Jacqueline Butler did not receive a promotion from the Texas law firm where she worked, and she suspected that her race had something to do with it. In July 2001 she filed complaints with the Texas human rights commission and the federal Equal Employment Opportunity Commission, and the EEOC notified the employer a month later.
The following spring, the EEOC informed Butler that she had the right to sue the employer, which she promptly did. The employer then submitted a claim to its Employment Practices Liability insurer, but four weeks later the insurance company denied the claim and the employer had to pay for its own legal defense and any potential settlement.
In 2006 the employer sued its insurer for the costs of defense, but a federal court upheld the insurer’s denial. The insurer argued the policy required written notice “as soon as practicable and in no event later than sixty (60) days after such Claim was first made,” and it maintained Butler’s July complaints to administrative authorities constituted a “claim” under the policy’s definition.
The insurer relied on the policy definition of “claim” as “any judicial, administrative or other proceeding against any Insured for any Employment Practices Wrongful Act.” Because the complaints initiated administrative proceedings, the insurer said the required 60-day notice period began when Butler filed those complaints, not when the employer later received notice of the lawsuit.
The employer argued it had satisfied the policy by notifying the insurer within 60 days of receiving the suit, but the court agreed with the insurer and upheld the denial.
Insurers include prompt-notice language for good reasons: the sooner they know about a potential claim, the better they can investigate and prepare a legal defense. As time passes, witnesses’ memories fade, people move, and memos, e-mails, and other evidence can become harder to find.
A claimant who has been kept waiting may become unwilling to negotiate, too. Even without a strict 60-day deadline, insurers sometimes deny coverage when an insured delays notice because the delay can prejudice the insurer’s ability to handle the claim.
Courts have not developed a single standard for what counts as “prompt” notice, but they typically consider how long the delay was, why the delay occurred, and how the delay affected the insurer’s ability to investigate and defend the claim. Sometimes a late notice will be excused if the insured reasonably believed it was not liable, but that defense may not succeed when an employee has already filed complaints with administrative authorities.
The safest course for employers is to notify their insurance company or agent as soon as they become aware of any employee complaint to outside authorities, even if the employer thinks the claim is groundless. For an overview of coverages that address workplace claims, see Understanding Employment Practices Liability Insurance.
If you are reviewing policy language, consider comparing available options and endorsements that can affect coverage scope and claims handling; one relevant resource is Employment Practices Liability Insurance (EPLI) with E&O.
Our professional insurance agents can advise you on what your specific policy requires when a charge is made. The best time to have that discussion is before a claim arises.
Frequently Asked Questions
What does “prompt notice” mean?
“Prompt notice” has no single legal definition, but courts look at the length of delay, reasons for the delay, and how the delay harmed the insurer’s ability to investigate and defend the claim.
Does a complaint to the EEOC count as a claim for insurance purposes?
Often yes; many policies define a “claim” to include administrative proceedings, so filing with an agency can trigger the notice requirement.
Can an insurer deny coverage solely because notice was late?
An insurer may deny coverage if the late notice prejudiced its ability to investigate or defend the claim, but outcomes depend on policy language and the specific facts.
When should an employer notify its insurer about an employee complaint?
An employer should notify its insurer or agent as soon as it becomes aware of a complaint to outside authorities, even if the employer believes the claim lacks merit.