8th Circuit: Late Notice Barred Coverage Under ‘Claims-Made’ Policy

Ace American Insurance Co. is not liable for the approximately $250,000 that an Arkansas school district paid to settle a sexual harassment lawsuit because the district did not notify the insurer about a complaint against it until more than six months after the “claims-made” policy expired, the 8th Circuit Court of Appeals ruled Monday.

The appellate panel affirmed a decision by the U.S. District Court for Eastern Arkansas to grant summary judgment for Ace in a lawsuit filed by the Pine Bluff School District. In an opinion written by Chief Judge Lavenski R. Smith, the panel said the policy issued by Ace unambiguously required any claims to be reported no later than 60 days after the policy expired.

While the school district had notified Ace less than a month after a lawsuit was filed against it, the claim was not covered because the district had first received notice 10 months earlier when it learned that a complaint has been filed with the Equal Employment Opportunity Commission, the opinion says.

Smith wrote that the lawsuit and the EEOC complaint have to be considered as a “single claim” under the terms of the policy. The deadline for reporting claims started running when the first notice was received.

The school district hired Celeste Alexander to teach math at Pine Bluff High School for the 2014-15 school year. In April 2015 she and several other teachers received “reduction in force” letters — layoff notices, in effect.

In June 2015, Alexander filed a sexual harassment complaint with the school district against Principal Michael Nellums, her direct supervisor. She filed a discrimination complaint with the EEOC on Dec. 1, 2015 after the school district failed to rehire her, alleging retaliation.

The commission dismissed her complaint and issued a “right-to-sue” letter. Alexander filed a lawsuit on Sept. 22, 2016 alleging that the school district had hired “lesser qualified” teachers but did not rehire her because of the sexual harassment allegations. The school district notified Ace about the lawsuit in Oct. 3, 2016.

In March 2018, the school district agreed to pay Alexander $50,000 and contribute $7,000 to her retirement account to settle the lawsuit. The district court awarded Alexander an additional $100,000 for attorney’s fees and $19,367.37 in costs.

The school district asked Ace to reimburse it for those expenses, but Ace refused. The carrier said the school district’s policy required any claims to be reported “as soon as practicable” but in no case later than 60 days after the policy expiration.

The school district filed suit in state, seeking to recoup the settlement costs plus an additional $82,425.22 in expenses. Ace removed the case to federal court.

District Court Judge G. Baker ruled that Ace is not liable for the cost of the claim because of the school district’s late notice.

On appeal, the school district argued that the doctrines of waiver and estoppal bar Ace from denying coverage because the insurer did not give notice that it would not cover the claim until Feb.14, 2018. But the 8th Circuit said Ace had given proper notice that it was reserving its right to deny payment until it completed its investigation.

The circuit court also rejected the school district’s argument that the policy language was ambiguous. Any ambiguity in insurance contracts is generally interpreted in favor of the policyholder.

Attorney David A. Hodges, who represented the school district on appeal, said he is disappointed with the decision, but declined further comment when contacted by the Claim Journal on Monday.