Notice-Prejudice Rule Inapplicable Where Insured Fails to Provide Any Notice Under Claims-Made Policies
The United States District Court for the District of Colorado, applying Colorado law, has held that the notice-prejudice rule does not apply to claims-made liability policies where an insured did not merely provide late notice, but failed to provide any notice directly to an insurer. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Estate of Calendine, 2022 WL 3446023 (D. Colo. Aug. 17, 2022).
In December 2019 and January 2020, dental patients brought 10 lawsuits in state court alleging negligence against a dentist, who died after the suits had been filed. Prior to his death, the dentist had not notified his professional liability insurers of the lawsuits or entered an appearance in any of them. As a result, all 10 lawsuits went into default, and eight had default judgments entered against the dentist’s estate, with the monetary judgments amounting to $540,556.59. In August 2020, counsel for the patients sent a letter to one of the dentist’s insurers notifying them of the underlying lawsuits; that insurer, in turn, contacted the dentist’s other insurer. The latter insurer hired defense counsel for the dentist’s estate. The defense counsel attempted to set aside the default judgments, but those efforts were unsuccessful.
In the ensuing coverage litigation, the court held that the policies required the insured dentist to provide written notice of a “claim” or “suit” to trigger coverage, and that the insurers were not required to show prejudice because the notice-prejudice rule did not apply. First, the court concluded that notice was necessary to trigger coverage because the two policies required the insured to “provide [the insurer] with written notice of the ‘claim’ or ‘suit’ as soon as practicable” and “as soon as possible,” respectively. Second, the court concluded that the notice-prejudice rule applied to occurrence policies and to liability policies where the insurer received late notice from the insured, but that the rule did not apply to claims-made liability policies where there was a complete lack of notice. In cases where the insurer never received notice directly from the insured, the court held, failure to notify the insurer constituted a material breach of the insurance contract relieving the insurer of the duties to defend and indemnify. Because the insurers had plausibly alleged that the dentist breached the policy by failing to provide any notice, as opposed to simply providing late notice, the court denied the patients’ motion to dismiss the insurers’ declaratory judgment action and held that the insurers need not show prejudice.
The court also rejected the patients’ argument that the insurers are precluded from showing prejudice based on issue or claim preclusion. The court concluded that the patients had not shown that the claims and issues in the coverage litigation were identical to the ones in the state court lawsuits.