A federal court in Kentucky ruled on March 17 that Ashland Hospital had forfeited $10 million of insurance coverage because it was late in notifying its insurance company of the claim.
Ashland had a $15 million directors and officers liability policy with Darwin and a $10 million excess policy with RLI, both for a one-year term beginning October 1, 2010. Ashland renewed both policies for another year at the end of that term. Both were claims-made rather than occurrence policies.
In July 2011 the hospital received a subpoena from the U.S. Department of Justice triggering an investigation that eventually resulted in a settlement costing the hospital $41 million.
The hospital notified Darwin in December 2011. Darwin acknowledged coverage and by April 2014 had paid the full $15 million limit.
The notice to RLI wasn’t as prompt. RLI received its first notice on June 29, 2012. RLI denied coverage, on the grounds that the notice was late in two different ways. First, the policy called for notice within 30 days of notice to the underlying carrier, Darwin. Second, the notice should have come before the end of the first one-year term—the term year in which Ashland received the subpoena.
Ashland sued RLI, arguing that for several technical reasons its notice wasn’t really late. Besides, the hospital argued, even if the notice was late, RLI wasn’t harmed by receiving late notice.
The federal court disagreed with Ashland and on Tuesday granted RLI summary judgment. The court was persuaded by the clarity of the notice requirement in the policy language. The court also flatly rejected the hospital’s argument that RLI needed to show that it was harmed by the late notice.
So Ashland is out $10 million simply because it was late in notifying its insurance company of the claim.
The case is Ashland Hospital Corp. v. RLI Insurance, Civil Action No. 13-143-DLB-EBA (E.D. Ky. Mar. 17).
