No Prejudice Necessary to Deny Coverage for an Insured’s Late Notice under Consecutive Claims-Made-and-Reported Policies

A federal court in Alaska has granted summary judgment in favor of an insurer, holding that coverage was precluded by the insured’s failure to report a claim made during the first of two consecutive policy periods until after the inception of the second policy period. Alaska Interstate Constr., LLC v. Crum & Forster Spec. Ins. Co., 2015 WL 7253673 (D. Alaska. Nov. 17, 2015). In so holding, the court rejected the “notice-prejudice” rule for claims-made-and-reported policies under Alaska law.

The insured, an engineering and construction-related company, sought coverage under an E&O policy for an underlying suit alleging that the insured improperly inflated charges while providing soil remediation services. The underlying suit was filed during the first of two consecutive claims-made-and-reported policy periods, but the insured waited until five months after the inception of the second policy period to tender the claim to its insurer. The insurer denied coverage, and the insured filed a declaratory judgment action.

The court held that coverage was precluded by the insured’s failure to meet the policy requirement that a claim be both made and reported during the policy period. The court rejected the insured’s argument that, where there have been consecutive policy renewals, the “policy period” begins with the inception of the first policy and ends with the termination of the last policy. According to the court, the “policy period” in a claims-made-and-reported policy is the specific dates of each policy and is “not enlarged with each renewal.” In addition, the court rejected the insured’s argument that the insurer was required to show prejudice due to the insured’s five-month delay. The court predicted that the Alaska Supreme Court would not extend the “notice-prejudice” rule to claims-made-and-reported policies.

The court also held that coverage was barred by the policy’s condition that, prior to the inception of a policy period, “no insured had knowledge of any ‘wrongful act’ that could reasonably give rise to a ‘claim.’” Thus, even if the claim was deemed made and reported during the second policy period, there was no coverage because the insured admitted that it was aware during the first policy period of allegations of a wrongful act that gave rise to the claim.