Ruling highlights importance of wording in indemnity insurance policies

Jean-Paul Rudd - Partner, Adams and Adams

Insurers should exercise care in drafting prior exclusion clauses to ensure clarity and precision. Ambiguities in these clauses can lead to disputes and unintended liability for claims that predate the policy’s inception.

The recent New York case of Integris Risk Retention Group v Capital Region Orthopaedics Associates highlights the importance of clear drafting. In this case, the court examined the insurer’s liability under a claims-made policy with a prior exclusion clause.

In April 2022, one of the insured healthcare provider's patients underwent back surgery and later become paralysed. Subsequent thereto, the insurer issued the insured with two policies, effective from 1 October 2022 to 1 October 2023.

In March 2023, the patient (who eventually passed away in 2024) and his wife initiated a malpractice claim against the insured. The insurer denied liability and approached the court for a declaratory order, seeking confirmation that its decision to reject the claim was lawful. It alleged that the insured had failed to disclose material facts about the April 2022 incident in its application forms.

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The insurer also relied on the policies’ prior knowledge exclusions, which precluded coverage for claims arising from incidents the insured knew or should have reasonably known about before the policies commenced.

However, the court found that the exclusions did not apply, as they explicitly referred to prior “claims” rather than broader “facts or circumstances” that could lead to a claim.

The court emphasised that no “claim” had been made before the policies took effect and highlighted the narrower wording of the exclusion compared to the broader language typically found in similar policies. Consequently, the court dismissed the insurer's application.

In conclusion, this case underscores the critical role of precise and unambiguous wording in prior exclusion clauses within claims-made policies. Insurers must carefully balance the need to limit liability with the duty to provide clear and transparent terms to their policyholders. Ambiguities, as demonstrated here, can tilt the scales in favour of the insured, potentially exposing insurers to unintended risks.

This judgement serves as a cautionary reminder for insurers drafting exclusion clauses to adopt language that explicitly aligns with their intended scope of coverage. By doing so, insurers can mitigate the likelihood of disputes and ensure that their liability exclusions are upheld in court.