Seven-Month Delay Constitutes Late Notice as a Matter of Law

A Minnesota federal district court has held that an insurer was entitled to summary judgment in a breach of contract suit brought by its policyholder after the insurer denied coverage because the policyholder failed to provide notice of the suit “as soon as practicable” in accordance with the terms of the policy. Food Market Merch., Inc. v. Scottsdale Indem. Co., 2016 WL 3976606 (D. Minn. July 22, 2016).

The insured, a food marketing and distribution company, was sued by a former employee on January 13, 2014 in Minnesota state court for breach of contract, unjust enrichment and violation of Minnesota labor laws. The court granted partial summary judgment and damages of nearly $500,000 to the former employee on June 27, 2014, and the insured then attempted to negotiate a settlement with the former employee. The insured notified its employment practices liability insurer of the suit on August 22, 2014. The insurer issued a tentative denial of coverage on September 30, 2014 and unequivocally denied coverage on June 17, 2015 based on both late notice and a determination that the policy did not cover the suit at issue.

In the coverage litigation that followed, the court held that the insurer was entitled to summary judgment based on the policyholder’s failure to comply with the notice provisions of the policy, which stated that the insured “shall, as a condition precedent to their rights to payment . . . give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty days after the end of the Policy Period.” The court held that the notice language was unambiguous and dismissed as unreasonable the policyholder’s contention that “sixty days after the end of the Policy Period” defined “as soon as practicable.” While an insured’s compliance with notice provisions is often a question of fact, here the court found that the insured did not identify any facts from which a factfinder could conclude that it provided notice as soon as practicable.

The policyholder also argued that the insurer must show prejudice to deny coverage based on late notice, but the court held that there is no such requirement under Minnesota law when the policy provides that notice is a condition precedent to coverage, as the policy did here. The court also rejected the insured’s contentions that the insurer waived its right to notice as soon as practicable or should be estopped from asserting untimely notice as a defense to coverage. Finally, the court held that the insurer was entitled to summary judgment on the insured’s claim for bad faith, because that claim rested on the same facts as its non-viable breach of contract claim.

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