Applying Minnesota law, the Eighth Circuit Court of Appeals has ruled an insured was not entitled to coverage under a claims-made liability insurance policy because the insured received notice of the claim prior to the inception date of the policy. In Ritrama, Inc. V. HDI-Gerling Am. Ins. Co., — F.3d —, No. 14-3392 (8th Cir. Aug. 11, 2015), the court held that Ritrama, the insured, received notice of a “claim”—a term not defined by the policy—after one of its customers had provided a spreadsheet detailing three claims for monetary damages based on product failures in 2008. Ritrama manufactures pressure-sensitive flexible films and cast vinyl films for various applications, including for vehicle graphics products. Over a number of years, Burlington—Ritrama’s former customer—purchased more than $8 million worth of cast vinyl film products from Ritrama to manufacture graphic decals for customers in the recreational vehicle (“RV”) industry.
In 2009, several months after Ritrama received the spreadsheet and demand for reimbursement from one of its customers, it purchased a claims-made insurance policy from HDI-Gerling. For coverage to exist under a claims-made policy, notice of a “claim” must first be received by the insured during the policy period. Ritrama knew its customer had three separate instances of product failures, but none had not been sued out.
Ritrama tendered the Burlington claims to HDI-Gerling arguing the term “claim” was akin to a “suit,” a term which was defined by the policy. Because Burlington’s demands were not in writing, with the actual or implicit threat of litigation, Ritrama argued it was not on notice of a “claim.” The district court disagreed, and noted the term “claim” has several definitions. Applying the ordinary and usual meaning of the term, “claim” was held to mean “an assertion by a third party that the insured may be liable to it for damages within the risks covered by the policy.” The district court held the customer’s spreadsheet of defective products, together with a list of monetary damages to Ritrama, amounted to a “claim.”
The Eighth Circuit agreed. The panel noted the distinction between a demand for information, which is not a “claim,” versus a demand for money, which is. The court held the district court’s definition of “claim”— “an assertion by a third party that the insured may be liable to it for damages within the risks covered by the policy”—kept with the purposes of claims-made policies, which is to cover only those claims submitted during the policy period.
This case is significant for its clarification of the limits and purposes of claims-made policies. Under such a policy, coverage is provided if the error or omission is both discovered and brought to the insurer’s attention during the term of the policy. The decision clarifies that the policy premiums of claims-made policies reflect a limited risk and allow the insurer to “accurately fix its potential liabilities” to the policy period. The holding also comported with the general principle that insurance policies are meant to cover unknown, future events—not known losses known and submitted to the insured before purchasing a policy.