Coverage Conditioned on Unambiguous Notice Requirements not Subject to Notice-Prejudice Rule

Lydia Mills, a Law Clerk at Wiley Rein LLP, authored this post. Edited by John Howell.

The Supreme Court of Kentucky has held that the notice-prejudice rule does not apply to claims-made-and-reported policies where the policy clearly states notice requirements and unambiguously conditions coverage on the insured’s giving of notice in conformance with such requirements. Kentucky State Univ. v. Darwin Nat’l Assurance Co., 2023 WL 6362842 (Ky. June 15, 2023).

The insured university obtained a policy from the insurer for the period of July 1, 2014, to July 1, 2015. The policy required the insured to report claims to the insurer “as soon as practicable” but not more than ninety days after the end of the policy period. A claim was brought against the insured on September 2, 2015, but the university did not report the lawsuit to the insurer until October 2, 2015, three days after the extended reporting period ended. The insurance company denied coverage, and the insured sued for coverage.

The Supreme Court of Kentucky declined to apply the notice-prejudice rule and enforced the policy’s “clear and unambiguous” notice provisions. The court first noted that the policy clearly stated that “a condition of coverage – a condition precedent – was giving written notice of a claim as soon as practicable,” but not later than ninety days after the end of the policy period. Additionally, despite the policy being a standard form, the insured was unable to show that the insurance company had the “superior bargaining strength” or that the policy was offered on a “take it or leave it” basis. Second, the court held that, because the terms were unambiguously stated, it could not be beyond the policyholder’s reasonable expectations that forfeiture of coverage would occur if notice were not timely given. Lastly, the court determined that a forfeiture of coverage in this case would not undermine public policy, in contrast to situations involving insurance policies the policyholder is required to purchase by statute, where strict forfeiture is disfavored.

While the court declined to hold that claims-made-and-reported policies are never subject to the notice-prejudice rule, it held that “the notice-prejudice rule does not apply to a claims-made-and-reported policy that contains unambiguous notice requirements as a condition precedent to coverage.”