Common business insurance policies, such as those providing Errors and Omissions and Directors and Officers coverage, are issued on a “Claims Made” basis. This means that, unlike “occurrence”-based policies which cover injury that takes place during the policy period (regardless of when a claim relating to such incident is made or the negligent conduct occurred), these policies provide coverage for “claims” that are made against the insured during the policy year. “Claims” has been interpreted by the Eighth Circuit to mean not only formal lawsuits or proceedings but also any communication showing that the claimant blames the insured and expects the insured to take an action or pay to fix the problem.
These policies typically contain strict notice provisions, require prompt notice as a “condition precedent” to coverage. A common notice provision requires that the claim be made “as soon as practicable, but in no event later than [a certain number of] days after the end of the policy period.”
In a recent case, the Eighth Circuit, interpreting Minnesota law, held that a seven-month delay in providing notice to the carrier was not “as soon as practicable,” even though notice was provided within the policy period. In Food Mkt Merch., Inc. v. Scottsdale Indem. Co., 857 F.3d 783 (2017), the appellate court treated “as soon as practicable” as a separate condition precedent. In other words, even if notice is given during the policy period or within 60 days after termination, this may not fulfill the “as soon as practicable” condition. Rather, the Eighth Circuit noted that whether notice was given “as soon as practicable” is a fact question, and a claim may not be timely even if the insurer is given notice within the policy period. The facts of this case may make it distinguishable from the more typical scenario.
Nonetheless, in light of the broad definition of “Claim,” coupled with the strict notice requirement, Insureds with “Claims Made” must be vigilant an analyze every demand for action promptly to determine whether to give notice to their carrier. If an Insured fails to give notice of a demand-style communication “as soon as practicable,” coverage for a later more formal proceeding based on that preceding demand may be waived.