When an insured notifies its insurer of a claim within the policy term or other reporting period specified by a claims-made policy, the insured’s failure to provide notice “as soon as practicable” will not defeat coverage under Texas law in the absence of prejudice to the insurer.
In Prodigy Commc’ns Corp. v. Agricultural Excess & Surplus Ins. Co., Prodigy was insured under a claims-made D&O liability policy issued by AESIC. Under the express terms of the Policy, Prodigy was required, as a condition precedent to coverage, to give AESIC written notice of a claim as soon as practicable, but in no event later than 90 days after the Policy’s extended reporting deadline of May 31, 2003.
Prodigy first notified AESIC of its claim in June 2003, when it was on the verge of settling a lawsuit after more than a year of litigation. Citing Prodigy’s failure to tender notice “as soon as practicable,” AESIC denied coverage. Prodigy sued AESIC, seeking a declaratory judgment that it was entitled to coverage. Both the trial and intermediate appellate courts sided with the insurer.
The Supreme Court of Texas reversed, citing its opinion in a 2008 case that, absent a showing of prejudice to the insurer, an insured’s alleged failure to comply with an “as soon as practicable notice” provision does not defeat coverage. But that case involved an occurrence-based policy that did not expressly designate “as soon as practicable notice” as a condition precedent to coverage. The court deemed these distinguishing facts inconsequential, and concluded that Prodigy’s obligation to provide “notice as soon as practicable” was not a material part of the bargained-for exchange between AESIC and Prodigy. Even if Prodigy had failed to provide notice as soon as practicable, it still provided notice within 90 days of the Policy’s extended reporting deadline. As such, the insurer could not deny coverage without showing that it suffered actual prejudice. Because AESIC admitted it suffered no such prejudice, the court held that the insurer wrongfully denied coverage for Prodigy’s alleged failure to give notice “as soon as practicable.”