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(Article from Insurance Law Alert, June 2015)

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Answering a question certified by the Ninth Circuit, the Montana Supreme Court ruled that a liability insurer must establish prejudice in order to avoid defense and indemnity based on late notice.  Atlantic Cas. Ins. Co. v. Greytak, 2015 WL 3444507 (Mont. May 29, 2015).
 
The insurance policy at issue required the policyholder to provide notice “as soon as practicable of an ‘occurrence’ of an offense which may result in a claim.”  The insurer sought a declaration that it had no duty to provide coverage based on non-compliance with the notice provision.  A Montana federal district court agreed, ruling that the policyholder’s untimely notice excused the insurer from providing coverage regardless of prejudice.  On appeal, the Ninth Circuit certified to the Montana Supreme Court the question of whether Montana follows the “notice-prejudice” rule such that an insurer must establish prejudice in order to deny coverage for late notice.  The Montana Supreme Court ruled that prejudice is required, explaining that “a condition that results in a forfeiture is to be strictly interpreted against the party for whose benefit it was created.”  A majority of jurisdictions have adopted the notice-prejudice rule for occurrence-based policies.  However, most courts strictly enforce time-specific notice requirements and notice requirements in claims-made policies as condition precedents to coverage, regardless of prejudice.