Missouri Court Holds Prejudice Requirement Inapplicable to Claims Made Policy

In its recent decision in Secure Energy v. Phila. Indem. Ins. Co., 2013 U.S. Dist. LEXIS 69320 (E.D.Mo. May 15, 2013), the United States District Court for the Eastern District of Missouri had occasion to consider whether under Missouri law, an insurer need demonstrate prejudice in order to disclaim coverage based on an insured’s failure to report a claim within the time allotted under a claims made policy.

Philadelphia Indemnity insured Secure Energy under successive one-year claims made directors and officers policies during the period October 11, 2007 through October 11, 2012.  The policies contained the following reporting provisions:

In the event that a Claim is made against the Insured, the Insured shall, as a condition precedent to the obligations of the Underwriter under this Policy, give written notice to the Underwriter as soon as practicable after any of the directors, officers, governors, trustees, management committee members, or members of the Board of Members first become aware of such Claim, but, no later than 60 days after the expiration of this Policy, Extension Period, or Run-Off Policy, if applicable.

In December 2007, a claim was asserted against Secure Energy’s board of directors by an individual demanding payment of commissions he claimed he was owed.  Suit was filed in 2008 against one of Secure Energy’s directors, and it was later amended in 2009 to add Secure Energy as a direct defendant.  Secure Energy, however, did not provide notice of the suit to Philadelphia until late 2011.  It claimed that it did not do so earlier because it was unsure that the matter would qualify for coverage.   Philadelphia later denied coverage to Secure Energy, and its directors, based on the failure to report the suit in the time required by the applicable policy.

Secure Energy argued that while it did not strictly comply with the policies’ notice requirements, Missouri law required Philadelphia to demonstrate prejudice in order to disclaim coverage, citing to decisions such as the Missouri Supreme Court’s decision in Weaver v. State Farm Mut. Auto. Ins. Co., 936 S.W.2d 818 (Mo. 1997).  The district court noted, however, that in Wittner, Poger, Rosenblum, & Spewak, P.C. v. Bar Plan Mut. Ins. Co., 969 S.W.2d 749 (Mo. 1998), the Missouri Supreme Court held that the prejudice requirement articulated in Weaver did not extend to claims made policies, but instead was limited to occurrence-based policies.   Observing that several lower state courts and Missouri federal courts recognized the distinction stated in Wittner, the court agreed that Philadelphia need not demonstrate that it was prejudiced as a result of Secure Energy’s failure to have provided notice of the claim in the time required by the applicable policy.