An insurer appropriately denied a technology company coverage under its directors and officers liability policies because it had failed to give timely notice of its claim during the coverage’s initial policy period, said a federal appeals court in a divided ruling that upheld a lower court’s ruling.

Frisco, Texas-based ADI Worldline LLC, which performs custom computer programming services, obtained D&O insurance policies from Atlanta-based RSUI Indemnity Co. for a 2014 policy that covered Dec. 31, 2013, to Dec. 3, 2014, and for a 2015 policy that covered the subsequent year, according to Friday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in ADI Worldlink LLC v. RSUI Indemnity Co.

The policies included provisions that obligated RSUI to pay all claims first made against the company during the policy period, and the 2015 also contained an “interrelatedness” provision that “deemed all claims related in a specific manner to have made at the time of the earliest such claim,” according to the ruling.

Worldlink was sued for an alleged failure to pay overtime wages to nonexempt employees, according to the ruling. RSUI denied coverage on the basis the first employees’ claim was made in August 2014, but the company did not inform the insurer of the claims until September 2015.

Worldlink filed suit in U.S. District Court in Sherman, Texas, seeking a declaratory judgment on its coverage. Judge Amos L. Mazzant III ruled in the insurer’s favor, which was upheld by a divided three-judge appeals court panel.

“That earlier policy would have provided coverage except that the insured failed to comply in 2014 with a notice provision. We conclude the district court was correct to rely on this difference,” said the majority opinion in affirming the lower court’s ruling.

The minority opinion said the case is “materially indistinguishable” form from a Texas appeals court ruling that held in the policyholder’s favor in a case that had similarities to the RSUI litigation.

RSUI attorney J. Richard Harmon, co-chair of the insurance litigation and coverage section for Thompson, Coe, Cousins & Irons LLP in Dallas, said in a statement the majority “correctly distinguished” the Texas appeals court ruling from the facts in the RUSI case “in holding that no coverage existed because of ADI Worldlink’s failure to comply with the notice condition in the 2014 RSUI policy coupled with the application of interrelated claims provision in the 2015 RSUI policy.”

The Texas opinion, he said, “simply did not address the insured’s failure to comply with a notice condition in earlier policy years. This is a critical distinction.”

ADI’s attorney did not respond to a request for comment. 

In 2017, Judge Mazzant struck down the Obama administration’s overtime rule, holding that overtime should be determined on the basis of duties rather than salary.