Insurer Need Not Demonstrate Prejudice to Disclaim Coverage for Late Notice under Excess Claims-Made Policy
The United States District Court for the Eastern District of Kentucky has held that, where an excess claims-made policy requires—as conditions precedent to coverage—notice of a claim within 90 days of the policy’s expiration and within 30 days of notice to a primary carrier, an insurer need not demonstrate prejudice to disclaim coverage. Ashland Hosp. Corp., d/b/a King’s Daughters Med. Ctr. v. RLI Ins. Co., Civil Action No. 13-143-DLB-EBA (E.D. Ky. Mar. 17, 2015).
On December 30, 2011, the insured provided notice to its primary D&O carrier for the October 1, 2010 to October 1, 2011 policy period of a United States Department of Justice investigation that had commenced on July 25, 2011. The insured first gave its excess D&O carrier for that policy period notice of the investigation on June 29, 2012. The excess policy generally followed form to the primary policy, which provided that “[a]s a condition precedent to any to payment in respect of any Claim . . . [the insured] must give [the insurer] written notice of such Claim, with full details, as soon as practicable after it is received . . . [i]n no event may notice be provided more than ninety (90) days after expiration . . . of the Policy Period.” The excess policy separately provided that “[t]he Insureds shall, as a condition precedent to exercising their rights under th[e] Policy, give the Insurer written notice of any of the following events as soon as practicable, but in no event later than thirty (30) days after such event[,]” including, in pertinent part, “any notice by the Insured under any Underlying Insurance[.]” The excess carrier disclaimed coverage for the investigation, stating that the insured’s notice was untimely.
In the coverage litigation that followed, the United States District Court for the Eastern District of Kentucky held that, in first providing the excess carrier notice over 90 days after its excess policy’s expiration and over 30 days after first providing the primary carrier with notice, the insured gave late notice and failed to satisfy conditions precedent to coverage. The court rejected the insured’s arguments that one of the notice provisions was ambiguous because the provision did not appear on either the first page of the primary policy or in the insuring clauses and had been deleted from the renewal version of the excess policy. In addition, the court rejected the insured’s contention that the excess policy did not follow form to the underlying policy’s notice provisions because the excess policy had supplemental reporting requirements. Moreover, the court rejected the insured’s argument that, pursuant to the excess policy’s provision requiring notice within 30 days of specified events, it was only required to give notice of one event rather than all of them.
In finding that the insured failed to comply with the excess policy’s notice requirements, the court held that the excess carrier did not have to show prejudice in order to deny coverage for late notice under a claims-made-and-reported policy. The court distinguished the excess policy from the occurrence-based policy at issue in Jones v. Bituminous Casualty Corporation, 821 S.W.2d 798 (Ky. 1991), which adopted a notice-prejudice rule, on four bases: (1) the excess policy was not a contract of adhesion; (2) unlike the policy in Jones, the excess policy provided a “definite time” when notice was due; (3) unlike the insured in Jones, the excess carrier’s insured was not statutorily obligated to purchase its policy; and (4) applying a notice-prejudice rule to a claims-made policy would result in a windfall for the insured.