Absent Prejudice, Untimely Notice Does Not Preclude Coverage if Notice Provided During Renewal Policy Period
The Delaware Superior Court, applying Delaware law, has held that an insured’s failure to provide timely notice of a claim during the applicable claims-made policy period does not preclude coverage when the insured renewed the policy and provided notice of the claim during the renewal policy period, unless the insurer can prove prejudice as a result of the untimely notice. Medical Depot, Inc. v. RSUI Indem. Co., 2016 WL 5539879 (Del. Super. Ct. Sept. 29, 2016).
The insured, a medical device company, received a demand letter on June 18, 2013, which threatened a class action lawsuit against the company if it did not bring itself into compliance with California law. In the letter, the claimant demanded that the company notify all customers who had purchased an allegedly defective product of their right to request a reasonable remedy, and suggested that an appropriate remedy might be to provide full refunds to those customers. The claimant subsequently filed a class action complaint against the insured on March 27, 2014. The insured was not served with the initial complaint; however, it was aware that the complaint had been filed. On June 12, 2014, the claimant filed an amended complaint, which was served on the insured on September 2, 2014.
The insured held two consecutive claims-made D&O policies with the same insurer, which covered the periods from June 15, 2013 to June 15, 2014 and June 15, 2014 to June 15, 2015. The policies defined “Claim” to mean, in relevant part, a “written demand for monetary relief” or a “civil proceeding for monetary relief which is commenced by Service of a complaint or similar pleading.” The policies included a “New York Regulation 121 Disclosure Supplement,” which defined “Claims-made relationship” to mean the time between the first policy issued to the insured and the expiration of the last policy issued to the insured “where there has been no gap in coverage.” The supplement also stated that coverage is provided “only if the claim . . . is first made against the insured and reported to us in writing during the policy period, any subsequent renewal and any applicable discovery period.” The policies also included a notice provision, which stated, in relevant part, that, as a condition precedent to coverage, the Insured must give written notice of the claim to the insurer “as soon as practicable after such Claim is first made,” but no later than thirty days “after either the expiration date or any earlier cancellation date of this policy.
The insured first provided notice of the underlying action to the D&O insurer on September 9, 2014, during the renewal policy period. The insurer denied coverage on the grounds that the insured had failed to provide timely notice.
On cross-motions for summary judgment, the court determined that the Claim was first made during the 2013-2014 Policy Period, when the initial complaint was filed. The court explained that, although the complaint was not served on the insured, it constituted a claim because it was a demand for monetary relief of which the insured was aware. The court rejected the argument that the initial demand letter constituted a claim, noting that it contained no demand for money.
Based on the court’s conclusion that the claim was first made during the initial policy period, the court found that the insured did not comply with the policies’ notice provision as it failed to provide notice of the initial complaint “as soon as practicable” or within 30 days of the first policy’s expiration date. However, the court went on to hold that, because the first policy was renewed, and because of the continuous claims-made nature of the insurer’s relationship with the insurer as reflected in the New York Regulation 121 Disclosure supplement to the policies, the claim fell within the two-year period of claims-made insurance coverage provided by the consecutive policies. As such, the court held that the insurer must demonstrate prejudice in order to deny coverage on the grounds of late notice. As neither party had addressed prejudice in their respective summary judgment motions, the court did not grant either party’s motion in its entirety.