INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
EPLI dispute
Kentucky State University (KSU) purchased a claims-made employment practices liability policy from Allied World Specialty Insurance Company for the period from July 1, 2014, to July 1, 2015. The policy allowed claims made against KSU within the policy period to be reported to Allied World up to 90 days after the end of the policy period. The policy expired July 1, 2015, and the 90-day extended reporting period ended September 29, 2015. The policy also provided the right to purchase a three-year discovery period after the policy expired. KSU did not purchase the coverage.
During the policy period, Dr. Maifan Silitonga and Dr. Teferi Tsegaye submitted notices of charges of discrimination to the United States Equal Employment Opportunity Commission (EEOC) and the Kentucky Commission on Human Rights related to their employment at KSU. KSU received written notice of the EEOC charges on June 23, 2015. On September 2, 2015, Dr. Silitonga and Dr. Tsegaye brought employment-related claims against KSU in Franklin Circuit Court, the substance of which would be covered under the policy. On October 2, 2015, three days after the extended reporting period expired, KSU notified Allied World by email of the litigation and sought coverage under the policy. Allied World denied coverage.
KSU filed a third-party complaint against Allied World, requesting a declaration of rights under the policy and asserting a breach of contract claim based on the policy. KSU also claimed that Allied World violated the Unfair Claims Settlement Practices Act, engaged in bad faith, and violated a state statute. KSU and Allied World filed cross-motions for summary judgment on whether the policy provided coverage to KSU. The circuit court granted summary judgment in favor of KSU.
The circuit court interpreted the policy as not clearly providing that strict forfeiture of coverage was a consequence of KSU’s failure to promptly notify Allied World of a claim. Based on that interpretation, the circuit court concluded that the notice-prejudice doctrine applied, requiring coverage under the policy unless Allied World showed that the delay in notice caused it prejudice.
Because Allied World could not be said to be prejudiced by KSU being three days late in providing notice of the claim, the circuit court determined that Allied World was obligated to indemnify KSU for the underlying claims. Furthermore, with timely notice being at the heart of this dispute, the circuit court held that because the policy was unclear as to how notice was required to be given, the notice could be considered timely if a three-day mailbox rule were applied. Allied World appealed.
The court of appeals disagreed and held that the terms of the policy were clear about the extended reporting period: KSU was required to provide written notice of a claim against it within 90 days after the policy expired. The court further found that the policy provided a procedure for notifying the insurer of a claim. The court determined that the notice-prejudice rule did not apply to the policy.
The court of appeals also concluded that the state statute cited by KSU did not support KSU’s argument for coverage and that the mailbox rule did not apply to contract disputes. The court of appeals reversed the circuit court. Thereafter, the court granted KSU’s petition for discretionary review.
KSU argued that the policy was a contract of adhesion with no specific forfeiture language. The supreme court disagreed. It affirmed the court of appeals’ decision reversing the Franklin Circuit Court. The court remanded the case to the circuit court with directions to vacate its grant of summary judgment in favor of KSU and to enter an order granting summary judgment in favor of Allied World.
Kentucky State University v. Allied World Specialty Insurance Company—Supreme Court of Kentucky—September 28, 2023—No. 2019-CA-1811.
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