Under Louisiana law, an insurer must prove actual prejudice as a result of the insured’s late notice before it can deny coverage based on that late notice.

In a recent maritime case, Champagne v. A & T Mar. Logistics Inc., 2025 U.S. App. LEXIS 2491 (5th Cir. 2025), the U.S. Fifth Circuit held that the requirement of the insurer to demonstrate actual prejudice caused by the insured’s late notice of a claim extends to cases governed by federal maritime law.

Champagne v. A & T Mar. Logistics Inc. – Background

In Champagne, the insured vessel operator allided with an embankment. Because the insured believed the damage to the embankment was minimal, it did not resolve the issue.

The insured did not notify the insurer about the incident until over one year later, only after a lawsuit was filed by the property owners. The insured and the vessel owner subsequently filed suit against the insurer, seeking defense, indemnity, and reimbursement for defense costs. The insurer denied coverage under the insurance contract due to the insured’s late notice of the claim. The insurer also filed crossclaims against the insured and the vessel owner, seeking a declaration that it had no duty to them under the insurance policy for the incident.

The insurance policy contained three separate “prompt notice” provisions, requiring the insured to timely provide notice of a claim to the insurer. The insured claimed that it did not consider the allision significant until suit had been filed. However, during the time between the incident and the time the insured reported the claim to the insurer, the damage to the embankment considerably worsened. The insurer claimed that this delay in notification deprived it of the opportunity to settle the claim for a lower amount.

Applicable Law

Federal maritime law governs cases involving the interpretation of a marine insurance policy. However, Louisiana law, which requires the insurer to demonstrate actual prejudice resulting from delayed notice of a claim before it can deny coverage on that ground, provides supplemental rules for interpretation.

District Court Decision

The insured and the vessel owner filed motions for partial summary judgment against the insurer for reimbursement of defense costs, which were both denied by the district court. The district court reasoned that coverage was in dispute and the policy did not include a duty to defend.

The insurer filed for summary judgment. The district court granted summary judgment, upholding the insurer’s denial of coverage. The district court found that the insured was in breach of the prompt notice requirements of the policy and that the insurer was actually prejudiced by the delayed notice of the claim. The insured and the vessel owner appealed this decision.

Fifth Circuit Ruling on Appeal

On appeal, the insured argued that its notice to the insurer was not prejudicially late, the proper remedy was not to exclude all coverage, and the terms of the policy required the insurer to pay for defense costs. Specifically, the insured argued that there is no prejudice to the insurer for late notice where the insurer has the “full opportunity to participate in the defense of the lawsuit” from its inception. The Fifth Circuit disagreed, concluding that “all that is required is a showing of actual prejudice” to the insurer as a result of the late notice of the claim.[1]

The Fifth Circuit determined that the insurer demonstrated actual prejudice from the delayed notice of the insured’s claim. The Court noted that the damage to the embankment worsened from the time of the incident to the time the claim was reported, while the insured “just sat on the potential claim and did nothing to prevent the initial damage caused by the allision from worsening.” Unlike other cases involving the insurer’s late notice defense, the damages were not repaired, and the insured did nothing to otherwise protect the insurer’s interests. Further, the Court agreed that the insurer lost the opportunity to investigate the facts of the incident and settle the claim for a lower amount.

In addition, the Fifth Circuit determined that the insurer had no duty to reimburse the insured or the vessel owner for defense costs because coverage under the policy was voided. Thus, when there is no coverage for the claims at issue, the insurer does not have a duty to indemnify the insured for the costs incurred in defending those claims. In doing so, the Court followed the general rule under maritime law that “a claim for indemnity arises only after the party seeking indemnity is held liable.”[2]

Ultimately, the Fifth Circuit upheld the district court’s denial of coverage and reimbursement of defense costs, thereby affirming the grant of summary judgment in favor of the insurer for the insured’s failure to provide prompt notice of the incident.

Effect of Decision on Marine Insurers and Insureds

This decision has important implications for both marine insurers and insureds under federal maritime law and Louisiana law. Marine insureds must be diligent in providing timely notice of claims to their insurers when incidents occur to avoid denial of coverage. In the event of late notice of a claim, marine insurers must satisfy the burden of proving actual prejudice due to the insured’s delayed notice, which requires evidence demonstrating how the delayed notice adversely affected the insurer’s ability to investigate and settle the claim efficiently.

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[1] Peavey Co. v. M/V ANPA, 971 F.2d 1168, 1173 (5th Cir. 1992)

[2] Hercules, Inc. v. Stevens Shipping Co., 698 F.2d 726, 732 (5th Cir. 1983)