A Federal Case Discussing Notice To Insurance Company Of Claim

The United States Court of Appeals for the Fifth Circuit is a federal court located outside of Texas. Cases that originate in Texas, including the Dallas, Fort Worth, Arlington, and Grand Prairie areas will end up in this Fifth Circuit Court when it is on an appeal.
A case decided in late December of 2009 discusses “notice” provisions in insurance policies. These provisions are important for the people or businesses who have these policies to understand.
The case is styled, “East Texas Medical Center Regional Healthcare System v. Lexington Insurance Co”.
East Texas Medical Center Regional Healthcare System had various policies of insurance to provide coverage in the event they had claims or lawsuits made against them.
Lexington Insurance Company provided to East Texas a “claims-made” policy. A claims-made policy is a policy of insurance that provides coverage only for claims made during the term of the policy regardless of when the actual claim arose.
In this case, East Texas received notice from an attorney for one of its patients that they may be sued for wrongs they may have committed. East Texas sent to Lexington a “loss run” document before the Lexington policy had expired which was suppose to be notice to Lexington of the potential claim. About 11 days before the policy expired, East Texas was sued by its patient. It was 7 months later before East Texas notified Lexington of the lawsuit. Lexington denied coverage to East Texas.
There were several issues argued to the court. One of these was whether or not the loss run document was sufficient notice to Lexington of the claim. The court decided in East Texas favor on this issue. The next was whether or not East Texas had immediately or “as soon as practicable”, notified Lexington of the lawsuit. This was a requirement under the policy of insurance. On this issue the court decided against East Texas.
Once the court had decided that East Texas had violated the policy provision related to notifying Lexington about the lawsuit then the burden to prove that the East Texas failure to promptly notify them of the lawsuit, hurt Lexington, or as the court put it; that Lexington was prejudiced by East Texas not notifying Lexington as soon as practicable. On this issue the court remanded the case to the trial court.
The lesson learned on this case is really pretty simple. Whenever a claim or even a potential claim is being made against a person or business that has insurance coverage, it is vital that the insurance company is notified. And just a phone call is not sufficient. The notice needs to be in writing and the notice needs to be immediate. And lastly, there needs to be constant and immediate follow-up of all further communications related to the claim.