Tardy Reporting Kills Claims-Made Coverage
Berkley Insurance Co. v. Caraway
In the world of professional liability insurance, there is one rule that consistently causes insureds and brokers the most heartburn:
A claim known during the policy period must be reported during the policy period — not during the Extended Reporting Period (ERP).
A recent federal decision, Berkley Insurance Co. v. Caraway, illustrates this principle in dramatic fashion. The case is a textbook example of how a single timing mistake can completely erase coverage, even when an insured has paid for an ERP (Extended Reporting Period Endorsement or tail endorsement) and genuinely believes they are protected.
The Case: A Known Claim, a Tail Policy, and a Catastrophic Oversight
Attorney Jason Caraway was serving a 90‑month federal sentence for embezzling funds from clients and his law firm when a lawsuit was filed against him by the Wowl Trust, alleging he owed $753,611.59 under a 2013 Sale Agreement and Promissory Note for a law firm purchase. [law.justia.com]
Caraway was served with the lawsuit on February 11, 2023, squarely within his active Lawyers Professional Liability (LPL) policy period. He knew about the claim.
But he failed to report it.
His LPL policy expired on May 1, 2023, after being shortened by endorsement. He then purchased a 24‑month Extended Reporting Period, giving him through May 1, 2025 to report new, unknown claims.
On July 20, 2023, Caraway finally reported the lawsuit to Berkley—during the ERP, but after the end of the active policy period. That timing proved fatal. The carrier denied coverage. And in the resulting federal action, the court upheld the denial for one simple reason:
Extended Reporting Periods do NOT extend the reporting deadline for claims you already knew about during the active policy period. [plusweb.org]
Why the Court Ruled Against Coverage
In November 2025, the U.S. District Court for the Southern District of Illinois entered summary judgment in favor of Berkley Insurance Company, holding that it had no duty to defend or indemnify Caraway in the lawsuit filed by the Wowl Trust. [law.justia.com]
- The court did not need to invoke any criminal‑acts exclusion, despite Caraway’s embezzlement conviction.
- Coverage failed solely because of the late reporting.
This case reinforces the bedrock nature of claims‑made-and-reported policies:
Coverage exists only if the claim is both made and reported within the required timeframe.
The ERP extends claims reporting for claims not known during the policy period — it is not a grace period for reporting known claims before the policy expired.
The Misunderstanding That Keeps Happening
Many attorneys who are closing a practice or retiring “tail out” their professional liability coverage. They shorten the active policy to align with their exit date and buy an ERP to ensure protection going forward. On the surface, this seems like the responsible thing to do.
But the mistake comes when insureds assume:
“If I buy tail coverage, I can report anything during the tail.”
This is incorrect — and Berkley v. Caraway is a perfect demonstration of why.
The ERP allows reporting of new claims that arise after retirement or closure.
It does not allow you to backfill a claim you already had in hand.
As the PLUS industry commentary summarized:
The insured “went through all the trouble” of shortening his policy and purchasing 24 months of tail coverage… but never reported the February claim during the active period. The reason doesn’t matter. The timing alone destroyed coverage. [plusweb.org]
What Insureds Should Take From This Case
- Timing is everything in a claims‑made policy – If the claim is known during the active policy period, it must be reported during that same period — even if you believe the claim is meritless or will resolve informally.
- ERPs protect only future unknown claims – They do not create retroactive forgiveness for a delay in reporting.
- When in doubt, report – Carriers rarely penalize early or precautionary reporting. They cannot cover what they never receive notice of.
- A reporting mistake can cost hundreds of thousands — or more – Caraway’s failure to report during the active period meant he lost coverage for a $753,611.59 claim. [law.justia.com]
The most expensive coverage gap is often created not by the carrier, but by the insured’s failure to report a known claim on time.
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Lee Norcross, MBA, CPCU
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L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
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