, in relevant part: The Insurer shall not be liable to make any payment for ULTIMATE NET LOSS arising from any CLAIM(S) made against any DIRECTOR or OFFICER:

by, or on behalf of, in the right of, at the request of, or for the benefit of, any AGENCY, including but not limited to, any CLAIM which any AGENCY makes in its regulatory or supervisory capacity, or as a receiver, conservator, liquidator, trustee, rehabilitator, or otherwise; whether such CLAIM is made in the name of such AGENCY, in the name of any other entity, or solely in the name of any third party. "Agency" is defined as follows:

The Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, any other depository insurance organization, the Comptroller of the Currency, the Federal Home Loan Bank Board, or any other agency having regulatory or supervisory authority over depository, insurance or other financial institutions.

58 Regulatory exclusions have been upheld by the majority of courts to have addressed the issue as not violative of any public policy. They have been given effect to bar coverage for claims by the RTC and FDIC. See, e.g., American Cas. Co. v. Baker, 22 F.3d 880, 894 (9th Cir. 1994) ("every circuit that has considered the exclusion has found it valid and not violative of public policy") (citations omitted); American Cas. Co. v. F.D.I.C., 39 F.3d 633, 639 (6th Cir. 1994) ("Because no well-defined and dominant public policy against enforcement of `regulatory exclusions' has been articulated by Congress in FIRREA or in other relevant legislation, we decline to formulate such a policy by judicial fiat."); Fidelity & Deposit Co. of Maryland v. Conner, 973 F.2d 1236,1243-44 (5th Cir. 1992) ("this court joins the overwhelming majority of courts which, confronted with this issue, have ruled that regulatory exclusions are enforceable") (citations omitted); Slaughter v. American Cas. Co., 37 F.3d 385, 387-88 (8th Cir. 1994); F.D.I.C. v. American Cas. Co., 975 F.2d 677, 681-83 (lOth Cir. 1992) ("Courts will not invalidate otherwise valid contracts on general public policy grounds .... the regulatory exclusion precludes coverage. . ."); F.D.I.C. v. American Cas. Co., 995 F.2d 471, 473 (4th Cir. 1993) ("Nor does enforcement of the regulatory exclusion violate federal law or public policy."); American Cas. Co. v. F.D.I.C., 16 F.3d 152, 154 (7th Cir. 1994) ("It is clear that if the Regulatory Exclusion applies in a case where the FDIC has in fact succeeded to a shareholder derivative action, . . . then that Exclusion certainly applies when the FDIC has not in fact succeeded to any such action, but has merely inherited the 'right'of shareholders to maintain one").

59See, e.g., F.D.I.C. v. Mijalis, 15 F.3d 1314, 1335 (5th Cir. 1994); American Cas. Co. v. Continisio, 17 F.3d 62, 69 (3d Cir. 1994). 6819 F. Supp. 385 (D.N.J. 1993), aff d, 17 F.3d 62 (3d Cir. 1994). 6'819 F. Supp. at 395-96. 62 Id. at 398.

63 Id. at 396 (quoting BLACK's LAW DICTIONARY 1061 (6th ed. 1990)). 641d. at 396-97.

6517 F.3d at 67-69 (emphasis added). See also F.D.I.C. v. Continental Cas. Co., 796 F. Supp. 1344 (D. Or. 1991), where the FDIC claimed that insurer received notice of potential claims during policy period through insurer's knowledge of "cease and desist order" which indicated "that the Bank's management was unacceptable to the Bank's regulators, that the Bank's financial condition was extremely weak and that the Bank risked financial failure." Id. at 1353. The court held that the awareness provision expressly requires that the insured ( 1 ) become aware of an occurrence during the policy period that may give rise to claims; and (2) give specific written notice thereof to the insurer. "Neither requirement was satisfied here." Id. at 1354.

66See Medical Inter Ins. Exchange v. Health Care Ins. Exchange, 651 A.2d 1029, 1032 (N.J. Super. Ct. App. Div. 1995); Resolution Trust Corp. v. Ayo, 31 F.3d 285, 291 (5th Cir. 1994) (proper focus of the inquiry into whether notice was given is whether the insured objectively complied with the awareness provision's notice requirement. Whether an insurer has sufficient information, submitted by the insured and/or obtained from other sources, with which to subjectively draw inferences that potential claims exist is irrelevant to the notice inquiry); F.D.I.C. v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155, 159 (8th Cir. 1993) (information in renewal application "did not constitute effective notice of claims as required by the D & O policy"); McCullough v. Fidelity & Deposit Co., 2 F.3d 110, 112 (5th Cir. 1993) (cease and desist order and reports of bank's deteriorating financial condition held "not notice of an officer's or director's act, error or omission"); American Cas. Co. v. Continisio, 819 F. Supp. 385, 396-97 (D.N.J. 1993), aff'd, 17 F.3d 62, 67-69 (3d Cir. 1994)) establishes the principle of law that an awareness provision requires: (1) that the insured regard the information possessed as a potential claim ("awareness"); and (2) that the insured take some affirmative act evidencing its intent to provide a written notice of claim that the insurer can easily recognize as such ("actual notice"). 671 Lloyd's Rep. 302 (Q.B. 1996). 682 Lloyd's Rep. 248 (C.A. 1998).

69KPFF, Inc. v. California Union Ins. Co., 66 Cal. Rptr.2d 36, 42 (Ct. App. 1997); Harbor Ins. Co. v. Arthur Andersen & Co., 500 N.E.2d 707 (Ill. App. Ct. 1986).

7066 Cal. Rptr.2d at 44; see also American Cas. Co. v. Continisio, 819 F. Supp. 385, 396-97 (D.N.J.1993)("We read the provision as requiring some affirmative act on the part of the insured intending to provide written notice of the negligent acts and their awareness of them."), aff d, 17 F.3d 62, 69 (3d Cir. 1994) ("the only reasonable interpretation of the policy provision is that the insureds must regard the information they possess as a potential claim and formally notify their insurer through its claims department that a claim may be asserted."). 71 66 Cal. Rptr.2d at 39. 721d.

7'ld.

"Id. at 43 n.2 (citation omitted).

75 Id.

76 Id.

77 500 N.E.2d 707 (Ill. App. Ct. 1986).

78 The clause in the Lloyd's 1971 policy in question provided, in pertinent part, as follows: If during the currency hereof: . . . (ii) the assured firm shall become aware of any occurrence which may subsequently give rise to a claim being made against them in respect of any alleged negligent act, error or omission, . . . and shall . . . during the currency hereof give written notice to the Underwriters of . . . such occurrence under (ii) above then any claim which may subsequently be made against the assured firm arising out of such alleged negligent act, error or omission . . . shall for the purpose of this policy be treated as a claim made during the currency hereof. Id. 79"These facts conclusively establish that the Fund of Funds suit was based in part on actions of Andersen first alleged in the Dietrich complaint." Id.

so Jd.

81 No. 87-1255-SC (D. N.M. Feb. 6, 1990).

82 See also, F.D.I.C. v. Marsiglia, No. CIV.A. 90-4999, 1993 WL 114518 (E.D. La. Apr. 7, 1993)(undisputed documentary evidence, including letters from insurer's outside counsel describing the nature of the defendant's alleged misdeeds and financial information from the insured bank, "establishes that American was sufficiently apprised during the policy period of the nature of Marsiglia's actions which form the basis of this lawsuit.") 83 National Union Fire Ins. Co. v. Ambassador Group, Inc., 691 F. Supp. 618,622 (E.D.N.Y. 1988).

84Gregory v. Home Ins. Co., 876 F.2d 602, 604 (7th Cir. 1989). 85 Such an exclusion might "exclude coverage for claims `arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any fact, circumstance, situation, transaction, event or Wrongful Act' alleged in a pending lawsuit or made the subject of a prior notice given to another insurer." Zunenshine v. Executive Risk Indemnity, Inc., 97 Civ. 5525 (MEM) (S.D.N.Y. Aug. 17, 1998)(1998 U.S. Dist. LEXIS 12699). 86 Purcigliotti v. Risk Enterprise Management Ltd., 658 N.Y.S.2d 296,297 (App. Div.1997). "National Union Fire Ins. Co. v. Ambassador Group, Inc., 691 F. Supp. 618,623 (E.D.N.Y. 1988).

88 Id.

9691 F. Supp. 618 (E.D.N.Y. 1988).

9Id. at 619-20.

9l.at 621. 92 Id

931d. at 623-24. 941d. at 624.

93 651 N.Y.S.2d 519 (App. Div. 1997). %Id. at 520-21.

9Id. at 521.

98 97 Civ. 5525 (MEM) (S.D.N.Y. Aug. 17, 1998)(1998 U.S. Dist. LEXIS 12699).

88 Id. at 90 3-4. The policy in Zunenshine provided: The Underwriter will not pay Loss, including Defense Expenses, for Claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving:

(1) any fact, circumstance, situation, transaction, event or Wrongful Act underlying or alleged in any prior and/or pending litigation or administrative or regulatory proceeding as of May 24, 1996; (2) any fact, circumstance, situation, transaction, event or Wrongful Act which, before May 24, 1996, was the subject of any notice given under any policy of directors and officers liability or other similar insurance. Id.

'88 Id. at 90 10.

Id. at 90 14-15.

102 Id. at 90 15 (quoting United States v. A.C. Strip, 868 F.2d 181, 187 (6th Cir. 1989)). "3See, e.g., North River Ins. Co. v. Huff, 628 F. Supp. 1129 (D. Kan. 1985) (separate loan transactions, each involving the same method of financing but occurring at separate times, involving different borrowers, for different purposes and based upon separate collateral were not interrelated and constituted separate claims); Okada v. MGIC Indem. Corp., 608 F. Supp. 383 (D. Haw. 1985), aff'd in relevant part, rev'd in part on other grounds, 823 F.2d 276 (9th Cir. 1986) (distinct and dissimilar business decisions made by directors and officers, all of which related to the failure of insured bank, were not interrelated merely because the eventually culminated in one overall result); Eureka Fed. S&L v. American Cas. Co., 873 F.2d 229 (9th Cir. 1989) (mere existence of an aggressive loan policy was insufficient to transform the alleged negligence by five directors in connection with the issuance of loans to over 200 unrelated borrowers into a single loss--the fact that all loan losses arguably resulted from one loan policy does not make the losses interrelated); FSLIC v. Burdette, 718 F. Supp. 649 (E.D. Tenn.1989) (twentyfive loan transactions were not interrelated because the loans were made on various dates to different borrowers for varying purposes, involved different collateral, different deficiencies in the approval process and separate negligent acts by the directors and officers involved). '04876 F.2d 602 (7th Cir. 1989). 1521 Cal. Rptr.2d 691 (Ct. App. 1993).

106 876 F2d. at 605.

107 ld. See also Arizona Property & Cas. Ins. Guar. Fund v. Helme, 735 P.2d 451 (Ariz. 1987). The Arizona Supreme Court construed the phrase "series of related incidents, act or omissions" in a professional liability insurance policy by reference to the dictionary definition of "related." Although the word was defined as meaning either causally or logically connected, the court held a logical connection was too subjective and limited the definition, for policy construction purposes, to causal connections only. ""Bay Cities, 21 Cal. Rptr.2d at 703. '9ld. at 692.

"The court noted that allowing multiplication of claims in such a case could prejudice the attorney because it could require the insured to be responsible for multiple deductibles, corresponding to the number of claims. Id. at 695. "Id. at 699. "1d. at 702.

Thomas R. Newman is a member of the New York City firm of Newman & Company, P.C., specializing in insurance and reinsurance coverage litigation and arbitration. He is the co-author of Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes (9th ed. 1998) and author of New York Appellate Practice (1985, Supp. 1989). Mr. Newman is a member of the Federation of Insurance & Corporate Counsel, the American Law Institute and the American Academy of Appellate Lawyers.

Michael L. Gioia is also a member of the firm of Newman & Company, P.C. and specializes in insurance and reinsurance coverage litigation and arbitration. He is a member of the American and New York State Bar Associations, and the Association of the Bar of the City of New York.

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