Failure to Provide Notice of Claim “As Soon As Practicable” Precludes Coverage

The United States District Court for the District of Minnesota, applying Minnesota law, has held that coverage is unavailable where the insured failed to report the claim to its insurer “as soon as practicable” as required by the policy’s notice provision.  Citizens Ins. Co. of Am. v. Assessment Sys. Corp., 2019 WL 4014955 (D. Minn. Aug. 26, 2019).

The insured, a software and consulting company, filed a lawsuit against a former customer for breach of contract.  The customer subsequently filed a counterclaim against the insured.  The insured maintained a claims-made businessowners policy that required the insured to provide written notice of a claim to the insurer “as soon as practicable.”  The insured provided notice of the counterclaim to its insurer approximately one year after the counterclaim was filed and four days prior to the close of discovery.  The insurer sought a declaratory judgment that there was no coverage for the counterclaim because the insured had failed to comply with a condition precedent to coverage.

The insurer moved for summary judgment, which the court granted, holding that notice was a condition precedent to coverage and the insured failed to provide notice “as soon as practicable.”  The court rejected the insured’s argument that because the policy did not explicitly use the language “condition precedent to coverage” the notice requirement could not be a condition precedent.  The court concluded both that “it is established Minnesota law that a claims-made policy requires that an insurer . . . be given notice of the claim during the policy period before coverage will attach,” and the “plain language” of the policy established that notice “as soon as practicable” was a condition precedent to coverage.  The court also determined that the notice requirement was “material” to the insurance agreement and therefore “cannot be excused.”

The court found that there was no genuine dispute of material fact whether notice was provided “as soon as practicable,” rejecting the insured’s argument that there were fact issues as to whether it had provided timely notice because the employee responsible for advising the insured of its insurance responsibilities was terminated due to performance issues.  The court found that the insured “failed to provide any evidence explaining the eight-month delay between the date [the former customer] filed its Counterclaim in the Underlying Lawsuit, and the date that [the insured] terminated its Human Resources Director,” noting that the insured “admits that its Human Resources Director was fired for poor communication and time management skills, not her ability to obtain and oversee [the insured’s] insurance policies.”  Furthermore, the court held that the “negligence of an employee does not excuse a company’s failure to comply with a contract,” and found that after the human resources director left the company, the insured “took approximately two months to provide notice” of the counterclaim.

Finally, although a showing of prejudice by the insurer was not required, the court concluded that there was no genuine dispute of material fact that the insurer “suffered actual prejudice” as a result of the untimely notice because the insured “did not obtain any discovery supporting or refuting any of [counterclaimant’s] asserted damages” and the insurer “was notified of the Counterclaim just four days prior to the close of discovery in the Underlying Lawsuit, giving it essentially no time to remedy any failure by [the insured] to conduct meaningful discovery.”