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

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).]

New & Noteworthy

“Discovery Rule” Did Not Toll Four-Year Statute of Limitations Applicable to Insured’s Breach of Contract Claim 

A disability insurer terminated an insured’s benefits in a letter dated October 30, 2007, that the insured claimed he received on November 7, 2007. The insured sued the insurer for breach of contract on November 4, 2011, and the insurer contended that the suit was untimely. The court agreed, deciding that the four-year statute of limitations barred the complaint and rejecting the insured’s contention that his suit was timely under the “discovery rule” because he had not received the letter until November 7, 2007. The court found that the breach of contract claim accrued on October 30, 2007, the date of the unconditional denial of the insured’s claim for disability benefits.  [Greenberg v. Riversource Life Ins. Co., No. C 12-00552 (N.D. Cal. Aug. 8, 2012).]

California Supreme Court Upholds All Sums Approach to State’s Long-Tail First-Party Property Loss

The State of California sought indemnity from its insurers in connection with a federal court-ordered cleanup of the Stringfellow Acid Pits waste site that the state had designed and operated as an industrial waste disposal facility.  The California Supreme Court concluded that the insurers had to pay “all sums” for property damage attributable to the site, up to their policy limits, if applicable, as long as some of the continuous property damage occurred while each policy was “on the loss.”  The court added that the coverage extended to the entirety of the ensuing damage or injury and “best reflects the insurers’ indemnity obligation under the respective policies, the insured’s expectations, and the true character of the damages that flow from a long-tail injury.” The court also upheld application of the “all-sums-with-stacking” allocation rule. [California v. Continental Ins. Co., S170560 (Cal. Aug. 9, 2012).]