Communications Stating That Insured May Be Liable For Damages Constitute a “Claim”

A Minnesota federal court, applying Minnesota law, has held that no coverage exists under a general liability policy for claims involving a defective adhesive product because the claims were first made before the policy incepted.  Ritrama, Inc. v. HDI-Gerling America Insurance Co., 2014 WL 4829088 (D. Minn. Sept. 29, 2014).  In so holding, the court concluded that communications sent to the insured stating that the insured may be liable for damages constituted a “claim.”

The insurer issued a general liability policy to a manufacturer of cast vinyl adhesives used in labels for various products providing coverage for claims first made during the policy period of March 31, 2009 to March 31, 2011.  Beginning in February 2008, the insured received communications detailing alleged deficiencies with its product.  In September 2008, the claimant provided the insured with a spreadsheet of multiple alleged claims involving the defective product totaling monetary damages of approximately $53,000.  Representatives of the insured and the claimant attempted to resolve the dispute in the fall of 2008 to no avail.  In January 2011, an attorney for the claimant sent the insured two demand letters related to the faulty adhesive claims.  In April 2011, the claimant filed a lawsuit against the insured.  The insured tendered the lawsuit to the insurer for coverage under the general liability policy, which provided specified coverage for “[a] claim for damages . . . first made against any insured . . . during the policy period.”  “Claim” was not a defined term within the policy.  The insurer denied coverage on grounds that the claim was first made prior to the policy period.  The insured filed the present action against the insurer, and the insurer moved for summary judgment.

The federal court granted summary judgment for the insurer, concluding that the claim involving allegedly faulty adhesive was first made prior to the inception of the policy.  In so holding, the court rejected the insured’s argument that “claim” should be defined narrowly to include only a legal demand for monetary relief by an attorney.  According to the insured, the communications before the policy incepted did not constitute a “claim” under the policy because they were “only ordinary communications . . . made in an attempt to solve a business issue.”  The court concluded otherwise, holding that “a ‘claim’ is properly understood as an assertion by a third party that the insured may be liable to it for damages within the risks covered by the [p]olicy.”  According to the court, the policy distinguishes between a “claim” and a “suit,” defining “suit” specifically to mean a “civil proceeding,” thus suggesting that “claim” means something different than “suit.”  The court concluded that the insured “had ample warning that there was an issue with respect to the [adhesive product] and sufficient notice that [the claimant] had made a claim” prior to the policy period.