No Coverage for Suit Based on Unreported Demand Made in Prior Policy Period

The United States Court of Appeals for the Eighth Circuit has held that an insured’s failure to provide notice of a demand letter during its claims-made-and-reported policy period precluded coverage for both that claim and a related lawsuit filed during the following policy period.  Philadelphia Consol. Holding Corp. v. LSI-Lowery Sys. Inc., 2014 WL 127368 (8th Cir. Jan. 9, 2015). 

The insured received complaints during 2007 from a customer regarding the insured’s computer and technology consulting services.  The complaints escalated, eventually including a letter from the customer’s attorneys threatening to “pursue all legal and equitable remedies” and a later email “offering [the insured] the chance to resolve this situation by refunding the TOTAL funds we’ve paid.”  In 2008, the customer filed suit against the insured asserting claims arising from the same performance issues identified in the 2007 complaints.

The insured was covered under two claims-made policies for 2007 and 2008.  The 2007 policy afforded coverage for claims “first made against the insured and reported to the [insurer] during the [2007] Policy Period.”  The 2008 policy afforded coverage for claims “first made against [the insured] during [2008] policy period.”  Both policies defined “Claim” to include a “demand for money.”

The court held that no coverage was available under the 2007 policy because the insured did not give notice of a claim or potential claim within the 2007 policy period, and no showing of prejudice is required under applicable Missouri law to deny coverage for a failure to give notice during the policy period of a claims-made-and-reported policy.  No coverage was available under the 2008 policy, the court held, because the customer’s 2007 demands constituted a “demand for money” and therefore a “Claim,” which was first made prior to the 2008 policy period.