(Article from Insurance Law Alert, February 2017)
For more information, please visit the Insurance Law Alert Resource Center. Our February 2016 Alert discussed a Maryland appellate court decision holding that an insurer was not entitled to disclaim coverage under a claims-made-and-reported policy, notwithstanding a nearly three-year delay in notice. Fund for Animals, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2016 WL 385222 (Md. Ct. Spec. App. Feb. 1, 2016). Last month, the Maryland Court of Appeals affirmed. National Union Fire Ins. Co. of Pittsburgh, PA v. Fund for Animals, 2017 WL 383453 (Md. Jan. 27, 2017).
In 2000, the Fund for Animals sued Feld Entertainment, Inc., a circus operator, alleging violations of the Endangered Species Act (the “ESA Case”). In 2007, Feld filed a separate action against the Fund, alleging RICO violations in connection with the Fund’s prosecution of the ESA Case. Feld asserted that the Fund bribed individuals to testify falsely and committed other criminal acts for the purposes of establishing standing in the ESA Case. The RICO suit was stayed pending resolution of the ESA Case and was ultimately settled.
Nearly three years after the RICO action was brought, the Fund sought coverage from National Union under a 2007 claims-made-and-reported policy. By that time, a court had ruled against the Fund in the ESA Case and had made numerous factual findings detrimental to the Fund. National Union denied coverage based on late notice. The coverage dispute went to trial, and at the close of evidence, the court granted National Union’s motion for judgment, finding that it had met its prejudice burden. (Maryland statutory law requires an insurer to establish actual prejudice by a preponderance of the evidence in order to deny coverage based on late notice under a claims-made policy. See Ins. Sec. 19-110). The appellate court reversed, finding that National Union failed to establish a causal link between the delay and any prejudice. The Court of Appeals affirmed.
The Court of Appeals stated that “the mere passage of time is not enough to establish actual prejudice.” Rather, National Union is required to establish that “actual harm . . . resulted from the delay in receiving notice of the RICO claim.” The court held that National Union failed to meet this burden. The court explained that National Union did not prove that, had it been given timely notice of the RICO case earlier, it would have taken some action that would have affected the outcome in that case (
e.g., that it would have settled for a sum less than the actual settlement). The court emphasized that National Union did not insure any defendant in the ESA Case and thus had no contractual right to control any aspect of that litigation. In this respect, the case is distinguishable from cases in which an insurer is not provided notice until after a judgment has been issued against the policyholder in an underlying suit in which the insurer could have controlled the defense. Under such circumstances, an insurer would presumably be prejudiced by the delay due to its inability to investigate claims and control the defense.