The November Complaint and the Expired Reporting Period
A Baton Rouge engineering firm bought a claims-made professional liability policy from a surplus lines insurer, Delta Professional Assurance, for January 1 through December 31, 2022. The retroactive date is January 1, 2018. The limit is $2 million, the self-insured retention is $25,000, and the extended reporting period is 60 days. In November 2022, a client sent a letter complaining that cracks in a foundation had appeared and asking the firm to 'make it right.' The project manager forwarded the letter to the firm's president, but no one notified Delta. On February 10, 2023, the client served a formal demand for $850,000. The firm reported the demand to Delta on February 14, 2023, within the 60-day ERP. Delta denies, citing a policy condition requiring notice of a claim or circumstance during the policy period. In March 2023, Delta is declared insolvent. The firm asks whether LIGA will respond.
1. Is the February demand covered? Analyze the claims-made trigger, the November letter, and the ERP.
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The formal demand is a claim first made on February 10, 2023, after the policy expired but within the 60-day ERP. Standing alone, that would be reportable under the ERP. The problem is the November letter. If it was a claim, it was first made during the policy period and had to be reported during the policy period; the ERP does not resurrect an unreported claim that was already made. If it was a circumstance reasonably likely to give rise to a claim, the policy's notice condition likely required reporting during the policy period as well. The firm's best argument is that the November letter was a complaint about workmanship, not a demand for money or a specific allegation of professional error, and that Delta must show prejudice from the delayed notice. But Louisiana courts generally enforce unambiguous claims-made reporting conditions, so the denial is likely enforceable if the letter reasonably qualifies as a claim or reportable circumstance. The broker should have forwarded the letter immediately and documented the advice.
2. Will the Louisiana Insurance Guaranty Association pay the claim if Delta is insolvent?
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No. LIGA responds to covered claims against insolvent authorized insurers that are members of the guaranty association. Delta is a surplus lines insurer, not an admitted insurer, and surplus lines policies are excluded from LIGA coverage. The firm therefore cannot look to LIGA for the $850,000 demand or for defense costs. The practical consequence is that the insured retained the credit risk of the surplus lines carrier, which should have been disclosed at placement. The firm may still have a claim against the broker if the broker failed to forward the November letter, failed to explain the claims-made reporting condition, or failed to document the insurer's eligibility and financial condition at placement. Those are errors-and-omissions theories, not guaranty fund claims.
3. What should the broker have done differently in November 2022, and what records matter now?
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The broker should have treated the November letter as a potential claim or circumstance, sent it to Delta immediately, and advised the firm in writing of the claims-made reporting requirement and the ERP. The broker should have obtained the insurer's written position on whether the letter was a claim or a circumstance and confirmed the firm's reporting obligations. The file should contain the letter, the transmittal to the insurer, the insurer's response, the policy's notice and ERP provisions, and the disclosure that LIGA does not apply. After the February demand, the broker should tender it to Delta and preserve the denial. If the broker never received the November letter because the firm withheld it, the broker should document that fact. These records determine whether the broker has E&O exposure separate from the coverage dispute.