Risk Management
Judge: Designer’s One-Sentence Claim Notice Allows Insurer to Deny Coverage
Ruling Involved Addition to a Famous University of Pittsburgh Building
A design firm’s insurance claim that was considered too vague by a federal judge may cost the University of Pittsburgh a chance to recover losses under an architects and engineers general liability policy that insured the designer.
In deciding the case in federal district court in New York City, the judge recently rejected the university’s attempt to force Ballinger Co.’s insurance provider, Lexington Insurance Co., Boston, to cover millions in damages stemming from delays that postponed completion for a year on a building addition on the University of Pittsburgh campus.
The university took over the claim from Ballinger after having worked out a separate settlement with the Philadelphia-based architect and engineer.
Siding with Lexington, federal Judge Katherine Forrest argued that Ballinger’s warning of potential trouble with foundations of the $40-million addition to the university’ Salk Hall lacked the details and specifics to qualify as an official insurance claim.
Salk Hall, according to the University of Pittsburgh, is where Jonas Salk performed work related to the polio vaccine. It now provides space for the schools of pharmacy and dental medicine.
Ballinger sent a brief note to its insurance company on Jan. 31, 2012, the day before its claims-made policy period was due to expire.
“You don’t need perfect knowledge in asserting a claim, but you need a certain requisite level of information and you need a level of candor,” said Kenneth E. Rubinstein, an attorney and insurance expert at PretiFlaherty, a law firm. (Rubinstein and PretiFlaherty have no involvement in the case.)
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Ballinger’s note to Lexington consisted of a single line, according to an earlier decision by Forrest, that rejected the university’s request of partial summary judgement.
“Senior management has been advised by University of Pittsburg[h] that this project is experiencing problems and delays in its early stages,” reads Ballinger’s note cited by Judge Forrest.
By contract, Ballinger’s insurance contract with Lexington spelled out a specifically what information was required, the judge wrote in her decision.
These include the “actual or alleged breach of professional duty,” and explanation of what “professional duties” the company undertook that might have triggered the claim, when the actions occurred and a description of the damage.
The “entire description of the Claim is that “this project is experiencing problems and delays in its early stages,” Judge Forrest wrote. “This statement is entirely non-specific – it is merely a placeholder … It could mean just about anything.”
Insurance Claims Reporting Requirements
While noting it is “harsh,” under Pennsylvania law, failure to comply with reporting requirements of a “claims-made” policy is enough to preclude coverage, Judge Forrest wrote.
To have ruled in favor of the University of Pittsburgh - and by extension Ballinger - would have effectively converted the design firm’s insurance policy from claims-based to an occurrence policy, which extends coverage for a problem or issue that arises during the coverage period even if the claim is made later, she ruled.
University officials blamed Ballinger and two of its subcontractors for design issues with the foundation and retaining wall of the 81,000-square-foot lab building. Both had to be redone, delaying the opening of the project by a year to 2014, according to the University Times, a faculty newspaper.
Still, one possible factor in Ballinger’s defense may be the timing of the problems that developed on the project.
The design and engineering firm may not simply have had all the information at its finger tips when it sent that one-line warning to Lexington Insurance on the last day of January, just before its policy expired, Rubinstein noted. The university did not come forth with a specific list of alleged damages until October.
However, there is information that Ballinger could have added that might have made it more likely that its brief note would have qualified as an actual claim, said Rubinstein.
For example, Ballinger could have stated something along the lines of “we believe the University of Pittsburgh intends to allege that we committed malpractice,” Rubinstein said.
“They had the ability to say, they have the duty to say there was an actual or alleged breach of professional duty,” he added.
How to Make an Insurance Claim
One common concern on part of companies making insurance claim is the fear that by acknowledging a mistake or error, it could hurt the firm’s chances in court, Rubinstein said. But Ballinger could have pointed to potential issues, while also making clear it does not agree or disputes them.
Another issue that may have played a role in the court’s decision denying coverage to the University of Pittsburgh and by extension Ballinger was the lack of responsiveness on part of the company.
After Ballinger sent its one-line warning to Lexington of potential problems with the project it was working on at the University of Pittsburgh, the insurance company had an adjustor contact Ballinger but received no response, Judge Forrest noted.
Legally, any ambiguity in coverage is typically interpreted against the insurance company in favor of the insured. But if you fail to follow the guidelines for filing a claim and given the information the insurance company is seeking, you effectively give the insurance company an out, Rubinstein said.
“The key to dealing with the carriers is that you need to be responsive,” he said.
