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Texas Supreme Court Holds ‘As Soon As Practicable’ Language in Claims-Made Policies Is Immaterial
Insurance Law Update
Supreme Court of Texas
In Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., ___ S.W.3d ___, 2009 WL 795530 (Tex. March 27, 2009), the Texas Supreme Court held that without a showing of prejudice, a provision in a claims-made policy that notice of the claim must be given “as soon as practicable” is not material, and that the lack of such notice does not preclude coverage even where the policy explicitly states that notice is a “condition precedent to coverage.”
In Prodigy, a communications company had a claims-made directors and officers liability insurance policy, which contained a provision that the insureds “shall, as a condition precedent to their rights … give the [i]nsurer notice, in writing, as soon as practicable of any [c]laim first made…, but in no event later than ninety (90) days after the expiration of the [p]olicy [p]eriod, or [d]iscovery [p]eriod….” Prodigy was named a defendant in a class action lawsuit; it notified its insurer within the 90-day period but not “as soon as practicable.” The insurer claimed that the notice did not comply with the “as soon as practicable” language in the insurance policy.
The trial court granted the insurer’s motion for summary judgment and the Dallas Court of Appeals affirmed. The Texas Supreme Court, however, reversed the Court of Appeals and rendered judgment for the insured. The court held that when a claims-made insurance policy requires that the insured give notice of a claim to its insurer “as soon as practicable ... but in no event later than 90 days,” the words “as soon as practicable” are not part of the bargained-for exchange. As long as the insured gives notice within the 90-day period and the insurer is not prejudiced, the insurer may not deny coverage. The court stated that the prejudice requirement only applies to the “as soon as practicable” portion of the notice requirement, and if notice is provided beyond the set time period, it is not necessary to show prejudice.
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