Insurer Need Not Demonstrate Prejudice from Late Notice Under Claims Made and Reported Policy
The United States Court of Appeals for the Sixth Circuit, applying Ohio law, has held that an insurer does not need to show prejudice resulting from late notice under a claims made and reported policy in order to deny coverage. McCarty v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa, 2017 WL 2781561 (6th Cir. June 27, 2017). The court also held that an insurer does not have actual or constructive notice of a claim from a public court docket.
An attorney defending two clients in a breach of contract action failed to file an answer to the complaint, resulting in a default judgment being entered against the clients. The clients filed a malpractice claim against the attorney in January 2011. The attorney maintained a malpractice insurance policy for the claims made and reported policy period of February 2010 through February 2011. On December 8, 2011, ten months after the policy period had ended, the clients notified the insurer’s policy administrator of the claim.
The clients obtained a judgment against the attorney in January 2015. In June 2015, they filed suit against the insurer and its policy administrator to collect on the judgment from the insurance policy proceeds. The insurer and its administrator defended by asserting that the claim was not timely reported within the policy period. The clients argued that, while the notice was given outside of the reporting period, the insurer and its policy administrator had actual or constructive notice of the claim because a public court docket reflected the action against the attorney. The clients also argued that the insurer was not prejudiced by the late reporting. The district court granted judgment on the pleadings in favor of the insurer and its administrator. The clients appealed.
The Sixth Circuit affirmed. First, the court rejected the argument that the public court docket provided actual or constructive notice, reasoning that there is no provision in the policy that required the insurer or its administrator to monitor a public docket for claims. Second, the court held, based on its decision in United States v. A.C. Strip, 868 F.2d 181 (6th Cir. 1989), that under Ohio law an insurer need not demonstrate prejudice to deny a claim reported after expiration of the policy period of a claims made and reported policy. Because it was undisputed that notice was untimely, the court affirmed.