Massachusetts Court Confirms No Prejudice Required to Deny Coverage for Late Notice under Claims-Made Policy

The Appeals Court of Massachusetts has affirmed judgment in favor of an insurer under a claims-made policy on the basis that the claim was not timely reported.  See Meadows Constr. Co. LLC v. Westchester Fire Ins. Co., 2022 WL 151579 (Mass. App. Ct. Jan. 18, 2022).  The appellate court held that the notice requirement in a claims-made policy is “of the essence” in determining whether coverage exists, and an insurer need not show it was prejudiced by late notice of a claim in order to deny coverage on the basis of an insured’s untimely reporting of a claim.

An insured sought coverage under a claims-made policy for a wage and hour class action complaint filed after the expiration of the policy.  The insured did not dispute that the claim was made after the policy’s expiration but argued that it was entitled to coverage based on the policy’s notice of circumstance provision, which stated, “[i]f, during the Policy Period . . . any of the Insureds first becomes aware of facts or circumstances which may reasonably give rise to a future Claim . . . and if the insureds, during the Policy Period . . . give written notice to the insurer as soon as practicable . . . then any Claim made subsequently arising out of such Wrongful Act shall be deemed . . .  to have been made at the time such written notice was received by the insurer.”

The insured argued that it did not become aware of facts or circumstances which could reasonably give rise to the claims asserted in the wage and hour class action complaint until it was served with the complaint after the policy period had expired and thus its notice shortly thereafter was timely.  The court noted that much of the parties’ briefing focused on whether events that took place during the policy period were sufficient to put the insured on notice of a potential future claim.  However, the court held that it need not decide that issue because the insured never provided written notice of the circumstances during the policy period and thus could not find “safe harbor” in the provision.

The insured also argued that the insurer could not deny coverage based on untimely notice of the claim unless it could demonstrate prejudice, relying on Chas. T. Main, Inc. v. Fireman’s Fund Ins. Co., 406 Mass. 862 (1990).  The court held that the insured “misread” Chas T. Main in which the Massachusetts Supreme Judicial Court held that an insurer need not show prejudice under a claims-made policy.  The court agreed with the Supreme Court’s reasoning that such a requirement would “defeat the fundamental concept on which claims-made policies are premised.”

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