Eleventh Circuit Clarifies Notice Requirements Under Claims-Made Policy

In L. Squared Industries Inc. v. Nautilus Insurance Co., the Eleventh Circuit Court of Appeals clarified notice requirements under a claims-made policy, holding that an insured’s failure to provide timely notice barred coverage when the insured could not rebut the presumption of prejudice to the insurer.

The policy at issue contained the following reporting provisions:

You must see to it that we are notified as soon as reasonably possible, but in any event, not more than seven (7) days after the insured first became aware of, or should have become aware of a pollution condition which may result in a claim or any action or proceeding to impose an obligation on the insured for cleanup costs.

When the insured made a claim, the insurer denied coverage, and claimed the insured failed to comply with the policy’s seven-day notice requirement.

On appeal, the Eleventh Circuit affirmed the judgment in favor of the insurer and clarified the legal framework applicable to notice under a claims-made policy. The court explained that the policy at issue contained two separate notice requirements common in claims-made policies: (1) a requirement that the pollution condition be reported during the policy period (i.e., the claims-made requirement); and (2) a requirement that the insured provide prompt notice — within seven days — after discovering a pollution condition. The court held that the insured satisfied the first requirement by reporting the claim within the policy period but breached the second condition by waiting eight months after discovery to provide notice under the policy.

The court’s reasoning did not end there, however. The Eleventh Circuit noted that, under the majority rule followed by many jurisdictions, late notice under a claims-made policy does not automatically bar coverage if notice is still given within the policy period. Instead, the insurer must show that it was prejudiced by the delay.

Before this case, Florida courts had not yet addressed this particular issue. The Eleventh Circuit explained that “[w]here there is an absence of state-law precedent in a diversity case like this one, [the court will] presume that the state courts would adopt the majority view on a legal issue in the absence of indications to the contrary.” Here, the Eleventh Circuit predicted that a Florida state court would adopt the notice-prejudice rule in this context and referred to the Florida Supreme Court’s decision in Bankers Insurance Co. v. Macias, which presumes prejudice from untimely notice but allows the insured to rebut the presumption with evidence showing the insurer was not prejudiced.

This opinion clarifies the applicable standard in Florida under a claims-made policy that also requires claims to be reported within a fixed period. Under this standard, insurers can rely on the presumption of prejudice when notice is delayed but should be prepared to demonstrate prejudice caused by late reporting.