Third Circuit Holds No Showing of Prejudice Required Under Delaware Law to Enforce Late Notice Provision in Claims-Made Policy

The United States Court of Appeals for the Third Circuit, applying Delaware law, has held that an insurer was not obligated to provide coverage where the insured had provided notice of its claim after the end of the relevant policy period, even without a showing of prejudice. Georgian American Alloys, Inc. v. AXIS Ins. Co., No. 21-1947, 2022 U.S. App. LEXIS 24536 (3d Cir. Aug. 31, 2022). Wiley represented the insured in the trial court and appellate proceedings.

The insured was named in a lawsuit alleging that it had issued illegitimate loans as part of an extensive money laundering scheme. The insured provided notice of the lawsuit to its liability insurer, but the notice came nearly a year after the lawsuit was originally filed, and almost two months after the end of the policy’s reporting period (which permitted notice to be filed up to 90 days after the end of the policy period). The insurer denied coverage for the suit in part because the notice was furnished after the reporting period of the claims-made-and-reported policy. Although the insured conceded that notice was late, it urged that the insurer could not deny coverage on that basis because the insurer had not been prejudiced by the late notice.

In subsequent coverage litigation, the trial court agreed with the insurer and dismissed the action, holding that notice of the underlying lawsuit was late and that Delaware law did not require a showing of prejudice to the insurer for that defense to apply. The Third Circuit affirmed the dismissal on appeal. It confirmed that “Delaware [] courts that have examined this issue agree that Delaware law does not condition denial of coverage under a claims-made policy upon a showing of prejudice.” The court also rejected the insured’s argument that “a prejudice requirement exists whenever an insurer issues a renewal policy.” While parties could “expressly agree to such terms,” the appellate court noted, the subject policy included no such provision, such that the insurer “need not show prejudice to enforce the notice requirement.”

Notably, the court reached this conclusion despite the insured’s excuse that its notice was delayed because its offices were closed during the policy period because of COVID-19. The court stated that “we appreciate [the insured’s] argument that it could not notify [the insurer] of the claim because the latter’s offices were closed because of the COVID pandemic. However, allowing for that eventuality would require use to read language into the insurance contract that would amend the notice provision. We will not interpret the notice provision as if it had language that the parties never included or agreed upon.”