Claim Must Be Made During Policy Period to Obtain Coverage on a Claims Made Policy

Heart Rendering Damages Not Enough to Require Insurer to Defend or Indemnify

When he was just about two years old, Braylon Jordan swallowed small magnets, “Buckyballs,” manufactured by Maxfield & Oberton Holdings (M&O). Once ingested, the magnets shredded his internal organs, necessitating surgery to remove most of his intestines, leaving Braylon severely disabled for the rest of his life, and consigning his parents to provide near constant care for their son for the rest of theirs. This heart-rending situation came to the Fifth Circuit for the second time; the latest appeal involves not the merits of the Jordans’ claims but a dispute over whether there is insurance coverage for M&O’s defense and for a partial settlement of the Jordans’ claims.

In Meaghin Jordan, Individually; Jonathan Jordan, Individually; Meaghin and Jonathan Jordan, on behalf of their minor son, Braylon Jordan v. Evanston Insurance Company, No. 20-60716, United States Court of Appeals, Fifth Circuit (January 17, 2022) the Fifth Circuit answered the question.

FACTS

The ordeal that Braylon Jordan and his family have endured is chronicled in this court’s prior opinion in their action against M&O, Jordan v. Maxfield & Oberton Holdings, L.L.C., 977 F.3d 412, 414-15 (5th Cir. 2020).

As discovery proceeded in the underlying case, Evanston Insurance Company, one of M&O’s excess liability insurers, confirmed that it denied coverage for the Jordans’ claims against M&O and declined to defend M&O against the Jordans’ suit. Evanston’s declination led the Jordans to sue for declaratory relief to determine whether Evanston’s insurance policy, as well as several other policies held by M&O at relevant times, covered their claims against M&O. The evidence focused primarily on three things: news reporting of Braylon Jordan’s story, reactions to several articles by M&O and its insurers, and the insurance policies themselves.

On April 23, 2012, WWL TV in New Orleans ran an article detailing Braylon’s surgeries and the dangers posed by high-powered magnets. Zucker saw this article and forwarded it, along with one about a teenager in Oregon, to M&O’s primary insurer the next day. Zucker told the insurer that the “news stories were reported online involving our products. All known information about the incident are [sic] included in the story. We have no additional information nor have we been contacted directly regarding the incident.” A day later M&O forwarded the WWL article to its excess insurers, including Evanston. M&O’s primary insurer acknowledged receipt of Zucker’s message, responding that it “reserve[d] all rights, including the right to deny coverage for this claim[.]”

For its part, Evanston opened an internal “Claim/Occurrence” file. That same day Evanston noted that it had “[r]eceived e-mail from underlying advised they have also received notice of this new loss.” In June 2012, Evanston added a note to the file that stated “[n]o claim or lawsuit file[d].” In October 2012 Evanston again noted “[n]o claim or lawsuit file[d].”

Additional news articles were published about Braylon. On December 11, 2012, counsel retained by the Jordans sent M&O a demand letter. The letter “advise[d] that [counsel was] representing Braylon Jordan in his claim for personal injuries which occurred on April 1, 2012, when he swallowed eight magnetic Bucky Balls [sic] manufactured by [M&O],” and requested “a response regarding this claim from [M&O] or [its] liability insurance carrier within ten days . . . .” After M&O’s counsel forwarded the Jordans’ demand letter and links to several additional news articles to its insurers, including Evanston, Evanston responded in January 2013 that the [Jordan] claim is the first claim to be submitted that is related to [approximately 38] prior Occurrences reported to Evanston . . . . However . . . this claim does not meet the timely reporting conditions of the Evanston excess liability claims-made policy. Therefore, there is no coverage available under the Evanston policy for this matter.

M&O’s various insurance policies were claims-made policies. Generally, claims-made policies provide coverage for claims made against insured parties within a defined policy period.

The Evanston policy promised to pay, as a result of claims first made against the Insured and reported to the Company during the policy period, damages incurred by the insured. The policy period was July 25, 2011 to July 25, 2012.  The claim by counsel was made months after expiration of the Evanston policy.

Shortly after the motions for summary judgment were filed, the Jordans reached an agreement with Zucker and M&O’s underlying insurer to settle their claims against both. The underlying insurer tendered its policy limits, and Zucker agreed to pay an additional $20 million to the Jordans, contingent on that amount being funded by M&O’s excess insurers. Evanston refused to fund this settlement.

The jury in the Jordans’ primary action against M&O, returned a verdict in favor of M&O. Because there was no liability, Evanston asserted there was no possibility of an actual claim to invoke coverage for the settlement. The district court concluded that Evanston was not obligated to fund the settlement made by Zucker because any duty that Evanston had to indemnify him could only be asserted once the Jordans established that his potential liability implicated a covered loss. However, the district court nonetheless required “Evanston to continue to defend its insureds against the Jordans’ product liability claims.”

The Fifth Circuit agreed with Evanston that the district court erred and held that the Jordans failed to demonstrate that they made any claim against M&O during the policy period. As a result there was no coverage, and Evanston had no obligation to indemnify M&O’s CEO for the parties’ settlement.

This case hinged on the threshold requirements under the Evanston policy that:

a claim be made against M&O, and
notice of that claim be timely provided to Evanston, in order to trigger coverage.

The district court sidestepped the first question and instead focused on the second. The court took this approach because it found that Evanston acted as though it had received a claim after M&O initially forwarded the WWL news article, by opening a “Claim/Occurrence” file and continuing to monitor whether any lawsuit had been filed by the Jordans against M&O. But, the Fifth Circuit concluded that ducking the question of whether a timely claim was actually made, by “deeming” it so, was error.

The policy itself does not define “claim,” but generally, under Mississippi law, when the words of an insurance policy are plain and unambiguous, the court will afford them their plain, ordinary meaning and will apply them as written.

A “claim” is an assertion by a third party that, in the opinion of that party, the insured may be liable to it for damages within the risk covered by a policy. [13A Couch on Insurance § 191:10 (Stephen Plitt et al., eds.) (3d ed. Dec. 2021).] A common thread from Couch and the dictionary definitions is that a “claim” involves a “demand” or “assertion” made by a claimant against a party who could satisfy it.

Even assuming the press comments were and that constituted a “claim” under Evanston’s policy, Meaghin Jordan made the comments to a media outlet, not to M&O or Evanston. The Jordans did not tender any other communication to M&O or Evanston before their counsel sent their demand letter to M&O on December 11, 2012-outside Evanston’s policy period.

The insured’s awareness of an alleged injury is not enough to constitute a claim. [Titan Indem. Co. v. Williams, 743 So.2d 1020, 1025 (Miss. Ct. App. 1999)].

The fact that M&O became aware of media reports about Braylon’s injuries and sent those reports to Evanston, which in turn opened an internal “Claim/Occurrence” file and monitored further developments, does not substitute for the Jordans actually making a timely claim against M&O. Their failure to do so is fatal to their assertion of coverage.

As there was no coverage triggered under its policy, Evanston is not obligated to indemnify Zucker for the agreed amounts in his settlement with the Jordans.

Because no claim arising from Braylon Jordan’s injuries was timely made against M&O during Evanston’s policy period, Evanston is not obligated to provide M&O costs of its defense or coverage for the partial settlement between the Jordans and its then-CEO Craig Zucker.

ZALMA OPINION

Claims Made and Reported policies are different than the common “Occurrence” policies. Failure to make a claim – demand money or some other action as damages – while the policy is in full force and effect – defeats a claim for defense or indemnity. The injury caused by swallowing Bucky Balls was enormous but a claims made policy requires that a claim be made to the insurer while the policy is in force. The claim by the Jordan’s lawyer, arriving almost four months after expiration of Evanston’s policy defeated the M&O claims.

© 2022 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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