In Secure Energy, Inc. v. Philadelphia Indemnity Insurance Company, No. 4:11CV1636 TIA, 2013 US Dist. LEXIS 69320 (E.D. Mo. May 16, 2013), the US District Court for the Eastern District of Missouri, applying Missouri law, granted an insurer’s motion for summary judgment on a late notice defense upon finding that a showing of prejudice was not required in the context of a claims made policy.     

Philadelphia Indemnity Insurance Company (PIIC) provided directors’ and officers’ liability coverage and employment practices coverage to Secure Energy, Inc. through annual policies that applied on a claims made basis.  Secure Energy was required to report any claim to PIIC “as soon as practicable” after becoming aware of the claim, and “no later than 60 days after the expiration” of the policy.  Id. at *8 (quoting policy language).

An individual sued Secure Energy for unpaid commissions and punitive damages.  Id. at *2-3.  Despite being advised by its insurance broker in 2009 to file a claim “right away,” Secure Energy waited two years before notifying PIIC of the lawsuit.  Id. at *3-4.  PIIC denied coverage based on untimely notice.  Id. at *4. 

Secure Energy subsequently filed a declaratory judgment action against PIIC.  When PIIC sought summary judgment, Secure Energy acknowledged that “it did not strictly comply with the notice provision in the liability policy,” but instead argued that PIIC could not deny coverage on late notice grounds absent prejudice.  Id. at *8.  According to Secure Energy, Missouri law “does not distinguish between ‘occurrence’ policies and ‘claims made’ policies in warranting that the insurer show prejudice where a claim is untimely.”  Id. at *12. 

The Eastern District of Missouri disagreed.  After reviewing Missouri Supreme Court and appellate court precedent, the federal court granted PIIC’s motion, holding that Missouri law does not require a showing of prejudice to support a late notice defense under a claims made policy.  The court explained that “‘claims made policies place special reliance on notice.  Notice must be given to the insurer during the policy period.  If the insured does not give notice within the contractually required policy period, there is simply no coverage under a claims made policy, whether or not the insurer was prejudiced.’”  Id. at *12-13 (citations omitted).     

This case reinforces the fact that notice under a claims made policy can be of far greater importance to an insurer than under an occurrence-based policy, partly because insurers often price the risk and set reserves for a claims made policy in reliance on a more definitive end to their own potential liability.  As illustrated by this case, the trade-off for a less expensive, claims made policy can be a stricter enforcement of the notice requirement, where the insurer does not need to show prejudice in order to deny an untimely claim.