Insured Failed to Timely Report Grievance Letter as 'Professional Claim,' But Insurer’s Late Notice Denial Waived By Seven-Month Delay

The United States District Court for the Southern District of New York, applying New York law, has concluded that, even though a grievance letter to an insured constituted a “Professional Claim” that was not timely reported, the insurer waived its late notice coverage defense by waiting seven months to deny coverage. Hunt Constr. Group, Inc. v. Berkley Assurance Co., 2020 WL 7046842 (S.D.N.Y. Nov. 30, 2020).

An insured general contractor sought coverage for a lawsuit under a claims-made policy in place for the June 15, 2018 to June 15, 2019 Policy Period (the “2018 Policy”). The lawsuit alleged negligence in connection with the oversight of a construction project. The insured included in the notice a grievance letter regarding the same project, which the insured had received during an earlier policy year (the “2016 Policy”).

The 2018 Policy required that notice of a claim be provided in writing “as soon as reasonably possible, which must be during the Policy Period.” Moreover, the 2018 Policy provided that multiple claims “arising out of one or more acts, errors, omissions, incidents, events . . . or a series thereof, that are related (either causally or logically), will be considered a single Claim.”

The insurer initially agreed to defend the lawsuit pursuant to a general reservation of rights. Seven months after agreeing to defend, the insurer denied coverage and withdrew the defense on the basis that the lawsuit constituted a “Professional Claim” first made during the 2016 Policy when the insured had received the grievance letter, which was not timely reported to the insurer. Coverage litigation followed.

In the coverage suit, the court agreed with the insurer that the lawsuit was a “Professional Claim” first made when the insured received the grievance letter demanding corrective action. In reaching this conclusion, the court rejected the insured’s argument that the subsequent lawsuit constituted a separate “Professional Claim” from the grievance letter under the policy’s related-claims provision because the lawsuit alleged additional conduct post-dating the grievance letter.

Despite concluding that the insured did not provide timely notice of the lawsuit, the court held that the insurer had waived the right to deny coverage based on late notice because it waited seven months after having constructive knowledge of the late notice defense before issuing a denial. The Court noted that the insurer could not rely on “boilerplate language” in its initial reservation of rights letter and that it should have expressly raised late notice as a defense and its failure to do so constituted a waiver.