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D&O coverage rejection upheld because of late claim


The former president of a software company is not entitled to coverage under the firm’s directors & officers liability insurance coverage because he filed his claim late, says a federal appeals court, in upholding a lower court ruling.

J. Graham Zahoruiko, former president of Westborough, Massachusetts-based Refresh Software Corp., filed suit against units of Chubb Ltd. in U.S. District Court in Hartford for failure to provide coverage in a lawsuit filed against him by a financing firm in connection with loan payments, according to court papers in J. Graham Zuhoruiko v. Federal Insurance Company et al.

Refresh, previously known as SpaceWeb Corporation, was issued D&O policies by Federal Insurance Co., a unit of the Warren Township, New Jersey-based Chubb Ltd.

The U.S. District Court dismissed the lawsuit on the basis that Mr. Zahoruiko had “failed to notify Federal of his claim within the time set forth in the policy.”

The District Court ruling said, “Defendants have offered undisputed evidence that the plaintiff did not notify them of any claims until Feb. 13, 2012, 10 days after learning that (the finance company) intended to move for summary judgment,” 16 months after being served with a complaint, 20 months after receiving a demand letter and three years and nine months after having signed a forbearance agreement with the firm, in which it agreed to extend the time for final payment of a note.

The ruling was unanimously upheld by a three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York on Friday. “Zahoruiko’s delay in notifying Federal of his need for coverage was both unexcused and unreasonable,” said the appeals court ruling. 

“Insofar as Zahoruiko argues that his untimely notice should be excused because the entity that sued him engaged in unscrupulous tactics, he fails to explain how that conduct prevented him from timely providing notice of the action to Federal,” said the ruling, in affirming the District Court’s judgment.