Pa. Superior Court Refuses to Extend Notice-Prejudice Rule to Claims Made Policies

Ace Insurance Company received a bit of its own medicine in a recent Superior Court Opinion. The court ruled that Ace had not given timely notice of a claim for bad faith to its insurer and that the insurer need not show prejudice in receiving the late notice. Pennsylvania courts appropriately have required a showing of prejudice when the insured has an occurrence policy since the Supreme Court of Pennsylvania’s 1977 opinion in Brakeman v. Potomac Insurance Co. The Superior Court, however, refused to extend this rule to claims made policies in a ruling in line with other recent Pennsylvania cases. The Superior Court offered no reason why the rule should apply only to occurrence policies other than to say it would wait for the Supreme Court to decide the issue.

            Ace is appealing and, while we would normally be hesitant to root for an insurer before the high court, we will make an exception here where the plaintiff insurer is wearing the hat of the insured. There is no reason why late notice should relieve an insurer of its obligation to indemnify an insured in the absence of prejudice whether the underlying policy is occurrence based or claims made.

Jeffrey Resnick