As readers know, issues surrounding the timeliness of notice of claim are among the most frequently litigated insurance coverage issues. Notice of claims delays occur for many reasons; sometimes, for example, the policyholder does not recognize a particular matter as constituting a claim within the meaning of the policy; sometimes there are process or communications issues that interfere with notice timeliness.

In a recent case and that touches on many of these issues, the Second Circuit, applying New York law, held that an earlier demand letter met the policy’s claim definition, and that the question of whether the provision of notice of claim on Monday morning just after the Saturday expiration of the policy was untimely must be remanded for further consideration by the district court. This case is a cautionary tale in many ways and provides an appropriate occasion to review of some of the first principles of claim notice. The Second Circuit’s August 13, 2024, Summary Order can be found here. (Hat Tip to Geoff Fehling of the Hunton Andrews Kurth law firm for his August 15, 2024 LinkedIn post about the decision, here).

Background

John Mellesmoen was an employee of a subsidiary of Match Group. During the policy period of the applicable insurance policy, Mellesmoen sent a letter to the subsidiary that, as the appellate court later put it, advised Match Group of “Mellesmoen’s intent to pursue legal action unless a settlement was reached.” The appellate court noted that thought the letter “did not outright demand a certain sum from Match Group,” it did assert that he “had legal claims against Match Group, that he believed he was entitled to compensation and damages, and that he would sue if Match Group did not contact him to resolve his claims.” Match Group apparently did not provide its insurer with notice of its receipt of Mellesmoen’s letter.

On Wednesday, August 17, 2016, Mellesmoen filed a complaint against Match Group. On Thursday, August 18, 2016, Match Group learned of the complaint. On Friday, August 19, 2016, Match Group directed its insurance brokers to notify its insurer of the complaint. Match Group’s insurance policy expired at 12:01 am on Saturday, August 20, 2016. The broker provided the insurer with notice of claim at 8:42 am on Monday, August 22, 2016.

The insurer denied coverage for the lawsuit. Match Group sued to enforce the insurance contract. The district court granted summary judgment in favor of Match Group. The insurer appealed.

Relevant Policy Language

The policy defined the term “claim” to be a written demand received by any Insured for money or services, including the service of a suit or institution of arbitration proceedings” or “a threat or initiation of a suit seeking injunctive relief.”

The policy’s notice of claim provisions state that “all Claims made against any Insured must be reported no later than … the end of the Policy Period.” The policy period ended at 12:01 am on August 20, 2016 – a Saturday.

The August 13, 2024, Summary Order

In a brief August 13, 2024, per curiam Summary Order, a three-judge panel of the Second Circuit vacated the district court’s summary judgment grant and remanded the case to the district court for further proceedings.

The district court had held that Mellesman’s initial demand letter was not a claim within the meaning of the policy. The appellate court concluded that the district court had erred. The appellate court cited its own authority holding that a “claim is an assertion by a third party that in the opinion of that party the insured may be liable to it for damages within the risks covered by the policy.” The appellate court said that Mellesman’s letter “clearly sought money,” noting that the letter wrote that “Tinder’s malicious and bad faith refusal to compensate Mr. Mellesmoen for his valuable idea is unlawful, wrong, and entitles Mr. Messesmoen to substantial recovery.”

Match Group had argued on appeal that even if the demand letter were a claim, it had still provided timely notice of claim under the policy. Match Group made this argument notwithstanding the provision of notice on a Monday morning after the Saturday expiration of the policy. In making this argument, Match Group relied on a New York statute which has various provisions specifying how contracts that expire on a Saturday, Sunday, or holiday are to be interpreted and applied. The district court had not considered how the statute might affect the timeliness of notice of claim, so the appellate court remanded the case to the district court for consideration of the issue.

Discussion

The trouble for Match Group started here with its failure to recognize the initial demand letter as a claim within the meaning of the policy. In my experience, this is not uncommon; policyholders often assume that a claim is a lawsuit, and, not recognizing a letter demand as a claim, fail to provide notice. There are other common variations on this theme – for example, the policyholder may think that a demand or lawsuit is frivolous or without merit, not covered, or likely to be resolved within the retention. In some instances, the policyholder may withhold notice because they are concerned that if the insurer learns about the dispute, it may affect their renewal premium.

In all of these various scenarios, the policyholder either neglects or decides to withhold notice. In many of these instances, these acts or omissions can work to the detriment of the policyholder’s interests and may result in a denial of coverage.

Which brings me to what I will call the First Principle of Claims Notice, which is as follows: Always Give Notice. Immediately. Even if you think the claim is frivolous or not covered, always give notice. This rule also applies even when the policyholder doesn’t think a particular matter is a claim, for the simple reason that even if the matter is not a claim, it will at least be treated by the insurer as a circumstance that could give rise to a claim, allowing the policyholder to preserve the right to seek coverage of the matter should later become a claim.

There is a particular twist in this set of circumstance, which is that the claim threatened in the initial letter actually became a lawsuit before the end of the policy period. So regardless whether the demand letter was a claim, there was a claim made during the policy period, and the insured was required by the policy to provide the insurer with notice of claim prior to the end of the policy period.

The problem for everyone here is that the policy expiration date and time both occurred over the weekend, and the notice was not provided until the following Monday morning. As Geoff Fehling put it in his LinkedIn post about this decision, “this early-stage litigation coinciding with the expiration of a claims-make policy’s reporting period is the stuff of nightmares.”

I have a number of observations about the late notice question. I want to emphasize that I am not finding fault with anyone, either on the policyholder’s side or the insurer’s side. I don’t know everything that happened here, I don’t know the details or various actions or inactions, and I make no judgments about any of this. My comments here should not be construed as criticizing anyone.

That said, I will say that when it comes to the act of providing notice, one of the key considerations that always needs to be kept in mind is the policy expiration date (and time). There is no way to put this other than to observe that on Friday, August 19, 2016, it was a highly relevant consideration that the policy was set to expire at 12:01 am the next day. I pair the significance of the policy expiration date along with the significance of what the policy actually requires in terms of the provision notice. Here, the policy specifies that notice of claim must be provided before the expiration of the policy. These two factors – the looming policy expiration and the requirement of the provision of notice before policy expiration – clearly were key considerations that everyone involved would have wanted to consider on Friday August 19. Yes, to be sure, all of this is, indeed, the stuff of nightmares.

The specific policy provisions about timeliness of notice are of course critical here. This policy lacked the saving provision that many claims-made policies have. For example, many claims-made policies have provisions specifying that notice must be provided as soon as practicable and in any event no longer than, say, 60 days after the policy expiration. This kind of language is clearly more policyholder-friendly and preferable to policyholders. However, there was no language of this type in this policy.

Instead, this policy specified a sharp and precise cutoff date and time for the timely provision of notice. Based on the timeline as described in the court’s opinion, the insurer here appears to be technically correct that the notice was untimely. But why on earth would the insurer be standing on the untimeliness? Back in the day when I was running an underwriting facility, I would get in arguments with our claims attorneys who wanted to take certain claims positions, justifying their argument with the assertion that the position was “right,” to which I often said in response “sometimes, there are more important things than being right.”

Before I say what I am about to say, let me just reiterate that I do not know everything I need to know in order to understand everything that happened here. But that said, I do have to wonder why the insurer is standing on the technical untimeliness here. What possible principle could be being served by taking this position (that is, that notice that didn’t arrive over the weekend was untimely because it arrived before the start of business on Monday morning).

In thinking about all of this, I found myself wondering about the notice prejudice rule – that is, the principle that insurers can’t rely on late provision of notice to disclaim coverage unless the untimeliness prejudiced the insurer’s interest. What possible prejudice could that be to the insurer from the provision of notice before the start of business on Monday morning rather than over the weekend? A quick review of the key legal considerations confirmed that New York is indeed a notice prejudice state. However, further research also revealed that under New York law the notice prejudice rule applies only to occurrence policies and not to claims-made policies like the one involved here. I will say that whatever the governing legal principles may be, if there were ever a case for application of the notice prejudice rule, this case is it.

It probably should be noted that this dispute is not over. The case has been remanded to the district court for further consideration, in particular with respect to the question of the applicability and potential effect of the New York statute about how contracts with expiration or performance dates that fall on a Saturday, Sunday, or holiday, are to be interpreted and applied. I will not attempt here to try to explicate these issues, as I am not familiar with the statute. In any event, this case is not done. It may be that in the end, the policyholder is able to preserve coverage, in reliance on the New York statutory provisions. Notwithstanding that fact, I do think my observations above about what happened here are relevant.

One final note. There is an important corollary to the First Principle of Claims Notice. The corollary is not relevant in this situation but is sufficiently important that it is worth reviewing it here anyway. The corollary is this: it is not only important to always give notice, but it is also important to give notice to all of the insurers in the program. Any reader who wants a refresher on the key considerations involved in his corollary will want to review my prior post about the late notice-to-the-excess-insurers issue in which Harvard University found itself involved.

Readers interested in further discussion and consideration of the question when a pre-suit demand letter is a claim and what the consequences can be from an insurance coverage standpoint will want to review my recent post discussing another Second Circuit decision, here.