Does failure to give notice "as soon as practicable," but within the policy period, allow the insurer to deny coverage under a claims-made policy? In Prodigy Communications Corp. v. Agric. Excess & Surplus Ins. Co., No. 06-0598 (Tex. March 27, 2009) [here], the Texas Supreme Court answered, "no."
The insured held a claims-made "Directors' and Officers' Liability Policy" issued by Agricultural Excess. In exchange for a premium of $19,519, the policy covered losses from claims made against the insured during the policy period March 16, 2000 to May 31, 2000. By paying an additional premium of $93,750, the insured extended coverage to any claims first made between May 31, 2000 and May 31, 2003. The policy required notice of any claims "as soon as practicable . . . but in no event later than ninety (90) days after the expiration of the Policy Period [or the extended period]."
The insured was sued in a class action suit and served with a copy of the complaint on June 20, 2002. It first notified Agricultural Excess by letter dated June 6, 2003. Coverage was denied because the June 6 letter did not strictly comply with the policy's notice requirements.
The Texas Supreme Court was guided by a prior decision involving an occurrence-based policy. See PAJ, Inc. v .The Hanover Ins. Co., 243 S.W. 3d 630 (Tex. 2008). PAJ held an insured's failure to timely notify its insurer of a claim does not defeat coverage if the insurer was not prejudiced by the delay.
Similar to PAJ, if there was no prejudice to the insurer, coverage could not be denied for notice given during the policy period, even if it was not "as soon as practicable." In a claims-made policy, when the insured gives notice of a claim within the reporting period, the insurer had to show prejudice that the insured's noncompliance with the "as soon as practicable" provision was prejudicial. Here, the insured gave notice before the ninety-day cutoff. Even if notice was not given "as soon as practicable," the insurer was not denied the benefit of the claims-made nature of the policy because the policy was still in effect until ninety days after the discovery period expired. Therefore, the obligation to provide notice "as soon as practicable" was not a material part of the bargained-for exchange. Because the insurer admitted it was not prejudiced by the delay in receiving the notice, it could not deny coverage.
