In Chandler v. Valentine, Valentine was insured by PLICO when he operated on Wurtz. Wurtz died. Valentine lost his license. He then cancelled his insurance with PLICO. When Wurtz's estate sued Valentine, PLICO said there was no coverage. After a judgment was entered against Valentine, Chandler (on behalf of Wurtz's estate) tried to get money from PLICO through garnishment. PLICO said no coverage and thus there was no money. The Trial court granted summary judgment to Chandler, the Court of Civil Appeals reversed, and the Supreme Court reinstated the trial court's summary judgment.
The case involved a "claims made" policy:
Under a claims made policy, coverage is only triggered when, during the policy period, an insured becomes aware of and notifies the insurer of either claims against the insured or occurrences that might give rise to such a claim. . . .
In a 'claims made' policy, the notice is the event that invokes coverage under the policy. Clear notice of a claim or occurrence during the policy period is crucial, because allowing actual notice beyond the policy period would 'constitute an unbargained for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against in the policy.' [citations omitted] Claims made policies are often a more economical way to provide coverage for risks like professional responsibility, because the notice requirements allow an insurer to 'close its books' on a policy at the expiration date and thus 'attain a level of predictability unattainable under standard occurrence policies.' [citations omitted]
. . . Such a policy reduces the potential exposure of the insurer, thus reducing the policy cost to the insured.
By contrast, "occurrence" policies (such as most auto policies) cover occurrences which happen during the policy period, regardless of when the claim is made. In a claims made policy, if an accident happens during the policy period but no claim is made until after the policy ends, the insurer owes nothing.
Oklahoma, however, precludes the annulment of a liability policy after an accident. Under 36 O.S. § 3625,
No insurance contract insuring against loss or damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and the insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such attempted annulment shall be void.
The Court explains:
As to an occurrence policy, the provision is straightforward because the date of occurrence is fixed by the liability-producing event and no agreement to cancel a policy may cut off the right to recover under the policy. Under a claims made policy, however, the date of the claim is unknown and liability generally does not attach until a claim is submitted by the insured. Therefore, section 3625 applies to a claims made policy only when there is an agreement to cancel the policy in a way that cuts off a potential claim and the insurer is actually aware at the time of agreement of the act or acts that will potentially result in a claim. Thus, the question in this matter becomes whether there was an agreement between the insured and the insurer to cancel the policy and whether PLICO knew of the alleged malpractice that could lead to a claim against the policy.
The Court also states:
Today's decision acknowledges that the risk in a claims made policy is the risk of a claim, not the occurrence. Nevertheless, when an insurer knows of the potential claim and agrees to cancel the policy in a way that defeats assertion of a claim until after the cancellation of the policy, the cancellation violates section 3625 and is therefore void.
And the Court concludes:
PLICO's conduct in cancelling the policy, when it knew that the actions of its insured during the policy period would be the basis of an impending claim, indicates, at best, ignorance of the section 3625 prohibition. At worst, it indicates collusion with its insured to deprive the decedent's estate of the benefits of coverage. The trial court was correct to grant summary judgment to the personal representative of the estate.