A federal judge in the Western District of Washington recently addressed a very uncommon issue in coverage litigation – whether a contempt proceeding is a new “claim” for purposes of a “claims-made” policy – that has resonance for a common issue in risk management: when to report a claim. In Great American Insurance Company v. Sea Shepherd Conservation Society the policyholder — a conservation group — was sued by a Japanese whale “research” organization to stop the group from interfering with whale “research” in the Pacific ocean. The trial court denied a request for an injunction, whereupon the group planned to set to sea and interfere with the “research.” But the appeals court reversed and granted an injunction. The group stopped its planning, but some members of the group participated in some foreign organizations’ efforts at sea, leading to a contempt motion being filed in the appellate court, naming some additional parties and alleging (obviously) violation of the restraining order. The appellate court set up a whole new proceeding to adjudicate the contempt issue, before the court commissioner. That process is still going on.
Sea Shepherd did not tender the claim until the contempt proceeding was initiated. The court held that although the contempt proceeding related to new facts, involved some additional parties, and was proceeding in a new forum (the appeals court), it was part of the original lawsuit, which qualified as a “claim” under the policy. Because the policy required that a claim be reported during the policy period or (at least) within 90 days of the end of the policy period, the court held that there was no duty to defend Sea Shepherd.
These are highly unusual facts so not too many lessons can be drawn from this case. One take-away, however: when trouble arises in a business, carefully consider, at every turn, whether what has happened is a claim to be reported or even just a “circumstance” that should be reported (a “notice of circumstance”). It is very unusual that a business gets in trouble for over-reporting a claim; it is much more usual, as in this case, for the opposite to be true.