Untimely Notice - When does it absolve the insurer's duty to defend and indemnify?

In Atlantic Cas. Ins. Co. v. Greytak (2014 WL 2870236), considered whether an insurer seeking to avoid coverage was required to show prejudice under Montana law.  The plaintiff insurer, Atlantic, sought relief from a duty to defend and indemnify an insured that failed to give notice for more than a year.

The case arose out of a dispute between Atlantic’s insured and the defendant, Greytak. The insured sued Greytak for non-payment, and Greytak counterclaimed. More than a year later, the parties reached a purported settlement agreement. It required the insured to notify Atlantic and provided judgment for Greytak if Atlantic failed to indemnify. The insurance policy in dispute contained a clause requiring the insurer to defend any suit seeking damages.  The policy, as is typical, required notice as soon as practicable. Atlantic sought a declaration absolving it of its duty to defend or pay any judgment entered against the insured because the insured failed to provide timely notice.

The issue facing the Court was whether the insurer was required to demonstrate prejudice from untimely notice. Both parties cited the same case. Atlantic argued notice was a condition precedent; the failure to comply with barred recovery. Greytak argued the insurer must demonstrate prejudice. The Ninth Circuit held that no Montana decisions answered the question of whether prejudice must be demonstrated by an insurer to before it is freed of its duties to the insured. The Court thus certified the question to the Montana Supreme Court.  Importantly, the Court declined to find prejudice based solely from the length of the delay and the corresponding inability of the insurer to investigate and gather facts for over one year.