Claims made insurance policies provide coverage for claims first made during the policy period. So if the claim is made during the policy period, there’s coverage, right? Not so fast; there’s a catch. Under most claims made policies, the claim also has to be reported during the policy period or within a short period after the policy period ends. In many jurisdictions, the insurer can deny coverage for the late notice even if the delay did not prejudice the insurer in any way. The policy’s notice clause operates as a “Mother May I” provision – even though you paid your premium, you don’t get coverage unless you say “Mother May I” and provide notice within the time limits. The problem is that policyholders muff the notice requirements all the time. We all know that. Late notice happens all the time. As a result, policyholders often get no coverage for the claims but the insurers keep the premium.
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Eighth Circuit: Notice Provided During the Policy Period But After Seven Month Delay Not “As Soon as Practicable”
If an insured give notice of claim to its insurer during the policy period but seven months after a lawsuit is filed, has it provided notice “as soon as practicable” as required under the policy? Not according to a May 25, 2017 decision by the Eighth Circuit. The appellate court, applying Minnesota law, affirmed the district court’s holding that the provision of notice during the policy period but seven months after the lawsuit was filed against the insured did not satisfy the policy’s “as soon as practicable” notice requirement. While the Eighth Circuit’s ruling is consistent with the rulings of other courts on this issue, I still have concerns, as noted below. The Eighth Circuit’s opinion in the case can be found here.
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Late Notice Defense Rejected Where Insurer’s Response Undercuts Prejudice Claim
A recurring professional liability insurance coverage issue is whether or not the notice prejudice rule applies to claims made policies. In a recent decision, District of Colorado Judge Richard P. Matsch, applying Colorado law, held that the notice prejudice rule did apply to claims made professional liability insurance policy with an “as soon as practicable” notice requirement, and he also rejected the carrier’s late notice defense on the grounds that the insurer’s failure to involve itself in or even inquire about the underlying claim undermined its assertion that it had been prejudiced by the late provision of notice.
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Late Notice and Claims Made Date Issues
A recurring circumstance fraught with peril for policyholders is one in which the policyholder receives a demand letter in one policy period and then receives a related lawsuit in a subsequent policy period. The fact that these events straddle two policy periods creates potential for possible coverage preclusive issues having to do with Notice of Claim and Claims Made Date issues. In an April 13, 2017 order (here), Judge James Robart, applying the law of Washington State, held that because Zillow failed to give timely notice of a demand letter it received in the prior policy period, there was no coverage for the later lawsuit filed against Zillow in the subsequent policy period, because the claim had first been made at the time of the demand. As discussed below, this case and Judge Robart’s analysis raises some interesting issues.
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D&O Insurance: Prior and Pending Litigation Exclusion Doesn’t Preclude Coverage, Late Notice Does
A recent summary judgment ruling in a D&O insurance coverage lawsuit in the District of Connecticut addressed several potentially preclusive coverage issues. In her February 28, 2017 opinion (here), Judge Vanessa Bryant, applying Connecticut law, ultimately held that coverage for the underlying claim was precluded due to the insured’s late provision of notice of claim, a conclusion that under the facts presented arguably is unremarkable. What makes Judge Bryant’s opinion interesting is not her ruling on the notice of claim issue, but rather her analysis of other issues, particularly her conclusion that the “related claim” and “prior or pending litigation” exclusions did not preclude coverage. The facts involved present other seemingly critical issues that Judge Bryant’s decision does not address.
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D&O Insurance: Over Two-Year Notice Delay Does Not Bar Coverage Where Delay Did not Cause Prejudice
As anyone involved in the liability insurance claims knows, late notice of claim is a recurring problem. When policyholders’ notice of claim is late, liability insurers will often contend that the late notice precludes coverage. However, many jurisdictions have a so-called “notice prejudice” rule, specifying that insurers can deny coverage for late notice only if the late provision of the notice prejudiced the insurer. One of the states imposing the notice prejudice rule is Maryland, where the rule is statutory. Even where the notice prejudice rule applies, there is still the question of what must be shown in order for the rule to apply.
A January 27, 2017 decision by the Maryland Court of Appeals (the state’s highest court), held that a non-profit organization D&O insurer was not prejudiced by, and therefore could not deny coverage for, the policyholder’s two-and-a-half year delay in providing notice of claim, where the underlying lawsuit had been stayed almost the entire time and where the insurer could not have done anything to avoid the adverse factual determinations in a related but separate proceeding. The court’s ruling underscores the importance of the notice prejudice rule in protecting policyholder’s rights under liability insurance policies. The Maryland Court of Appeals’ opinion in the case can be found here. A February 6, 2017 post about the court’s ruling on the Hunton & Williams law firm’s Insurance Recovery Blog can be found here.
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D&O Insurance: What is a Claim and When Does Late Notice Defeat Coverage?
Among the key parts of a claims-made insurance policy are its definition of the term “claim” and its provisions specifying the policyholder’s notice of claim obligations. A recent Delaware Superior Court decision by Judge Eric Davis examined both of these basic policy features and considered what is required in order to meet the policy’s claim definition and in order for an insurer to raise late notice as defense to coverage. As discussed below, Judge Davis’s analysis raises some important considerations about these both of these basic policy features. Judge Davis’s September 29, 2016 opinion can be found here.
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The Need for Law Firms to Advise Their Clients About Potentially Available Insurance
A recurring theme on this blog is the problem that the late provision of notice creates for policyholders. Insurers frequently will seek to deny coverage when the policyholder does not provide timely notice of claim. As anyone with day-to-day claims involvement knows, there are a lot of reasons why policyholders fail to provide timely notice of claim. Sometimes the delayed notice is the result of a conscious decision, as, for example, when the policyholder decides that the claim isn’t all that serious. Sometimes, the failure to provide timely notice is the result of an oversight, as, for example, when the policyholder fails to recognize that the matter might be covered by insurance. That this type of oversight might happen is hardly surprising, since even very sophisticated business managers may not be fully aware of what their insurance might cover. When this happens, you would hope that the company’s attorneys would be looking out for them and would ask about the company’s insurance, as a way to help their clients to maximize available insurance protection.
As illustrated by a recent case from New York, it is an all-too-frequent occurrence that a company’s outside counsel fails to ask about the insurance or to inquire whether insurance might be available to protect the company. In discussing the New York case here, I have no interest in encouraging claims against companies’ counsel. Rather, my hope is that by highlighting these issues I will encourage both policyholders and their counsel to include the discussion of insurance into their standard routines at the outset of a claim, as a way to help ensure that policyholders avoid late notice problems and take full advantage of the insurance coverage for which they have paid. A copy of the May 11, 2016 New York intermediate appellate court case, Soni v. Pryor, can be found here. A June 14, 2016 memo from the Pullman & Comley law firm about the decision can be found here.
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O.K., The Notice Prejudice Rule Applies, But What Constitutes “Prejudice”?
One of the recurring battles in the continuing wars about whether or not a policyholder’s late provision of notice of claim precludes coverage is the question whether or not the “notice prejudice” rule applies. The notice prejudice rule specifies that the insurer can assert late notice as a coverage defense only if the delayed notice prejudiced the insurer. But if the notice prejudice rule applies, what constitutes “prejudice”? In an April 14, 2016 decision (here), the Fourth Circuit, applying Maryland law, addressed this issue and held that where the policyholder did not provide notice until after a $98.5 million default judgment had been entered in the underlying claim, the insurer was prejudiced and coverage under the policy was precluded. As discussed below, the ruling raises a number of interesting questions and also has wording implications for policy notice provisions.
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D&O Insurance: Late Notice and Excess Coverage
Everyone involved with D&O insurance knows that it is important to keep up with case law developments, in order to appreciate how courts are interpreting and applying various policy terms and conditions. But sometimes there is an additional reason why it is a good to keep up with court decisions – sometimes the cases provide practical lessons in the form of cautionary tales. That was certainly the case in a recent decision in which the Sixth Circuit, applying Kentucky law, affirmed a lower court ruling that late notice of claim precluded coverage under an excess D&O insurance policy. The policyholder had provided timely notice of claim to the primary carrier, but failed to provide notice to the excess carrier until six months after the policy had expired. The court’s conclusion that the late notice precluded coverage under the excess policy may not be surprising, but nevertheless the practical lesson – that is, that notice of claim should be provided to all of the carriers in the D&O insurance program – is an important one, as discussed further below. A copy of the Sixth Circuit’s February 29, 2016 opinion can be found here.
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