A federal district court in Missouri granted insurer Philadelphia Indemnity Insurance Company’s Motion for Summary Judgment in a coverage dispute finding that the insured, Secure Energy, Inc., did not provide timely notice of a claim as required under the D &O Policy. In Secure Energy, Inc. v. Philadelphia Indemnity Insurance Company, case number 4:11-cv-01636 (E.D. Mo. May 16, 2013), the court found that not only did Secure Energy wait too long before reporting the claim, but also that the insurer did not have to demonstrate it was prejudiced by the late notice.
Secure Energy was insured under several D&O policies issued by Philadelphia between October 11, 2007 and October 11, 2012, which provided coverage on a “claims made” basis. The policies required that Secure Energy provide notice to Philadelphia of all claims as soon as practicable but no later than 60 days after the expiration of the policy. On December 20, 2007, Secure Energy received a memorandum from a former employee seeking payment of unpaid commissions totaling $1,800,000. On May 16, 2008, the former employee filed suit against Secure Energy seeking his commission plus $2,000,000 in punitive damages. Secure Energy’s first notice to Philadelphia was on May 4, 2011. Philadelphia denied Secure Energy’s tender on the ground that the notice was untimely. Secure Energy filed suit seeking a declaratory judgment that Philadelphia was obligated to provide coverage for the defense and indemnity costs incurred in the former employee’s lawsuit.
Secure Energy argued that, although it did not strictly comply with the notice requirement under the D&O policies, Philadelphia could not deny coverage unless it first established that it was prejudiced by the late notice. In support of its position, Secure Energy cited to a number of decisions in Missouri which held that under an “occurrence” policy the insurer must first demonstrate that it was prejudiced by the insured’s late notice. The federal district court rejected Secure Energy’s argument, finding that the Missouri Supreme Court distinctly held that an insurer is not required to show prejudice resulting from an untimely notice under a “claims made” policy. In reaching its decision, the court noted that, unlike an “occurrence” policy where the occurrence of an act or omission during the coverage period triggers coverage, a “claims made” policy provides coverage when the act or omission is discovered and brought to the attention of the insurer, regardless of the occurrence date. Because there was no question that Secure Energy failed to provide timely notice, the court held that, under Missouri law, Philadelphia was not required to demonstrate that it was prejudiced by the late notice.