No Prejudice Required for Late Notice Under Claims-Made E&O Policy

The United States District Court for the Southern District of New York, applying Michigan law, has held that a claims-made E&O policy does not afford coverage where the insured failed to comply with a condition precedent to coverage requiring it to provide notice of a claim within 90 days of the policy’s expiration, irrespective of whether the insurer can demonstrate prejudice. Atos Syntel Inc. v. Ironshore Indem. Inc., 2024 WL 4227709 (S.D.N.Y. Sept. 17, 2024).

The policyholder was a technology and professional services provider that purchased an E&O insurance tower for the policy period of October 8, 2014 to October 8, 2015 (the “14-15 Tower”). The first excess insurer in the 14-15 Tower did not renew its policy for the 2015-2016 policy period (the “15-16 Tower”) and accordingly only participated in the 14-15 Tower.  

The primary policy in the 14-15 Tower provided that, as a condition precedent to coverage, the insured must provide written notice of a claim to the insurer “as soon as reasonably practicable . . . but in no event later than ninety (90) days after termination or expiration of the Policy Period or any subsequent renewal Policy Period in an uninterrupted series of renewals.” The primary policy also stated that failure to provide notice within the relevant time “shall not invalidate coverage of any claim, unless the failure to provide timely notice has prejudiced [the insurer] or unless the notice is provided after the expiration of the policy period, any renewal policy period and any extended reporting period.” The first excess policy in the 14-15 Tower followed form to the primary policy.

In 2015, the policyholder sued one of its clients, who counterclaimed against the policyholder, alleging various causes of action. On November 4, 2016, the policyholder provided notice to the 15-16 Tower of the client’s counterclaims. The policyholder did not separately provide notice of the counterclaims to the 14-15 Tower. It first provided notice of the counterclaims to the first excess insurer in the 14-15 Tower on May 3, 2019, nearly three and a half years after the first excess policy expired. The first excess carrier denied coverage, and the policyholder filed suit.

The court affirmed the denial of coverage because the policyholder failed to provide notice of the counterclaims to the first excess carrier within 90 days of the policy’s expiration. The court rejected the policyholder’s argument that the policy used “temporally imprecise” language or otherwise required the insurer to demonstrate that it was prejudiced because, in context, the policy unambiguously imposed a “hard cutoff” for notice if and when the policy expired. The court also determined, however, that, even if a showing of prejudice were required, the insurer was prejudiced because the delay impaired its ability to contest the policyholder’s liability to the client.