Late Notice – 8th Cir.: No Explanation for Seven Month Delay

The Court of Appeals for the Eighth Circuit, applying Minnesota law, upheld the district court’s ruling and found Food Market Merchandising, Inc. (“Food Market”) failed to provide its insurer with notice of an employee’s claim “as soon as practicable.”  The appellate court determined that a showing of prejudice was not required to bar coverage when timely notice is a condition precedent to coverage.

In January 2014, a former employee sued Food Market for unpaid commissions.  In June 2014, a court granted partial summary judgment for the employee, awarding twice the unpaid commissions and attorney’s fees.  During the relevant time period, Scottsdale Indemnity Company (“Scottsdale Indemnity”) insured Food Market under a claims-made Business and Management Indemnity policy.  In August 2014, Food Market notified Scottsdale Indemnity of the employee’s lawsuit and sought a defense and indemnification.  In September 2014, Scottsdale Indemnity tentatively denied coverage.

In June 2015, Food Market sued Scottsdale Indemnity seeking a declaratory judgment and asserting claims for breach of contract and breach of the covenant of good faith and fair dealing.  It was not until after the lawsuit was filed that Scottsdale Indemnity formally denied coverage asserting that Food Market’s notice was untimely and the claim was outside of the scope of coverage.  Both parties moved for summary judgment.   Scottsdale Indemnity’s policy covers “only claims first made against the insured during the policy period … and reported to the insurer pursuant to the terms of the relevant coverage section.”  The relevant notification provision provides: “The Insureds shall, as a condition precedent to their rights to payment under this Coverage Section only, give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.”

The district court granted summary judgment in favor of Scottsdale Indemnity finding that Food Market failed to notify the insurer about the employee’s lawsuit “as soon as practicable” and, thus, because timely notice is a condition precedent to coverage under the policy, Scottsdale Indemnity’s duty to defend or indemnify was never triggered.

On appeal, Food Market argued that its notice was timely because it had a claims-made policy and gave notice within the policy period.  The appellate court found that the classification of the policy was irrelevant because the policy language required notification “as soon as practicable” and not within the policy period.  Therefore, the relevant question before the appellate court was whether the notice was provided “as soon as practicable.”  The appellate court found that “Food Market presented no evidence that providing notice over seven months after [the employee] sued was ‘as soon as practicable.’”  Food Market argued that the court must consider whether Scottsdale Indemnity was prejudiced by the delay.  The appellate court disagreed and found that a showing of prejudice is not required when notice is a condition precedent to coverage.

The appellate court was also unpersuaded by Food Market’s argument that “as soon as practicable” is ambiguous and noted that the case cited by Food Market actually refuted Food Market’s position.   Food Market also argued that Scottsdale Indemnity waived the timeliness argument by failing to assert notice as a reason for denying coverage.  The appellate court held that the record demonstrated otherwise and found “[n]o precedent requires waiver based on tentative coverage conversations.”  Thus, the court concluded Scottsdale Indemnity’s coverage obligations were not triggered because the condition precedent to coverage, timely notice, was not met.  Food Market Merchandising, Inc. v. Scottsdale Indemnity Company, No. 16-3427 (8th Cir. May 25, 2017).