A Maryland intermediate appellate court has ruled that an insurer could not deny coverage based on untimely notice of a claim because the insurer could not show that it was prejudiced by the delay. Fund for Animals, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 226 Md. App. 644 (Md. Ct. Spec. App. Feb. 1, 2016).
The insurer issued a claims-made-and-reported policy to the policyholder, a non-profit organization. The policyholder filed a lawsuit under the Endangered Species Act (the ESA case). While the ESA case was pending, a defendant in the ESA case brought a RICO action against the policyholder, alleging that the policyholder had bribed an individual witness in the ESA case to testify falsely. The policyholder did not give the insurer notice of the RICO case until more than two years after that case was filed. By that time, the court in the ESA case had granted judgment in favor of the defendant, and, in so ruling, made a number of factual findings relevant to the RICO case. The insurer denied coverage for the RICO case based on the late notice. The policyholder brought suit for breach of the insurance policy. After a jury trial, the trial court granted the insurer’s motion for judgment.
The intermediate appellate court reversed and remanded for further proceedings. The court observed that under Maryland law, an insurer bears the burden of proving that a policyholder breached a policy by not giving it timely notice and that the late notice resulted in actual prejudice to the insurer. The policyholder argued that the insurer failed to show any prejudice. The insurer argued that if it had notice of the RICO case, it would have appointed its own panel counsel to defend the policyholder in the RICO case, monitored the ESA case, participated in the decision to stay the RICO case, and tried to settle the RICO case before the court made its ruling and factual findings.
The court agreed with the policyholder, noting that if the insurer had appointed panel counsel in the RICO case, the panel counsel could not have controlled the prosecution of the ESA case, and there was no evidence that appointing monitoring counsel would have had any impact on the outcome of the ESA case. The court also concluded that there was no evidence that the RICO case would not have been stayed, would have been adjudicated before the ESA case, or would have settled for less than it ultimately did had the insurer had timely notice. The court reasoned that the element of insurer control over the claim was missing here, as the insurer had no right to control any aspect of the ESA litigation. Thus, the court determined that there was no evidence that there was something the insurer could and would have done during the delayed notice period that, more likely than not, would have changed the outcome in the ESA case.