Fifth Circuit: Late Notice of First Claim Bars Coverage for Related Claims

Applying Texas law, a federal appellate court has held that an insured is not entitled to coverage for subsequent related claims when the insured gave late notice of the first claim.  ADI Worldlink, L.L.C.. v. RSUI Indem. Co., 2019 WL 3521815 (5th Cir. Aug. 2, 2019).

The insured purchased two consecutive claims-made-and-reported insurance policies for the 2013-2014 policy period and 2014-2015 policy period, providing coverage for claims that were timely noticed to the insurer.  The 2014-2015 policy also contained a provision that deemed all related claims based on or arising out of the same or related facts to have been made at the time of the earliest such claim.  Several claims were made against the insured in connection with the insured’s alleged failure to pay overtime wages to nonexempt employees.  However, the insured failed to give notice to the insurer of the first such claim, which it received during the 2013-2014 policy period.  The insured only provided notice of the subsequent claims made during the 2014-2015 policy period.  The insurer deemed all of the claims to be a single claim made under the 2013-2014 policy and denied coverage for them due to the insured’s late notice of the first claim. After the insured filed suit against the insurer, the district court ruled in favor of the insurer on summary judgment and held that the insurer properly denied coverage for all of the claims due to the insured’s failure to give timely notice of the first claim.  The insured appealed.

On appeal, the United States Court of Appeals for the Fifth Circuit held that coverage was unavailable because the claims all constituted a single, related claim first made—but not properly reported—during the first policy period.  In its analysis, the court distinguished a state intermediate appellate court decision in Gastar Exploration Ltd. v. U.S. Specialty Ins. Co., 412 S.W.3d 577 (Tex. App. 2013), because it concluded that there was no inconsistency in the policy language here, in contrast with the state court’s analysis in Gastar.  Instead, the relevant policy provision simply caused the 2014-2015 claims to be deemed subject to the 2013-2014 policy.  The court determined that the 2013-2014 policy would have provided coverage for all of the claims against the insured but for the insured’s failure to comply with that policy’s notice provision.  The absence of notice, joined with the fact that the 2014-2015 policy caused the later claims to fall under the 2013-2014 policy, precluded coverage.

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