No Coverage for Three Lawsuits Related to Email Not Timely Noticed; No Showing of Prejudice Required Where Notice Not As Soon As Practicable
The United States District Court for the District of Columbia, applying District of Columbia law, has held that there is no coverage for three lawsuits filed against an insured company because the lawsuits related to an email demand previously received by the company which it failed to report during the applicable claims made and reported policy period. The court further held in the alternative that, even if the email was not a “claim,” the company failed to provide notice of the lawsuits under the subsequent policy as soon as practicable and the insurer was entitled to deny coverage under the later policy, without showing prejudice. Zurich Am. Ins. Co. v. UIP Cos., 2021 WL 602901 (D.D.C. Feb. 16, 2021).
After drafting a final term sheet for an agreement redistributing ownership stakes in the insured company, but before execution of a final agreement, one of the principals of the company passed away, leaving his equity interest and shares in the company to his wife. The wife and the remaining principals entered into negotiations regarding company operations and fair compensation, but ultimately disagreed on the legal effect of the term sheet. The wife sent letters to the company in August 2017 and October 2017, and an email to the company’s counsel in February 2018, in which she sought to obtain either fair value for her equity stake or participation in management of the company. When negotiations faltered, the wife filed three lawsuits between the period of June 2018 and August 2018, alleging that the principals denied her any participation or information about the company and issued stock to dilute her ownership interest. Six months after the third lawsuit was filed, the company forwarded copies of the three complaints to its D&O insurer.
The insurer issued claims made and reported insurance policies to the company for the March 1, 2017 to March 1, 2018 policy year (the 17-18 Policy) and the subsequent March 1, 2018 to March 1, 2019 policy year (the 18-19 Policy). The policies required the company to give written notice of any claim made against it “as soon as practicable” after a qualifying officer or employee “first learns of such claim, but in no event later than . . . ninety (90) days after expiration of the Policy Period.” The insurer declined coverage for the lawsuits under both policies and filed a declaratory judgment action.
The court held that there was no coverage for the lawsuits. First, the court concluded that the February 2018 email constituted a “Claim” under the 17-18 Policy and that the email and the later lawsuits were related and thus constituted a single claim under the 17-18 Policy. The court determined that the email and the lawsuits were related because they all alleged the company’s failure to recognize and compensate the wife for her equity stake. The court further held that the company failed to report the claim (i.e., the email) within the required reporting period of the 17-18 Policy and as such there was no coverage for the related lawsuits.
The court went on to state that, even if the initial February 2018 email did not constitute a claim under the 17-18 Policy, the lawsuits would not be covered under the later 18-19 Policy in place when the lawsuits were filed. The court explained that, although the company provided notice of the lawsuits within the reporting period of the 18-19 Policy, the company’s notice of the lawsuits, which was seven months after the third lawsuit was filed and nine months after the first lawsuit was filed, was not “as soon as practicable” and thus did not comply with the 18-19 Policy’s notice provision. Notably, the court concluded that the insurer was entitled to deny coverage for late notice without having to show that it had been prejudiced by the insured’s delay.