The United States Court of Appeals for the Sixth Circuit has held that, under Tennessee law, coverage was precluded under three excess policies as the policyholder did not comply with the policies' notice conditions. Union Planters Bank v. Continental Cas. Co., 2007 WL 581656 (6th Cir. Feb. 27, 2007).
Following a mortgage lender's default on a revolving line of credit provided by the policyholder bank, the bank was left with worthless collateral in the form of forged promissory notes and mortgages. After the bank determined it could not recover the lost sums from the mortgage lender, it sought coverage from its primary and three excess insurers for the amount of the worthless collateral under policies providing coverage for loss resulting from "forgeries" and "counterfeits."
Applying Tennessee law, the Sixth Circuit found coverage under the primary policy. The court then evaluated the notice requirements under the excess policies. The court concluded that coverage was not available under those policies, as they required "simultaneous notice" of any claim made under the primary policy, and the insured notified the excess insurers of the loss nearly a month after it provided notice to its primary insurer. In reaching this result, the court rejected the bank's argument that late notice should be excused because of the lack of prejudice to the carriers. According to the court, because the policies were claims-made rather than occurrence policies, coverage was precluded regardless of whether the insurer suffered prejudice as a result of the delay in notice, as proper notice was a condition precedent to coverage.