The U.S. Court of Appeals for the Eighth Circuit, affirming a decision by the U.S. District Court for the District of Minnesota, has ruled that an insured's seven month delay in notifying its insurer of a lawsuit did not amount to notice “as soon as practicable” and precluded coverage for the lawsuit – even in the absence of prejudice to the insurer.
The Case
In January 2014, former employee Robert Spinner sued Food Market Merchandising, Inc., seeking unpaid commissions. In June, a court granted partial summary judgment for Mr. Spinner, awarding twice the unpaid commissions and attorneys' fees. It did not reduce the award to judgment. (The parties settled two years later).
In August 2014, Food Market notified Scottsdale Indemnity Company, which had issued Food Market a business and management indemnity insurance policy, of the Spinner lawsuit. Food Market sought defense and indemnification.
In September, Scottsdale tentatively denied coverage.
In June 2015, Food Market sued Scottsdale for coverage, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory judgment.
A week later, Scottsdale formally denied coverage, stating that Food Market's notice was untimely and its claim outside the policy's scope.
Both parties moved for summary judgment.
The district court granted summary judgment to Scottsdale, finding “no genuine issue that [Food Market] failed to notify Scottsdale of the Spinner Litigation as soon as practicable.” It added that because timely notice was a condition precedent to payment under the policy, “Scottsdale's duty to defend/indemnify was never triggered,” and Scottsdale was entitled to judgment as a matter of law.
The dispute reached the Eighth Circuit. There, Food Market argued that the district court had erred in finding that it had not provided timely notice under the policy.
The Scottsdale Policy
The Scottsdale policy covered:
only claims first made against the insured during the policy period … and reported to the insurer pursuant to the terms of the relevant coverage section.
It stated:
The Insureds shall, as a condition precedent to their rights to payment under this Coverage Section only, give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.
The policy also provided:
Insurer shall pay the Loss of the Insureds which the Insureds have become legally obligated to pay by reason of an Employment Practices Claim first made against the Insureds during the Policy Period or, if elected, the Extended Period, and reported to the Insurer pursuant to Section E.1. herein, for an Employment Practices Wrongful Act taking place prior to the end of the Policy Period.
(Bolded words in original, defined in policy.)
The Eighth Circuit's Decision
The circuit court affirmed.
In its decision, the Eighth Circuit explained that the policy required that Food Market give Scottsdale written notice of any claim “as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.”
The circuit court pointed out that Food Market had presented no evidence that providing notice over seven months after Mr. Spinner had filed his lawsuit had been “as soon as practicable.”
It then rejected Food Market's argument that the district court had failed to consider whether the delay had prejudiced Scottsdale, observing that Scottsdale was not required to demonstrate prejudice because notice was “a condition precedent to coverage.”
Finally, the Eighth Circuit rejected Food Market's assertion that the policy phrase “as soon as practicable” was ambiguous, and it affirmed the district court's decision.
The case is Food Market Merchandising, Inc. v. Scottsdale Indemnity Co., No. 16-3427 (8th Cir. May 25, 2017). Attorneys involved include: Carl Eric Christensen, Daniel Eaton, Cole W.R. Langsdorf, Christensen Law Office, Minneapolis, MN, for Plaintiff–Appellant. Tiffany M. Brown, Bradley Mitchell Jones, Meagher & Geer, Minneapolis, MN, for Defendant–Appellee.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].