No Coverage For Claims Interrelated with Prior Improperly-Noticed Claim

A federal district court, applying Texas law, 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, LLC v. RSUI Indem. Co., 2017 WL 4112112 (E.D. Tex. Sept. 18, 2017).

The company purchased consecutive claims-made-and-reported management liability policies for the 2013-2014 and 2014-2016 periods.  The policies contained a prior litigation date of 2012.  During the first policy period, an employee filed an arbitration claim alleging that the company had improperly categorized him as an “exempt” employee for FLSA purposes.  The company failed to timely notify its insurer.  Additional arbitrations by other employees raising the same issue were filed during the second policy period.  The company then provided notice of the original arbitration and subsequent claims in 2015.  The insurer denied coverage on the basis that all the arbitrations constituted a single, related claim first made, but not properly reported, during the first policy period.

The district court granted summary judgment for the insurer.  The court rejected the company’s contention that Gastar Exploration Ltd. v. U.S. Specialty Ins. Co., 412 S.W.3d 577 (Tex. App. 2013), constituted controlling law.  Citing Gastar, the company asserted that the policies’ prior litigation date of 2012 meant that the insurer only could deny coverage for claims first made before 2012.  The court disagreed, holding that the prior litigation date in the policies was irrelevant and the company’s own actions in providing late notice of the first arbitration precluded coverage.  The court further held that, under the policies’ related claim provision, once the arbitrations were deemed to constitute a single claim, the terms of the first policy—including compliance with the reporting provision—controlled.

The court also dismissed the company’s statutory claims.  The court explained that the extra-contractual causes of action failed in the absence of coverage.