Insurer Must Show Prejudice to Deny Coverage For Late Reporting Under Claims-Made-and-Reported Policies

The United States District Court for the District of Maryland, applying Maryland law, held that a professional liability insurer could not deny coverage under claims-made-and-reported policies based on late reporting without showing actual prejudice. Aspen Specialty Ins. Co. v. Dormu, 2026 WL 1875747 (D. Md. June 30, 2026).

The underlying matter involved a medical malpractice claim against a physician and medical practice. Before filing suit, the claimant initiated Maryland’s health care alternative dispute process and obtained an order transferring the matter to court. The administrative office mailed the transfer order to the insureds in September 2021, before the relevant insurance policies expired on October 9, 2021. On October 19, 2021, after a complaint was filed, the insureds reported the matter to the insurer, and the insurer denied coverage based on untimely notice.

The insurer issued a policy to the medical practice and a separate policy to the doctor. The policies covered “any claim first made” or “potential claim” first brought to the insured’s attention or first discovered during the policy period. A “potential claim” meant “an incident which the Insured reasonably believes will result in a claim for damages.” The policies required claims and potential claims to be reported during the policy period. In the coverage litigation, the insureds argued that the administrative transfer order triggered coverage under the policies and that Maryland Insurance Code § 19-110 required that the insurer prove that it was actually prejudice in order to deny coverage for late reporting.

The court agreed with the insureds and granted summary judgment in their favor. The court found that the transfer order and related materials constituted a “potential claim.” The transfer materials identified the claimant, captioned the matter against the insureds, and stated that the case was being transferred to court. The court explained that, given Maryland’s medical malpractice process, upon receipt of the transfer materials, the insureds knew, or reasonably should have known, that a claim for damages was likely.

The court further held that the insurer could disclaim coverage for late reporting only by proving that it was actually prejudiced by the late notice. The court determined that the insurer had not made the showing. In reaching this conclusion, the court explained that the insurer received notice ten days after the deadline and five days after service, with no evidence that the delay impaired its ability to investigate, appoint counsel, direct the defense, pursue settlement, or present outcome-determinative evidence.