United States: Fatal Traps In D&O Insurance Policies Underscored By $10 Million Late Notice Insurance Claim Dismissal

Last Updated: May 18 2015
Article by Brian Friel

Providing insurers with timely notice of claims is probably the most basic of coverage issues. Think of proper notice as the "Go" box in the board game Monopoly – you can't get around the board to secure boardwalk hotels or bags of money until you get past "Go." Claims notice works the same way. A policyholder can obtain and pay for the best insurance policies available, whether General Liability, Property, Directors & Officers, Errors and Omissions, Crime, etc., but the insurer may deny a claim because the policyholder provided notice one month or even one week too late. Sometimes notice is late because of an oversight or neglect on the part of a policyholder, but more often than not, notice is late because of unsuspected traps, particularly those contained in claims made insurance policies. As a recent case illustrates, these traps can be difficult to navigate. Ashland Hospital Corporation v. RLI Insurance Company, Civil Action No.: 13-143-DLB-EBA (EDKY, Northern Div. March 17, 2015).

In Ashland, Ashland Hospital purchased a $15 million primary D&O liability policy from Darwin National Assurance Company and a $10 million excess D&O liability policy from RLI Insurance Corporation, covering the period October 1, 2010 to October 1, 2011. Both policies are claims-made, which obligated Ashland Hospital to provide notice of claim as soon as practicable but no later than 90 days following expiration of the policy. In addition, the excess policy issued by RLI required Ashland Hospital to provide notice no later than 30 days after: (i) it provides notice to the underlying policy (Darwin), (ii) the alteration or cancellation of the Darwin policy, and (iii) the exhaustion of Darwin's policy limits.

The facts here are fairly straightforward. On July 25, 2011, the United States Department of Justice issued a subpoena to Ashland Hospital as part of a Health Insurance Portability and Accountability Act (HIPPA) investigation, seeking emails, medical records, insurance billings, medical malpractice claims, and employment contracts related to nine doctors associated with two cardiology groups. Ashland Hospital ultimately agreed to pay $40.9 million to resolve allegations that it billed federal health programs for heart procedures that patients did not medically need. Ashland Hospital notified the primary insurer (Darwin) of the HIPPA investigation on December 30, 2011, 89 days after the policy expired. Darwin accepted coverage and ultimately paid its full $15 million limit. However, Ashland Hospital did not give RLI notice of the HIPPA investigation until June 29, 2012. Two years later, in 2014, Ashland Hospital notified RLI that Darwin had exhausted its underlying limits one week earlier. RLI denied coverage for late notice because Ashland failed to give RLI notice within 30 days of giving notice to Darwin and within the policy period.

Ashland Hospital filed suit against RLI, asserting claims for breach of contract and bad faith. Ashland Hospital contended that it complied with RLI's notice provision because it timely notified RLI that Darwin's underlying limits were exhausted and, even if its notice was late, RLI was not prejudiced because the claim had been covered by Darwin up until that point. The federal district court rejected these arguments, holding that (i) Ashland Hospital was required to comply with all of RLI's 30-day notice requirements, not just one of them, and (ii) under Kentucky law, notice is a condition precedent in claims-made policies, and thus, an insurer need not be prejudiced by late notice to disclaim coverage.

Here is the sad reality of this case -- a policyholder hospital forfeited $10 million in excess limits because of its failure to read or properly understand the separate notice requirements set forth in the excess policy. Likewise, it appears that the hospital or its counsel may have been confused, at least initially, as to whether the initial HIPPA-related DOJ subpoenas were even a "claim" as defined in the policies because those subpoenas were directed at two unaffiliated cardiology groups and a group of doctors, not Ashland Hospital. It was these mistakes, or some combination of them, that ultimately led to Ashland Hospital nearly blowing its notice obligation under the primary policy (one day remaining on the 90-day grace period) and completely blowing its 30-day notice obligations under the excess policies. These mistakes cost the hospital $10 million, a payment which the excess insurer would have undisputedly paid if the hospital understood its notice obligations under its entire D&O insurance program.

If competent coverage counsel was retained at the beginning of the HIPPA investigation and had a chance to review the subpoenas and the hospital's D&O policies, Ashland Hospital would have received an additional $10 million in insurance money.

Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series. For additional information about this post, please email or call Brian Friel (FrielB@MillerFriel.com, 202-760-3162).

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions