A property-casualty insurance trade group says a recent decision by the Pennsylvania Supreme Court halted a “significant impact” on professional lines business and potentially higher costs for professionals insured under “claims made” policies.

The Property Casualty Insurers Association of America responded to a state court ruling that affirmed a lower court’s decision that an insurer need not demonstrate that it would be harmed when denying coverage under a claims-made policy based upon late notice.

In the case, Ace American Insurance Co. v. Underwriters at Lloyds and Companies, the plaintiff purchased a claims-made-and-reported policy with Lloyds with terms that specifically stated ACE must report a claim as soon as practicable and in no event later than 90 days after the policy’s expiration date.

ACE sued when Lloyds refused to pay a $37.2 million from a bad faith claim lodged by Refuse Fuels. The denial was based on ACE’s failure to timely comply with the Errors and Omissions policy’s specific notice of claim requirement for claims that were reasonably anticipated to exceed $4 million, PCI said.

ACE argued that an insurer cannot deny a claim based on late notice unless it can show harm or prejudice in a claims made situation, as would be the case in an occurrence policy.

In almost every state, if an insurer denies a claim based on late notice under an occurrence policy, the law requires them to demonstrate that they were prejudiced in some way by the insured’s failure to timely file that claim, according to PCI.

Only two courts have ruled that prejudice is required in a claims made situation, so the Pennsylvania court “remained in the mainstream” by rejecting ACE’s argument which would have extended coverage past the reporting period.

Ann Spragens, senior vice president, secretary and general counsel for PCI said “such an extension of coverage would be contrary to the fundamental purpose of a claims-made-and-reported policy and provided coverage to an insured for which it neither bargained nor paid.”

“Claims made insurance policies provide an insurer a clear and certain cut-off date for coverage. In return, the insured typically pays a lower premium,” she said in a statement. “Based on actuarial data, a claims made policy can be as much as 32% cheaper than an occurrence policy premium, according to public records cited in our brief.  A reversal of the lower court’s decision could have had a significant impact on professional lines business and potentially led to higher costs for professionals who are typically insured under claims made policies, such as accountants, architects, doctors and lawyers doing business in the state.”

Comprised of more than 1,000 member companies, PCI members write more than $176 billion in annual premium, 35.9% of the nation’s property-casualty insurance.