Applying Minnesota law, the Court of Appeals of Minnesota has held that, where timely notice is a condition precedent for coverage under a claims-made-and-reported policy, an insurer need not demonstrate actual prejudice to disclaim coverage. Michaels v. First USA Title, LLC, 2015 WL 1514018 (Minn. Ct. App. Apr. 6, 2015).
The appellate court also determined that, where an insurer was given no opportunity to investigate an underlying claim and participate in the insured’s defense and there was a large judgment against the insured, the insurer suffered actual prejudice in any event. The court also held that an insured’s notice of wrongful acts that could result in a claim, along with notice of a prior suit, did not constitute adequate notice of a later-filed suit.
The insured’s claims-made-and-reported E&O policy, which provided coverage from March 29, 2007 to March 29, 2008, required—as a condition precedent to coverage—that the insured give the insurer written notice “as soon as practicable of any claim made against the [i]nsured.” In addition, the policy’s “special reporting clause” provided, in relevant part:
If during the Policy Period . . . the Insured shall become aware of any occurrence which may reasonably be expected to give rise to a claim against the Insured for a Wrongful Act which occurs on or after March 29, 2002 and prior to the end of the Policy Period, and provided the Insured gives written notice to the Company during the Policy Period . . . of the nature of the occurrence and specifics of the possible Wrongful Act, any claim which is subsequently made against the Insured arising out of such Wrongful Act shall, for the purposes of this policy, be treated as a claim made during the currency hereof.
Pursuant to this provision, and during the policy period, the insured provided the insurer with written notice of wrongful acts that occurred in June and July 2006 and of a subsequent lawsuit. However, the insured did not provide the insurer with notice of a 2010 lawsuit which culminated in a judgment against the insured totaling nearly $850,000. Seeking to access insurance proceeds of the expired policy, the underlying claimants from the 2010 lawsuit sought leave to file a supplemental complaint against the insurer. The trial court denied leave on the grounds that there was no coverage under the policy.
On appeal, the Court of Appeals of Minnesota affirmed the trial court’s ruling, holding that, because timely notice was a condition precedent to coverage and the insured did not provide notice of the 2010 lawsuit, the policy at issue did not afford coverage for that lawsuit. According to the court, the policy’s special reporting provision did not negate the insured’s obligation to notify the insurer of claims “as soon as practicable” merely because it converted the policy from a claims-made policy to an occurrence-based policy with respect to claims arising out of reported wrongful acts. The court also rejected the underlying claimants’ argument that the insurer had to show actual prejudice to disclaim coverage for late notice, noting that the insurer’s policy expressly made timely notice a condition precedent for coverage. According to the court, even if the insurer had to show actual prejudice, because the insured gave the insurer no opportunity to investigate the underlying claim or participate in its defense and suffered a large judgment, coverage would not attach under the policy.
The court also rejected the underlying claimants’ argument that the insurer’s denial of coverage violated the Minnesota Unfair Claims Practices Act, holding that the statute did not permit private causes of action.