Insurance Law

Virginia Federal Court Sustains Late Notice Disclaimer

In its recent decision in E Dillon & Co. v. Travelers Cas. & Sur. Co. of America, 2015 U.S. Dist. LEXIS 76295 (W.D. Va. June 12, 2015), [enhanced version available to lexis.com subscribers], the United States District Court for the Western District of Virginia, applying Virginia law, had occasion to consider whether an insured’s untimely notice of claim voided its right to coverage for an underlying employment-related claim.

Travelers insured E Dillon under a claims-made employment practices liability policy in effect for the period August 1, 2010 to August 1, 2011. The policy required that if an “executive officer” became aware of a claim, she must give written notice “as soon as practicable,” such notice expressly being a condition precedent to coverage under the policy.

In April 2011, E Dillon’s president and CFO became aware of an EEOC charge filed by a former employee. The charge alleged employment discrimination in violation of the Americans with Disabilities Act. E Dillon retained counsel to defend the charge, but did not give notice of the proceeding to Travelers. Two months after the EEOC charge was filed, in June 2011, the insured received a letter from counsel for the former employer advising that his client had been declared permanently disabled by his physician and that he would be pursuing legal remedies against E Dillon.

E Dillon gave first notice of the underlying claim to Travelers in late February 2013, by which time the EEOC had already concluded that there was reasonable cause to believe that E Dillon had committed a violation of the ADA and by which time a conciliation meeting had already been scheduled between E Dillon, the claimant, and the EEOC. Travelers thereafter disclaimed coverage to E Dillon on the basis that its nearly two year delay in giving notice violated its policy’s requirement that the claim be reported as soon as practicable.

In considering applicable late notice law, the court observed that Virginia courts do not require an insurer to be prejudiced by the insured’s delay. Rather, if an insured’s breach of a notice provision is substantial and material, then the insurer will be excused of its coverage obligations. Materiality under Virginia law is based on three considerations: (1) the reasonableness of the delay; (2) the prejudice suffered by the insurer as a result of the delay; and (3) the length of the delay. In determining reasonableness, Virginia courts apply an objective standard, requiring that the insured give notice when it reasonably appears that the policy will be implicated.

With these factors in mind, the court concluded that as a matter of law, E Dillon’s two-year delay in giving notice of the underlying claim was material, as it should have reasonably appeared to E Dillon that its policy would be implicated by the EEOC charge. Central to the court’s analysis was that the policy defined the term “employment claim” to include EEOC proceedings. As such, it was not reasonable for E Dillon to wait for two years to give first notice to Travelers.

In considering the materiality factors, the court noted that Travelers was, in fact, prejudiced by the delay, since as a result of E Dillon’s delay, Travelers lost the opportunity to investigate, defend and attempt to settle the claim. The court nevertheless observed that:

Even if there were no prejudice, however, the length of the delay alone is sufficient to conclude that E Dillon materially breached the Policy’s condition of coverage. The two-year delay in this case far exceeds delays that have been found unreasonable as a matter of law in Virginia. “Virginia courts have generally held that notice given beyond 75 days, without a reasonable excuse, is untimely,” and “a delay of 601 days is beyond the outer limits of reasonableness.”

    Brian Margolies, Partner, Traub Lieberman Straus & Shrewsberry LLP

Read more at the Traub Lieberman Insurance Law Blog, Edited by Brian Margolies.

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