MHM Services v. Assurance Company of America involves a dispute over liability coverage of an umbrella policy for MHM Services, a company that screens inmates for the Illinois Department of Corrections that are nearing the end of their term, but are eligible for indefinite confinement as sexually violent persons. The suit alleged that MHM negligently recommended the release of Christopher Hanson, a convicted sex offender with a history of recidivism. Within eight months of his release, Hanson brutally sexually assaulted a teenager on a bike path in Libertyville and repeatedly stabbed her until she appear lifeless. Fortunately, she survived the attack and was able to identify her assailant, who was convicted and incarcerated for the crime.

Facing a lawsuit with possible damages in the millions of dollars, MHM filed suit against Assurance, the carrier of it’s umbrella policy, alleging that Assurance wrongfully denied payment under the policy. Assurance responded by claiming that MHM violated the notice provision of its policy by not disclosing the existence of the lawsuit until two years after it had been filed.

In ruling for Assurance, the appellate court referred to a four part test in determining the reasonableness of a delay in notifying the carrier: 1) the specific language of the policy’s notice provision 2)  the insured’s sophistication in commerce and insurance matters 3) the insured’s awareness of an event that might trigger insurance coverage  4)  the insured’s diligence and reasonable care in ascertaining whether insurance coverage is available and  5) whether the insured’s delay caused prejudice to the insurer.

In all four parts, according the court, MHM failed the test, and was properly denied coverage.