In its recent decision in Sharp Realty & Mgmt. v. Capitol Specialty Ins. Corp., 2013 U.S. App. LEXIS 243 (11th Cir. Jan. 4, 2013), the United States Court of Appeals for the Eleventh Circuit, applying Alabama law, considered whether an insured’s untimely notice of suit under a professional liability policy vitiated its right to coverage, regardless of prejudiced. Additionally, the court addressed the concepts of related claims.
The insured, Sharp Realty & Management (“SRM”), was insured under a professional liability policy issued by Allied World Assurance Company (“AWAC”) during the period November 2007 through November 2009, and later under a professional liability policy issued by Capitol Specialty Insurance Corp. (“Capitol”) for the period November 2009 through 2010. In July 2009, SRM was sued by several parties for its alleged mismanagement of a property. SRM, however, did not give notice of the suit to AWAC until March 2010 – some eight months later. SRM also gave notice of the underlying suit to Capitol. AWAC agreed to provide SRM with a defense under a reservation of rights on several grounds, including SRM’s failure to comply with its policy’s notice provision. Capitol denied coverage to SRM on the basis that the claim was first made prior to the inception date of its policy. SRM later brought a declaratory judgment action against AWAC and Capitol in an Alabama federal district court. Both insurers were successful on motion for summary judgment.
On appeal, the Eleventh Circuit considered first whether SRM’s non-compliance with the notice provision in the AWAC policy precluded its right to coverage. In considering this issue, the court noted that under Alabama law, the only relevant considerations concerning an insured’s compliance with a notice provision are length of delay and reason for delay. Under Alabama law, prejudice is not a consideration unless the policy fails to contain a provision making timely notice a condition precedent to coverage. See, Travelers Indem. Co. of Connecticut v. Miller, 86 So. 3d 338, 342 (Ala. 2011); American Fire & Cas. Co. v. Tankersley, 116 So. 2d 579, 581 (Ala. 1959). The notice provision in the AWAC policy stated:
B. WHAT TO DO IF AN INSURED HAS A CLAIM
If there is a Claim, or a circumstance or incident likely to result in a Claim, the Insured must promptly do the following:
1. Notify the Company in writing . . .
2. Send the Company copies of all . . . legal papers received in connection with the Claim or potential Claim; . . .
C. LEGAL ACTION AGAINST THE COMPANY . . .
2. No action may be brought against the Company unless the Insured has fully complied with all terms and conditions of this Policy.
SRM argued that this notice provision did not constitute a condition precedent to coverage because it did not contain that phrase, and as such, AWAC need be prejudiced in order to disclaim coverage. The court disagreed, explaining that the notice provisions “make it clear that SRM was required to promptly notify [AWAC] of any claim before it could bring an action against it.” As such, the court concluded that the only relevant considerations were the length of SRM’s delay and the reason for its delay.
With respect to the first factor, the court held as a matter of law that SRM’s eight-month delay in giving notice to AWAC was late, observing that in Nationwide Mut. Fire. Ins. Co. v. Estate of Files, 10 So. 3d 533, 536 (Ala. 2008), the Alabama Supreme Court had held that a shorter delay of five months was late as a matter of law. The court also concluded that SRM could offer no reasonable excuse for its eight-month delay. While SRM pointed out that it immediately gave a copy of the lawsuit to its attorney, and that its attorney failed to send a copy of the suit to AWAC, the court nevertheless held that the failure of SRM’s attorney was still a delay on SRM’s part and thus not a reasonable excuse for its non-compliance with the policy’s notice provision. Thus, finding that the length of SRM’s delay in giving notice of suit was too long, and that there was no reasonable excuse for this delay, the court affirmed the lower court’s ruling of summary judgment in AWAC’s favor.
Turning to coverage under Capitol’s policy, the court agreed that the claim was first made in July 2009, prior to the inception date of Capitol policy, and thus did not trigger that policy’s coverage that was limited to claims first made and reported during the policy period. SRM argued that because the underlying suit was amended during the policy period to include new claims regarding information first learned by plaintiffs during discovery, the amended complaint should be considered a new claim first made after the policy’s November 2009 inception date. The Capitol policy, however, contained a multiple claims provision stating that all claims arising out of the same “erroneous act” would be considered first made on the date the first claim was made against the insured. Additionally, the Capitol policy contained a related acts provision stating that all erroneous acts that are “logically or causally connected by common facts, circumstances, transactions, events and/or decision” would be considered a single erroneous act. The court agreed that the new erroneous acts alleged in the amended complaint related to those initially pled, explaining:
All of the claims in the underlying action are based on related Erroneous Acts. The same claimant sued the same defendant for the same type of wrongdoing (failure to collect rent and maintenance fees) at the same location over an overlapping period of time. Both audits examined whether SRM was collecting rent and fees from the same tenants in accordance with the same leases. Thus, while there may be separate occurrences, those occurrences are clearly related because they are "logically or causally connected by common facts, circumstances, transactions, events and/or decisions.
As such, the court agreed that all claims arising out of the alleged erroneous act would be deemed first made in July 2009, and thus prior to the inception date of the Capitol policy.