## Facts

- A county board of education was sued by a construction contractor in federal court arising out of a construction contract dispute.
- The contractor asserted claims for breach of contract and a related tort theory described as a tortious conspiracy connected to the alleged breach.
- The board held a directors-and-officers liability policy issued by an insurer on a claims-made form.
- The policy provided coverage for tort claims but expressly excluded coverage for breach-of-contract claims.
- The board settled the underlying federal suit without the insurer’s participation.
- The insurer declined to reimburse defense costs and denied coverage, relying on (1) the contract exclusion and (2) lack of timely notice under the claims-made policy.
- The coverage dispute reached the state’s highest court on questions certified from the federal court.

## Issues

1. Whether allegations framed as a tort (tortious conspiracy) that are tied to an alleged breach of a construction contract are barred by a policy exclusion for breach-of-contract claims.
2. Whether, under a claims-made liability policy, failure to provide timely notice of a claim permits the insurer to deny coverage without showing prejudice.

## Decision

- The court answered the certified questions in a manner that favored enforcement of the policy’s express limitations.
- The court treated the substance of the underlying dispute as contractual in nature, making the contract exclusion applicable notwithstanding tort labeling.
- The court recognized timely reporting under a claims-made policy as a core component of coverage, permitting denial when notice is untimely without a required showing of insurer prejudice.

## Legal Principles

- In construing coverage and exclusions, courts look to the gravamen of the allegations rather than the plaintiff’s chosen labels.
- A tort theory that is dependent on, or seeks damages for, an alleged contract breach does not avoid a policy exclusion for contract claims.
- For claims-made liability policies, timely notice/reporting is part of the coverage grant; late notice can place the claim outside coverage.
- Under claims-made policies, an insurer may deny coverage for untimely notice without proving prejudice where the policy makes timely reporting a coverage requirement.

## Conclusion

The court enforced the D&O policy’s contract exclusion based on the underlying dispute’s contractual character and treated timely notice under a claims-made policy as a coverage prerequisite, allowing coverage to be denied for untimely reporting without a separate prejudice showing.


Continental Casualty Co. v. Bd. of Educ. of Charles Cnty., 489 A.2d 536 (Md. 1985)