The Superior Court’s Complex Commercial Litigation Division held in Medical Depot, Inc. v. RSUI Indemnity Company that late notice did not preclude coverage in a D&O policy absent prejudice to the insurer.  By way of brief background, in June 2013, Tony Messadri sent Medical Depot a letter (the “Demand Letter”) in which Mezzadri threatened to file a class action lawsuit if the company did not bring itself into compliance with California law.  In March 2014, Messadri filed his initial complaint.  Messadri did not serve the initial complaint on Medical Depot, but Medical Depot’s HR director received a copy of the complaint from outside counsel.  On September 2, 2014, Messadri served an amended complaint on Medical Depot; Medical Depot notified its D&O insurer of the amended complaint on September 9, 2014.  

The policies at issue were two successive policies – one for the period June 15, 2013 to June 15, 2014 and a renewal policy for the period June 15, 2014 to June 15, 2015.  Messadri sent the Demand Letter and filed the initial complaint during the policy period of the first policy, and served its amended complaint during the period of the second policy.  RSUI denied coverage on the grounds that Medical Depot’s notice of claim was untimely.  RSUI argued that the Demand Letter was a claim, and that the initial compliant and amended complaints were interrelated with the demand letter.  Therefore, notice to RSUI was not timely because it was not received within thirty days.

The Court, applying Delaware law, held that the Demand Letter was not a claim; that the initial complaint did constitute a claim; and that Medical Depot did not provide timely notice of the claim as required by the initial policy.  However, the policy was renewed, and because of the continuous claims-made nature of the insurer’s relationship with the company, the claim fell within the policy’s coverage period.  Therefore, RSUI could only deny coverage for the claim based on untimely notice only if the insurer could show it was prejudiced.  Genuine issues of material fact existed regarding prejudiced, and therefore, the Court could not rule on the notice of claim issue.

Importantly, the Court rejected RSUI’s argument that, under Homsey Architects, Inc. v. Harry David Zutz Ins. Inc., 2000 WL 973285 (Del. Super. May 25, 2000), an insurer does not have to show prejudice under a claims-made policy if the notice is untimely.  The Court distinguished Homsey on the fact that Homsey was a case involving an untimely claim where coverage was no longer in place.  Here, by contrast, coverage still existed at the time Medical Depot provided RSUI notice of the claim.  Moreover, the Court (citing Antonacci v. Darwin Select Insurance Company, 2010 WL 2108125 (Conn. Super. 2010) noted that the law has developed since Homsey and that the “legitimate interests of the insurer will not be hindered by a requirement that it has to have suffered prejudice from a notice of claim, which, though untimely, is within the policy period.”