Coverage Forfeited for Failure to Give Notice to Excess Carriers until after Adverse Jury Verdict

August 31, 2012 | Insurance Coverage

A jury awarded a dentist $1,654,663.50 for injuries she suffered at the insured’s property. The insured demanded that its excess insurer, Philadelphia Indemnity Insurance Company, pay the amount in excess of its primary coverage amount. Philadelphia contended that it first received notice of the dentist’s suit (or claim) after judgment and denied coverage for late notice. After Philadelphia was sued, the district court rejected its position and concluded that, as a matter of law, Philadelphia was not prejudiced by the lack of notice prior to the adverse jury verdict. The case reached the U.S. Court of Appeals for the Fifth Circuit.

The circuit court analyzed whether the failure to give notice to an excess carrier until after an adverse jury verdict constituted evidence of prejudice that forfeited coverage and concluded that, in this case, it did.

As the circuit court observed, Philadelphia was not just notified “late,” it was notified after all material aspects of the trial process had concluded and an adverse jury verdict had been entered. As a result, the circuit court continued, Philadelphia lost the ability to do any investigation or conduct its own analysis of the case, as well as the ability to “join in” the primary insurer’s evaluation of the case.

Most importantly, the circuit court emphasized, Philadelphia “lost a seat at the mediation table.” The Fifth Circuit stated that it could not fully know what effect, if any, Philadelphia’s participation would have had on that process – for example, persuading the primary insurer to take a settlement offer made by the dentist, convincing the dentist to come down further or to accept the primary insurer’s offer, or even “dropping down” to pay the difference between the parties’ offers (with or without a side agreement between itself and the primary insurer to litigate who ultimately had to pay that amount). All of these rights were lost, the circuit court observed, leaving Philadelphia potentially liable for more than $700,000 in excess liability.

The circuit court therefore concluded that Philadelphia had presented sufficient facts in support of its position that it had suffered prejudice to avoid summary judgment, and it reversed the grant of summary judgment against the excess insurer. [Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., No. 11-50595 (5th Cir. Aug. 2, 2012).]

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