Insurer-Directed Claim Requirement to Trigger E&O Coverage

Introduction

Columbia Casualty Co. v. State Auto Mutual Ins. Co., decided April 10, 2025 by the Sixth Circuit, addresses a core question in errors and omissions (“E&O”) insurance: what constitutes a “claim” that triggers coverage? At the center of the dispute is State Auto’s attempt to recover $12.3 million (the excess of a $13.3 million wrongful death judgment less its $1 million policy limit) under primary and excess E&O policies issued by Columbia Casualty Company and ACE American Insurance Company. State Auto had paid the judgment against its insured, Waves of Hialeah, Inc., to avoid bad faith exposure. The insurers denied coverage on the ground that no “claim” was ever made against State Auto under the policy definitions. The Sixth Circuit affirmed the district court’s grant of summary judgment to the insurers, establishing the principle that a settlement demand letter directed to an insurer must itself constitute an insurer-directed claim for monetary relief to trigger E&O coverage.

Summary of the Judgment

The court held that State Auto failed to meet its burden of showing (1) that the estate’s 2017 demand letter constituted a covered “claim” under the terms of the E&O policies, and (2) that it suffered a covered “loss.” Key findings:

The 2017 demand letter sought $5 million “to settle all claims the Estate has against Waves,” not State Auto, and thus was not a written demand for relief against the insurer.
Even if the letter contained bad faith allegations, it did not demand payment from State Auto and was premature because bad faith liability only arises after entry of a judgment in excess of policy limits.
Policy provisions distinguishing actual “claims” from “circumstances” reinforce that potential or conditional demands do not trigger coverage.

Because no triggering “claim” was made, the insurers had no duty to indemnify or defend State Auto for the excess judgment. The Sixth Circuit affirmed the entry of summary judgment in favor of Columbia and ACE.

Analysis

Precedents Cited

Celotex Corp. v. Catrett, 477 U.S. 317 (1986): Standard for summary judgment on lack of evidence.
Westfield Nat’l Ins. v. Quest Pharms., 57 F.4th 558 (6th Cir. 2023): De novo review of policy interpretation under Ohio law.
Gomolka v. State Auto. Mut. Ins., 436 N.E.2d 1347 (Ohio 1982): Unambiguous policy terms enforced as written.
Hacker v. Dickman, 661 N.E.2d 1005 (Ohio 1996): Ambiguities construed against the insurer.
MGIC Indem. Corp. v. Home State Sav. Ass’n, 797 F.2d 285 (6th Cir. 1986): A “demand for payment of some amount of money” is required to constitute a claim.

These cases guided the court’s interpretation of “claim,” the insured’s burden to establish coverage, and the proper use of summary judgment in diversity contract disputes.

Legal Reasoning

Under Ohio law, insurance contracts are interpreted as ordinary written agreements: clear terms govern, ambiguous terms favor the insured, and the entire policy is read holistically. The policies at issue covered “Loss resulting from any Claim” first made during the policy period. A “Claim” was defined to include “a written demand for monetary damages … against an Insured.”

The court’s reasoning unfolded in three steps:

Identification of the Claim: The 2017 letter demanded 5 million dollars to settle wrongful death claims against Waves. It did not demand payment from State Auto nor institute a bad faith lawsuit; it was addressed “to settle all claims the Estate has against The Waves.”
Timing and Prematurity: Bad faith liability only arises after an excess judgment is entered. The letter predated any excess judgment and thus could not have asserted a viable bad faith claim against the insurer.
Policy Structure: The policy distinguishes “claims” from “circumstances” (potential claims requiring notice but not coverage). If mere settlement demands or conditional claims sufficed, this distinction would be meaningless.

Impact

Columbia Casualty Co. v. State Auto Mutual Ins. Co. clarifies for insureds, insurers, and courts that:

Coverage under “claims-made” E&O policies depends strictly on the submission of an insurer-directed claim for relief; demands against the insured alone do not trigger an insurer’s duties.
Allegations of bad faith in settlement negotiations, absent a formal demand for indemnity from the insurer, are insufficient to start the policy clock.
Policy drafters can rely on the “claim” versus “circumstance” distinction to require clear claims before coverage attaches, minimizing disputes over whether a demand letter suffices.

Future litigants will need to ensure that any settlement demand intended to trigger E&O coverage is expressly directed at the insurer and seeks relief from it for alleged wrongdoing.

Complex Concepts Simplified

“Claims-Made” Policy: An insurance policy that covers only claims first made during the policy period, not events that occurred then.
“Claim” vs. “Circumstance”: A “claim” is an actual demand or lawsuit; a “circumstance” is an event that could lead to a claim but isn’t one yet.
Bad Faith Liability: An insurer can be sued for bad faith if it refuses a reasonable settlement within policy limits and a judgment exceeds those limits.
Triggering Coverage: To activate E&O insurance, the insured must receive and report an actual claim made against it, not simply experience exposure.

Conclusion

Columbia Casualty Co. v. State Auto Mutual Ins. Co. reinforces the strict requirements of claims-made E&O policies: only a written demand for relief made directly against an insured—and thus against the insurer—qualifies as a “claim” that triggers coverage. Settlement letters to the insured that reference the insurer’s potential exposure, but do not demand payment from the insurer itself, fall short. This decision underscores the importance of precise policy definitions and careful drafting of settlement demands by claimants seeking to bring insurers into coverage disputes.