Opinion by Judge Glenn T. Harrell, Jr.
Held: Pursuant to Maryland Code (1997, 2006 Repl. Vol.) Insurance Article Section 19-110, which provides that "an insurer may disclaim coverage on a liability insurance policy on the ground that the insured...has breached the policy...by not giving the insurer required notice only if the insurer establishes...that the lack of...notice has resulted in actual prejudice to the insurer," an insurer is required to demonstrate how it was prejudiced by late-bestowed notice so long as the claim against the insured arose before the expiration of the policy.
Facts: Sherwood (the "Insured") was issued a series of insurance policies by Great American Insurance Company (the "Insurer"). The most relevant policy (the "Policy") provided that Insurer would pay on behalf of Insured all "Claims" made against Insured during the Policy Period. Claims included civil proceedings made against Insured. The policy also provided that as a condition precedent to Insured's rights under the policy, Insured was required to provide written notice to Insurer of any Claim made against Insured during the policy period, including civil proceedings, as soon as practicable, but in no event later than ninety (90) days after the end of the Policy Period.
Two separate civil claims were filed and served on Insured within the Policy Period. However, in both cases, Insured failed to notify Insurer of the claims before ninety days after the expiration of the Policy Period. Insurer denied coverage of both claims stating that while both claims were covered by the policy, and that suits were filed against Insured within the Policy Period, Insurer did not receive notice of the suits until after the ninety-day notice requirement, and therefore was not obligated under the policy.
Insured filed a complaint and a motion for summary judgment in the Circuit Court alleging that Insurer breached the Policy by denying the claims. Insured also averred, regarding the claims, that Insurer was not prejudiced by any alleged delay in notification. Insurer denied any breach of the policies and asserted that coverage for the claims was barred due to Insured's failure to provide notice within 90 days after the end of the policy period. The Circuit Court agreed with Insurer's reasoning and granted its motion for summary judgment. Insured timely appealed to the Court of Special Appeals, and the Court of Appeals issued a writ of certiorari to consider "whether the lower court erred by ruling that Great American was not required by Section 19-110 of the Maryland Insurance Code to show actual prejudice in order to deny coverage based on the Sherwood's failure to comply with the notice condition of the [Policy] at issue."
Analysis: The Court engaged in a thorough historical review of relevant Maryland notice-prejudice legislation and case law to determine the status of the law today. The statute now governing notice-prejudice clauses in insurance policies is Maryland Code (1997, 2006 Repl. Vol.) Insurance Article Section 19-110. This statute provides:
An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or a person claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.Applying the text of Section 19-110, and the analyses and holdings from the cases reviewed by the Court, the court reached the following holdings:
First, the Court held that Section 19-110 does apply to claims-made policies in which the act triggering coverage occurs during the policy period, but the insured does not comply strictly with the policy's notice provisions. In this situation, Section 19-110 mandates that notice provisions be treated as covenants (rather than conditions precedent), such that failure to abide by them constitutes a breach of the policy sufficient for the statute to require the disclaiming insurer to prove prejudice.
Second, the Court held that Section 19-110 does not apply to claims-made policies in which the act triggering coverage does not occur until after the expiration of the liability policy, as this non-occurrence of the conditions precedent to coverage is not a "breach of the policy," as required by the statute.
The Court noted that its opinion may place Maryland jurisprudence at odds with the majority of other jurisdictions, but concluded that the text of, and the policies underlying Section 19-110, require the conclusions reached by the Court.
The full opinion is available in PDF.