This blog is co-authored by Boitumelo Phillips, candidate attorney.

On 10 April 2025, a Columbia US court of appeals addressed an insurance coverage dispute between the claimant insured, a liability insurer, and the defendant, its errors and omissions insurers. The court found that a 2017 settlement demand letter from the estate did not constitute a ‘claim’ against the claimant under the errors and omissions policy, as it was directed at the motel and not at the claimant. The court strictly interpreted the policy language, holding that only a direct demand for payment or legal action against the claimant would trigger coverage.

The dispute arose after a tragic incident at a Florida motel, where a guest was murdered following a series of failures by motel staff. The victim’s estate sued the motel, which was insured by the claimant. The claimant had a general liability policy with a $1 million limit and defended the motel in the lawsuit. The estate made several settlement demands, which the claimant declined. A jury awarded the estate $12 million, and the claimant paid the full judgment to avoid potential bad faith liability.

The claimant insured then sought coverage for the excess payment from its own errors and omissions insurers, the defendant error and omissions insurers. The defendants denied coverage, arguing that no “claim” had been made against the claimant during the claims-made policy period. The central issue was whether a 2017 settlement demand letter from the estate constituted a “claim” against the claimant under the errors and omissions policy.

The policy defined a claim as a written demand for monetary damages or a civil proceeding “against the insured.” The court found that the demand letter was directed at the motel, not at their insured. Although the letter referenced the claimant and alleged bad faith, it did not seek payment from the claimant insurer nor initiate proceedings against it. The court rejected the argument that the letter was a “conditional claim” that would ripen into an actual claim if an excess judgment was entered. The court noted that the policy distinguished between actual claims and circumstances that might give rise to a claim. Only the former triggered coverage.

The court strictly interpreted the policy language, holding that only a direct demand for payment or legal action against the claimant insured would trigger coverage. In the absence of an extended reporting provision, coverage under claims-made policies depends on when a claim is first made and reported. Potential or conditional claims are not sufficient. The claimant bears the burden of showing that a loss falls within the policy’s coverage.

This case underscores the importance of understanding what constitutes a claim term of professional liability insurance. The policy should clearly define what constitutes a “claim” in their policy documents. For both claimants and defendants, careful attention to the details of correspondence and policy wording can make the difference in a coverage dispute.

Columbia Casualty Co. v. State Auto Mutual Ins. Co., No. 24-3338 (6th Cir. 2025)