The United States District Court for the Northern District of Oklahoma held, prima facie, that no notice prejudice exception applies under Oklahoma law to a surety of one financial institution in the event of an untimely claim. Mabrey Bancorporation, Inc. vs. Everest Nat. Ins. Co., 2022 WL 1410715 (ND Okla. 4 May 2022). The court held that timely notice is a “prerequisite” to coverage that should not be excused under financial institution surety bonds because a surety bond is more akin to a claim policy for which there is no There is no notification injury exception under Oklahoma law, and sureties are negotiated by sophisticated parties so strict enforcement of the notification requirement is not unfair.
The insured, an ATM owner, was the victim of multiple fraudulent transactions at the ATM. The insured was notified of the fraudulent charges and knew that he would be held responsible for the transactions under a “liability transfer” policy from a third-party bank that issued the cards to ATM users. The insured filed a notice of claim under a financial institution bond. The bond required notice no later than 60 days after the “discovery” of the loss, that is, when an officer “first becomes aware of facts which would lead a reasonable person to assume that a loss of a type covered by the bond has been or will be suffered.” The insurer denied coverage on the grounds that the notice was untimely, among other reasons, leading to a coverage dispute.
The court ruled that the notice was inappropriate under bail. The court found that the insured had reasonable knowledge that he would be held liable for the unauthorized transactions and that the loss covered by the bond had been or would be suffered, but failed to give notice within 60 days of Discovery.
The court considered whether the untimely notice could be excused under Oklahoma law under the “Notice Harm Exception”, a matter of first impression under Oklahoma law as applied to a financial institution obligation, but found that the exception did not apply. First, the court explained that the courts had been opposed to the strict application of notice provisions when a policy protected members of the public, such as a motor vehicle liability policy. According to the court, a surety does not compensate an insured for damages to the public. For example, the cover requires that the loss be suffered “directly” by the insured and not by a third party. Second, the court held that a financial institution surety bond is “functionally analogous to a claim policy” because both types of policies provide coverage for events discovered within the period defined by the policy, and the courts of Oklahoma have expressly denied a notice of harm exception for claims made policies. The court held that “as with claims policies, the application of the notification harm exception to obligations of financial institutions such as the policy would create an unnegotiated extension of coverage”. Third, the obligations of financial institutions are not contracts of adhesion. According to the court, “any interest in mitigating the harsh application of contract terms against a party unable to negotiate is not implied in their application”.