Endorsement Had No Effect on Claims-made Notice Requirement

By Don R. Sampen, published, Chicago Daily Law Bulletin, March 18, 2025

In a January decision, the 1st District Appellate Court held that an endorsement to a claims-made policy requiring notice to the insurer upon partial exhaustion of the insured’s self-insured retention, did not alter the policy’s requirements regarding notice to the insurer of a claim.

The case is Katherine Shaw Bethea Hospital v. Nautilus Insurance Co., 2025 IL App (1st) 231084-U (Jan. 24). The insured hospital was represented by Walker Wilcox Matousek LLP of Chicago. Wilson Elser Moskowitz Edelman & Dicker LLP of Chicago represented the insurer.

Nautilus issued a claims-made medical professional injury liability policy to the hospital for the year ending March 2, 2017. The policy covered claims against the hospital made during the policy period and required that they be reported to the insurer within 30 days of the policy’s expiration, except if an extended reporting period were purchased.

The notice section of the policy, as originally written, also required the insured give notice to Nautilus “as soon as practicable” after receiving a claim. The policy was subject to a self-insured retention of $250,000 per medical incident.

In addition, however, an endorsement to the policy deleted the “as soon as practicable” notice section and replaced it with a requirement that the insured notify Nautilus upon exhaustion of 25 percent of the self-insured retention (SIR).

Two malpractice suits were filed against the hospital during the policy period, one in 2016 and the other in early 2017. The hospital gave notice of the suits to Nautilus in June and December 2017. Nautilus denied coverage for both claims because they were not reported within 30 days of March 2, 2017, the expiration date of the policy.

The hospital justified the late notice on the grounds that, in its view, the endorsement regarding notice of the SIR partial exhaustion had effectively eliminated the requirement for reporting claims within 30 days of expiration. It brought suit against Nautilus for breach of contract, bad faith and other claims.

On cross-motions for summary judgment, the circuit court ruled in favor of Nautilus. The hospital then appealed.

Analysis

In a ruling by Justice Carl A. Walker, the 1st District affirmed. He wrote the SIR endorsement replaced only the “as soon as practicable” notice section, but left the 30-day-after-expiration report requirement intact.

He further wrote that no conflict existed between the endorsement and the 30-day provision. Specifically, the hospital had to report a claim made during the policy period within 30 days of expiration, and if the hospital’s expenditure was expected to exceed 25 percent of the SIR before that 30-day date, it had to report the claim before it reached the 25 percent threshold.

Moreover, if the hospital’s position were adopted, Walker noted, the reporting periods set forth in the policy would become meaningless, and the claims-made structure of the policy would be negated.

The hospital’s main appeal argument seemed to be that an intent to replace the 30-day reporting requirement in its entirety should be inferred because the policy effectively provided “excess” coverage — excess over the SIR. In addition, reporting requirements within excess policies, according to the hospital, are less common than a spending threshold notice requirement.

Walker quickly rejected the argument on the grounds that if the parties intended to implement the structure the hospital claimed was more typical, that intent had to be expressed in the policy language, and here it was not.

The hospital further argued the 30-day reporting requirement was inconsistent with the SIR exhaustion reporting requirement, but as already noted, Walker found them not to be in conflict.

The court therefore affirmed summary judgment in favor of Nautilus.

Key Point

Any intent that an insurance policy conform in meaning to what is standard or typical in the industry must be expressed as part of the policy language.