Newsletter

No Coverage Where Amended Complaint Adds New Cause of Action But Original Complaint Was Not Timely Reported

May 2007

The Northern District of Texas, applying Texas law, has held that late notice precluded coverage where a policyholder first reported the matter after receiving an amended complaint that added a new cause of action, reasoning that the complaint was based on "the same or essentially the same set of facts" in the original complaint filed 22 months earlier. Emcode Reimbursement Solutions, Inc. v. Nutmeg Ins. Co., 2007 WL 803965 (N.D. Tex. Mar. 15, 2007).

A company obtained professional services insurance under three successive one-year claims-made policies. The notice provisions in the policies provided that, "[a]s a condition precedent to coverage under this Policy, the Insured shall report such Claim in writing to the Company as soon as practicable but in no event later than 60 days after expiration or termination of this Policy . . ." The policies defined "Claim" to mean "receipt by the Insured of a written demand naming the Insured seeking Damages, Professional Services, or equitable relief arising out of a Wrongful Act by the Insured or any Entity for whom the Insured is legally liable."

The company was served in March 2003 with a complaint for breach of contract and conversion, but did not report the suit to the insurer at that time. The company also failed to notify the insurer of the amended complaint, which it received in June 2003 and which added counts for breach of contract and conversion. Finally, in January 2005, after receiving a second amended complaint that added a negligence count, the company forwarded a copy of the second amended complaint to the insurer. The insurer denied coverage based on late notice.

The court first rejected the company's argument that the tardy notice was excused because it had a reasonable basis to believe that the earlier complaints were not covered. The court explained that it was not aware of any authority applying the excuse doctrine to claims-made policies. The court reasoned that "[t]he purpose of claims-made policies, unlike occurrence policies, is to provide exact notice periods that limit liability to a fixed period of time after which an insurer knows it is no longer liable under the policy, and for this reason, such reporting requirements are strictly enforced." It therefore declined to extend the "excused late notice" doctrine to claims-made policies.

The company also argued that the second amended complaint's negligence count constituted a new wrongful act under the policy, giving rise to a new demand and thereby bringing the claim within the coverage period for the third policy. The court rejected that argument, reasoning that even if the new complaint could be considered a "new demand," it did not arise out of a new "Wrongful Act." Instead, the court explained both complaints arose out of "the same or essentially the same set of facts." The court reasoned that if it were to hold otherwise, it would "enlarge" the coverage provided under the claims-made policy and "would materially compromise a fundamental purpose for such a policy." The court stated that this "in turn could impact the premiums that insurers charge for such policies, perhaps redounding to the detriment of insurance purchasers who may choose claims-made policies because they generally cost less."

Read Time: 3 min
Jump to top of page

Wiley Rein LLP Cookie Preference Center

Your Privacy

When you visit our website, we use cookies on your browser to collect information. The information collected might relate to you, your preferences, or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. For more information about how we use Cookies, please see our Privacy Policy.

Strictly Necessary Cookies

Always Active

Necessary cookies enable core functionality such as security, network management, and accessibility. These cookies may only be disabled by changing your browser settings, but this may affect how the website functions.

Functional Cookies

Always Active

Some functions of the site require remembering user choices, for example your cookie preference, or keyword search highlighting. These do not store any personal information.

Form Submissions

Always Active

When submitting your data, for example on a contact form or event registration, a cookie might be used to monitor the state of your submission across pages.

Performance Cookies

Performance cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.

Powered by Firmseek