Failure of Insured to Provide Timely Notice Under Claims-Made Policy Bars Suit Against Insurer of Bankrupt Insured

The United States Court of Appeals for the Third Circuit, applying Pennsylvania law, has held that an insured’s failure to provide timely notice of a claim under a claims-made policy barred coverage for that suit.  Frazier v. Exide Techs., No. 17-2399, 2018 WL 2727396 (3d Cir. June 6, 2018).

A claimant sued his former employer in federal district court for alleged racial discrimination.  Two years later, that suit was stayed when the employer filed a Chapter 11 petition for bankruptcy.  The claimant never filed a proof of claim with the bankruptcy court.  Later, the district court lifted the stay on the discrimination suit and granted (in part) summary judgment in favor of the employer.  Unbeknownst to the district court, the employer’s bankruptcy proceedings had concluded nearly two years earlier when the bankruptcy court confirmed a plan of reorganization that, among other things, discharged all claims against the employer and permanently enjoined their prosecution, including the claimant’s discrimination suit.  Nonetheless, the claimant moved for “an order permitting him to proceed with [his] case and also an order to compel [the employer] to produce discovery relevant to the existence and availability of insurance coverage for his claims.”  The district court denied the claimant’s motion, vacated its prior ruling on the merits, and dismissed the prior complaint.

On appeal, the claimant argued that the district court erred by preventing him from seeking recovery from the insurance policy issued to the employer.  The court disagreed, however, noting that the insurer “had no duty to cover [the employer] under the policy because it was a ‘claims made’ policy and [the insured employer] did not notify [the insurer] of [the] claim.”  The court also noted that the underlying policy contained a $1.5 million self-insured retention and that, even if timely notice of the claim was provided to the insurer and the claim was otherwise covered, any recovery by the claimant within the retention amount would have been recoverable only against the insured – and its discharge in bankruptcy would have barred recovery regardless of what notice the insurer received.