Notice Prejudice Rule Applies to Claim Not Reported “As Soon As Practicable” But Within Policy Period

The United States District Court for the District of Kansas, applying Kansas law, has held that an insurer must show prejudice to deny coverage when an insured provided notice of a claim within the policy’s three-year policy period, but not “as soon as practicable” as required by the policy’s notice provision. Ottowa Bancshares, Inc. v. Great Am. Spec. Ins. Co., 2025 WL 343494 (D. Kan., Jan. 30, 2025).

The insured, a bank holding company with four affiliated banks, purchased a claims-made directors and officers liability policy, which had a three-year policy period. The policy’s notice and reporting provision required notice to the insurer “as soon as practicable, of any Claim first made and brought to the attention of an Executive Officer during the Policy Period,” but in no event later than ninety days (or one hundred and eighty days if the policy is renewed) after the Claim is made.

During the first policy year, the Executive Vice President and Chief Operating Officer of one of the insured’s affiliated banks received a demand letter for over $4 million in fees allegedly owed by the insured pursuant to a consulting services contract. The insured’s board and the insurer were not notified about the demand, although the insured retained counsel to represent it. Subsequently, a lawsuit was filed against the insured one year later in 2023, during the second policy year. The insurer was notified one month after the lawsuit was filed (but thirteen months after the initial demand letter was received).

The insurer denied coverage based on the insured’s thirteen-month delay in reporting the demand letter. The insured subsequently filed suit against the insurer, and the insurer moved for summary judgment, arguing that: (1) notice was not provided as soon as practicable; (2) the notice-prejudice rule is inapplicable to claims-made policies; and (3) even if the notice-prejudice rule applied, the insurer was prejudiced by the insured’s untimely notice.

The court first determined that the thirteen-month delay in reporting the claim was unreasonable as a matter of law. Nevertheless, the court also concluded that, because the claim was reported during the policy’s three-year policy period, the insurer still had to show prejudice in order to deny coverage. Finally, the court ruled that a genuine issue of material fact existed as to whether the insurer was prejudiced by the delay in reporting.