No Coverage For Employment Lawsuit Related To Pre-Policy Demand

The United States District Court for the Southern District of New York, applying New York law, has held that an insurer had no duty to indemnify the insured for a lawsuit that was related to a demand made before the policy period. UDG Mgmt., LLC v. Ironshore Indem. Corp., 2026 WL 836684 (S.D.N.Y. Mar. 26, 2026). The court further held that even if the claims were made during the policy period, prejudice was not required to disclaim coverage, and the insurer was prejudiced regardless.

In September 2017, a former independent contractor made a written demand against the insured, alleging wrongful termination due to retaliation for whistleblowing. Then, in November 2017, the independent contractor filed a demand for mediation, with such mediation taking place in February 2018. After the matter did not settle, the independent contractor filed an arbitration demand in May 2018 before filing a lawsuit in April 2019.

The insured provided notice of the lawsuit to its employment practices liability insurer, which had issued a series of claims-made policies, including with policy periods from October 2017 to October 2018 and from October 2018 to October 2019. The policies defined a “Claim” to include “written demand[s] for monetary or non-monetary relief made against any Insured.” The policies required notice of a Claim or circumstances reasonably expected to give rise to a Claim “as soon as practicable but in no event later than thirty (30) days after the end of the Policy Period.” The policies also provided that, if notice is given of a Claim or if “any circumstances which may reasonably be expected to give rise to an Employment Practices Claim” exist, then any subsequent claim “arising out of, based upon or attributable to the prior noticed Claim or alleging any Related Employment Practices Wrongful Acts,” will be considered related to the prior Claim.

The court granted summary judgment in favor of the insurer because it determined that the demand letter constituted a Claim first made before the inception of the 2017-2018 policy period. Further, the subsequent mediation, arbitration, and lawsuit all arose from the same nucleus of facts that gave rise to the initial demand. Therefore, under the policy, the insurer had no indemnity obligation because the claims all predated coverage.

The court also found that, even if the claims were made during the policy period, the insured did not comply with the notice obligations under the policy. In so finding, the court rejected the insured’s argument that the insurer needed to show prejudice to deny coverage. Further, the court determined that, even if prejudice was required, a twenty-month delay during which time the insured mediated the underlying dispute without notifying the insurer would constitute prejudice.