Michigan Statute Excusing Failure to Comply with Notice Requirements Can Apply to Claims-Made Policies

A federal district court has held that Michigan’s statute excusing an insured’s noncompliance with a casualty policy’s reporting requirements can apply to claims-made policies in certain circumstances.  Feller v. The Medical Protective Co., 2014 WL 2931417 (E.D. Mich. June 30, 2014). 

A former patient sued the insured surgeon and her medical practice for malpractice on March 12, 2013.  Previously, on August 30, 2012, counsel for the patient had sent a document to the surgeon via certified mail titled “notice of intent to file claim pursuant to MCLA 600.2912(B),” which recounted the patient’s treatment history in detail and explained the basis for the patient’s claim.  On March 27, 2013 – approximately two weeks after the patient filed suit – the insured surgeon for the first time alerted her former professional liability insurer of the patient’s claim.  The insurer had issued a claims-made policy to the surgeon for the policy period of February 1, 2012, to February 1, 2013.  The insurer denied coverage based on the policy provision establishing that the insurer “shall have no duty to defend or pay damages on a claim unless it was reported to the Company during the term of this policy or thirty (30) days thereafter.”

Following the denial of coverage, the surgeon initiated a declaratory judgment action against the insurer, and the insurer moved for judgment on the pleadings.  In response, the insureds conceded that the express terms of the policy precluded coverage but argued that, based on the allegation in the complaint that the insureds were unaware of the August 2012 letter and could not possibly have given notice of the claim before the policy expired or thirty days thereafter, Michigan Insurance Code Section 500.3008 potentially applied.  Section 500.3008 provides that an insured’s failure to give notice of a claim to the insurer pursuant to the requirements of a casualty policy is excused “if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as reasonably possible.”

The court agreed with the insured that, pursuant to the Michigan Supreme Court’s decision in Stine v. Continental Casualty Co., 349 N.W.2d 127 (1984), Section 500.3008 potentially applied to excuse an insured’s failure to report in accordance with a claims-made policy’s notice requirements where (as here) the claimant notified the insured of the claim during the policy period.  The court also rejected the insurer’s argument that Section 500.3008 could not apply where a policy’s notice provision is an “essential term” of the policy (i.e., where the policy is a claims-made-and-reported policy rather than a pure claims-made policy).  The court reasoned that the language of the policy issued to the surgeon was materially the same as the language considered by the Stine Court.

Finally, the court declined to decide whether Section 500.3008 actually applied because, according to the court, that question turns on whether the surgeon can ultimately show that it was not reasonably possible to give timely notice to the insurer during the policy period and that she gave notice as soon as was reasonably possible.