Late Notice Under Claims-Made Policy Dooms Insureds Added to Complaint

December 21, 2022 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, December 20, 2022

The 7th U.S. Circuit Court of Appeals, construing Illinois law, recently held that insureds under a claims-made policy had an obligation to give notice to their insurer during the policy period in which a related insured entity was sued.

Hence, when the insureds waited to give notice until after the complaint was amended to add them as defendants, the notice was late and the insureds were not entitled to coverage. Hanover Insurance Co. v. R.W. Dunteman Co., 51 F.4th 779 (Oct. 24).

The insurer, Hanover, was represented by BatesCarey LLP of Chicago. The Law Office of Kevin M. Lyons of Downers Grove represented the insureds seeking coverage.

Jane Dunteman held a minority stake in Du-Kane Asphalt Company and Crush Crete, Inc., two affiliated family-owned companies. After her death in March 2017, her personal representative, her daughter Audrey Dunteman, brought suit against Du-Kane Asphalt.

While naming only the one company as a defendant, Dunteman alleged that actions by her four brothers — the majority shareholders and directors of the family’s companies — had deprived her mother of her full ownership interest and dividends prior to her death. Du-Kane Asphalt countered that Jane Dunteman had been overpaid dividends.

Almost a year later in 2018, Audrey Dunteman filed a second amended complaint to add her four brothers and Crush Crete as defendants. The second amended complaint alleged that the brothers were responsible for the surreptitious reduction in their mother’s ownership interests.

Hanover had issued consecutive director and officer policies to a third family-owned company, R.W. Dunteman Co., for 2017 and 2018. Those policies provided coverage for the four brothers and the two defendant entities for losses due to wrongful acts for which an insured became legally obligated to pay, based on a claim first made during the policy period. The policy required insureds to report claims to Hanover “as soon as practicable” but within 90 days of the policy’s expiration date.

A week after the estate moved for leave to file the second amended complaint, the two defendant entities and four brothers first notified Hanover of the estate’s suit. Hanover denied coverage, taking the position that the estate’s lawsuit was filed during the 2017 policy period, that the 2018 claims were a continuation of the earlier claim, and that the insureds failed to provide timely notice.

Hanover also commenced this declaratory action seeking a declaration it owed no coverage. The insureds counterclaimed for breach of contract, arguing they had no obligation to give notice until after they were sued during the 2018 policy period.

The district court agreed with Hanover, and the defendants took this appeal.


In an opinion by Judge Diane S. Sykes, the 7th Circuit affirmed. As a preliminary matter, she noted that the purpose of a claims-made policy is to allow the insurer to easily identify risks so it can know in advance the extent of its claims exposure. With this clearer picture of its exposure, it can offer insureds less expensive policies.

She then turned to the policy’s aggregation provisions. She wrote that the policy treated “related wrongful acts” — i.e., those that were causally connected — as one wrongful act occurring when the first such wrongful act occurred.

In addition, the policy treated “related claims,” which arose from the same or similar circumstances, as a single claim deemed to have been made at the time of the earliest of such claims. Applying those definitions, Sykes found that the allegations in the original and second amended complaints were logically connected because they collectively concerned the insureds’ wrongful reduction of Jane Dunteman’s ownership interest in the family businesses. Thus, under the policy’s aggregation provisions, the “claims” encompassed both the estate’s initial allegations and its subsequent elaborations.

Crush Crete and the brothers nonetheless argued that, not having been named in the original complaint, they should be considered new to the litigation in 2018. Sykes said the argument had surface appeal, and if the original complaint had named unaffiliated defendants or unrelated claims, Hanover’s late notice defense would be on shakier grounds.

Here, however, the original defendant, Du-Kane Asphalt, and the new defendants were all co-insureds under the same policy. As a result, the policy’s aggregation provisions tied together all the allegations from the original and second amended complaints.

The court therefore affirmed the district court’s finding that reporting the claim to Hanover in 2018 was untimely.

In a concurring opinion, Judge David Hamilton pointed out that the court’s reasoning cut both ways in that, had the original defendant provided timely notice in 2017, any new but related claims arising years after the policy period would still be covered.

Key Point

If a complaint alleges a covered claim against an insured under a claims-made policy, a failure to timely notify the insurer could imperil coverage for co-insureds later added as defendants if the subsequent claims are found to be related to the claim first alleged.

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