Pennsylvania Notice-Prejudice Rule Does Not Apply to Claims-Made Policies

The Superior Court of Pennsylvania has reaffirmed that the Pennsylvania notice-prejudice rule does not apply to claims-made policies. Reifer v. Westport Ins. Co., 2015 WL 7354650 (Pa. Super. Ct. Nov. 20, 2015).

In the underlying legal malpractice case, a former client filed a writ of summons against her former attorney. The attorney did not report the writ to his professional liability insurer. Nine months later, the former client filed a complaint against the attorney. The attorney gave notice of the complaint to his insurer outside of the policy period and the 60-day extended reporting period. The insurer denied coverage based on untimely notice. The policy’s insuring agreement stated the insurer would provide specified coverage as a result of a claim “first made against [the insured] during the POLICY PERIOD and reported to [the insurer] in writing during the POLICY PERIOD or within sixty (60) days thereafter[.]”

The former client and the attorney settled the malpractice suit, and the attorney assigned his rights under the policy to the former client. The former client filed a declaratory judgment action against the insurer to enforce coverage under the policy. The insurer sought dismissal of the declaratory judgment action because the underlying malpractice claim was not reported during the policy period or the 60-day extended reporting period as required under the policy. The trial court agreed with the insurer’s arguments, dismissing the declaratory judgment action.

The Superior Court of Pennsylvania affirmed the trial court’s dismissal. The appellate court found that the attorney had failed to give timely notice to the insurer as required by the clear and unambiguous language of the policy and therefore the insurer was not required to provide coverage. Citing Pennsylvania authority, the court refused to extend to claims-made policies the Pennsylvania notice-prejudice rule applied to occurrence policies, which requires an insurer to demonstrate prejudice resulting from the insured’s breach of a notice requirement. The court also declined to find that the policy reporting requirement violated the Pennsylvania Supreme Court’s Rule of Professional Conduct requiring attorneys to inform new clients on the status of the attorney’s professional liability insurance or that late notice provisions in claims-made policies violate public policy as unreasonable forfeitures.