Pennsylvania Supreme Court Upholds Denial of Coverage for Late Notice

The Property Casualty Insurers Association of America (PCI) is praising a recent decision by the Pennsylvania Supreme Court that it says upholds the plain meaning of insurance contracts.

The Supreme Court’s, in Ace American Insurance Co. v. Underwriters at Lloyds and Cos., affirmed that an insurer need not demonstrate it would be harmed when denying coverage under a “claims made” policy based upon late notice.

ACE had purchased a claims-made policy with Lloyds that required ACE report a claim no later than 90 days after the expiration date. ACE sued when Lloyd’s refused to pay a $37.2 million claim lodged by its insured, Refuse Fuels. The denial was based upon ACE’s failure to timely comply with the policy’s specific notice of claim requirement for claims that were reasonably anticipated to exceed $4 million.

In almost every state, when insurers denies a claim based on late notice, the law requires them to demonstrate they were prejudiced in some way by the insured’s failure to timely file that claim. Only two courts have ruled that prejudice is required in a claims made situation. The Pennsylvania court rejected ACE’s argument, a decision that PCI praises.

“Such an extension of coverage would be contrary to the fundamental purpose of a claims-made-and-reported policy and provided coverage to an insured for which it neither bargained nor paid,” said Ann Spragens, senior vice president, secretary and general counsel for PCI.

Topics Pennsylvania