Washington Court Holds Late Notice Bars Coverage Under Claims-Made Policy

A federal district court, applying Washington law, has held that coverage for a claim was barred because an insured failed to provide notice within the claim-made policy’s reporting deadline. Rush Residential, Inc. v. Philadelphia Ins. Cos., 2023 WL 6846543 (W.D. Wash. Oct. 17, 2023).

In November 2017, the insured house-building company received a letter from an attorney representing a former employee with a copy of an unfiled complaint. The unfiled complaint asserted causes of action for failure to pay wages, wrongful termination, hostile work environment sexual harassment, and retaliation. The former employee ultimately filed a revised version of the complaint on May 29, 2018, alleging failure to pay wages, wrongful termination, hostile work environment sexual harassment, and retaliation arising from conduct beginning in October 2016 and ending with her discharge in October 2017. The insured tendered the demand letter and the complaint in the underlying lawsuit to the insurer on July 27, 2019. The insurer denied coverage because the insured failed to provide notice during the relevant claims-made policy period. After the insured initiated coverage litigation, the insurer moved for summary judgment.

The court granted the insurer’s motion for summary judgment, holding that the demand letter constituted a “claim” that the insured failed to report before the expiration of the relevant policy’s reporting deadline, therefore precluding coverage. In so holding, the court expressly declined to apply a notice-prejudice rule to the claims-made policies at issue. The court further concluded that the policy’s pending and prior litigation exclusion did not serve to extend the coverage period of the policy. Finally, the court found that the Washington Supreme Court’s recent decision in Preferred Contractors Insurance Company v. Baker & Son Construction, Inc., 514 P.3d 1230 (Wash. 2022), did not apply because the claims-made policies at issue were not similarly violative of public policy. As such, the court ruled that the insurer had no duty to defend or indemnify the insured in connection with the claim.