Late notice of claim has been a difficult defense for reinsurers to sustain. But when the delay in notice is objectively unreasonable and material, it may be, as the Fifth Circuit recently found, a breach of the reinsurance contract enough to absolve the reinsurer of its duty to indemnify.
Read more: Fifth Circuit Reverses on Late Notice Defense Giving Reinsurer a VictoryIn United States Fire Insurance Co. v. Unified Life Insurance Co., No. 24-10292 (5th Cir. Aug. 14, 2025), a dispute arose involving reinsurance for a short term medical insurance claim. The underlying insured disputed the cedent’s determination on usual and customary charges and litigation ensued culminating in a class action. The cedent did not notify the reinsurer about the claim and the litigation until December 2019, although the underlying litigation commenced in April 2017. Despite taking actions that the reinsurer suggested, the cedent was unsuccessful in the underlying litigation and ultimately settled the claim. The reinsurer denied the claim based on late notice.
The reinsurer brought this action to declare that notice of the underlying litigation was untimely and prejudicial. On cross-motions for summary judgment, a magistrate judge ruled for the cedent on its counterclaim using a subjective notice test and, alternatively, found no prejudice. The reinsurer appealed.
On appeal, the 5th Circuit reversed, holding that the delay was objectively unreasonable and material and that it breached the reinsurance contract. Treaty required the cedent to give prompt notice to the reinsurer “of all Claims which, in the opinion of [the cedent], may result in a claim hereunder …. ” The issue in dispute was whether notice was required based on a subjective or objective standard of what the cedent believed.
In reversing the district court, the circuit court found that in considering the question of “whether the phrase ‘”in the opinion of’ departs from an objectively determined duty to notify, [w]e hold that the Treaty did not depart from the ordinary rule.”
We reject a subjective standard in favor of an objective one for three reasons. First, an objective reading best interprets the Treaty as a whole and in light of background principles of quota share treaty reinsurance. Second, Texas authority, albeit sparse, suggests that Texas courts would agree that an objective standard controls. Third, most other jurisdictions faced with similar provisions apply an objective standard.
In describing the notice provision in the reinsurance contract, the court stated as follows:
This notice provision, particularly in this quota share reinsurance contract, enables the reinsurer to assess its exposure for financial and underwriting purposes, and to participate in defending a claim as authorized by the Treaty. Notice is only valuable if it arrives “promptly,” in time for action. The sophisticated parties to this agreement had to assume that “the opinion of’ [the cedent], even if “subjective,” would be grounded in its professional experience and familiarity with potential claims. Objective reality, in other words, was implicit in [the cedent]’s opinion. From this standpoint, referencing [the cedent]’s opinion of a potential claim actually reinforces what should be an objective standard for the duty to notify. The phrase “in Unified’s opinion” is best interpreted to harmonize with the objective standard expressly connoted by the stock phrase requiring prompt notice “of all Claims which … may result in a Claim” under the Treaty.
The court held that
Based on an interpretation of the provision that makes sense of the whole policy and background reinsurance principles, the arguable support of Texas cases, and the interest in uniformity, we conclude that the Treaty provision required [the cedent] to provide prompt notice to [the reinsurer] of what a reasonable reinsured would believe “may result in a claim” under the Treaty.
Having found what the notice clause required, the court went on to hold that the cedent breached the notice provision. First the court considered when a reasonable cedent would have known that its duty to provide prompt notice of the underlying litigation was triggered and whether the cedent’s notice was reasonably prompt after that point. The court held that notice was not reasonably prompt based on the facts.
The court also held that the unreasonable notice was prejudicial to the reinsurer based on a material breach of the reinsurance contract.
. . . we hold that [the reinsurer]’s right to assist in [the cedent]’s defense of the [underlying] litigation was severely prejudiced when [the cedent] provided notice after summary judgment had been awarded to the individual plaintiffs, after a class was certified, and after a petition for interlocutory appeal on class certification was denied.
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Based on these facts, [the reinsurer] was plainly deprived of the benefit it expected from the Treaty’s notice provision. [The reinsurer] was prejudiced in several concrete ways by deprivation of its Treaty right to assist [the cedent]’s defense. Because it did not receive notice until after an adverse summary judgment, the defendant’s ability to introduce new expert testimony or obtain a different disposition was radically narrowed. [The reinsuer]’s receipt of notice after summary judgment was more prejudicial than notice given with trial “rapidly approaching.” (citations omitted).
The opinion outlines in detail why there was prejudice based on the specific facts of the case. It provides a roadmap to reinsurers who believe that they have been prejudiced by late notice. It is always better to give notice early and often rather than wait for an adverse ruling, particularly one that objectively precludes a reinsurer from associating in the defense of the claim.
