Fifth Circuit holds that reinsurer has no duty to indemnify where reinsured’s late notice was objectively unreasonable and material

The Fifth Circuit recently addressed whether a reinsured was entitled to indemnity where it provided untimely notice to its reinsurer in United States Fire Ins. Co. v. Unified Life Ins. Co., No. 24-10392, 2025 WL 2355526 (5th Cir. Aug. 14, 2025). Pursuant to a quota share reinsurance treaty, United States Fire Insurance Company agreed to indemnify Unified Life Insurance Company for a portion of claims made in connection with short-term medical insurance policies. In return, Unified had to give prompt notice of any claims “which, in the opinion of [Unified], may result in a Claim” for policy benefits, indemnity or damages, and which subsequently “may materially affect the position of the Reinsurer.” When Unified was sued in Montana, it failed to give notice until 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. The claims against Unified in the underlying litigation were eventually settled and Unified sought indemnity from U.S. Fire pursuant to the terms of the reinsurance treaty.

U.S. Fire sued Unified in the U.S. District Court for the Northern District of Texas, seeking a declaratory judgment that Unified’s notice of the underlying litigation was untimely and prejudicial. The District Court found in favor of Unified on the basis that U.S. Fire did not offer any evidence that Unified subjectively believed that the underlying litigation may require indemnification from U.S. Fire, as required by the treaty. The District Court found that, even if Unified breached the treaty, U.S. Fire was not prejudiced by any late notice and must indemnify Unified. 

On appeal, the Fifth Circuit held that Unified’s delay in providing notice was objectively unreasonable and material, such that it breached the treaty and absolved U.S. Fire of its duty to indemnify. The Fifth Circuit concluded that the District Court wrongly applied a subjective, rather than an objective, standard in determining whether notice was timely. The notice provision required Unified to provide prompt notice to U.S. Fire of what a reasonable insured would believe may result in a claim under the treaty. Based on the events that had occurred in the underlying litigation before U.S. Fire was placed on notice, the Fifth Circuit held that notice was unreasonably late as a matter of law. The Fifth Circuit also held that late notice prejudiced U.S. Fire because the delay prevented U.S. Fire from exercising its right under the treaty to participate in the defense of the underlying claim and protect its interests.