Delay in Notifying Insurer of Claim Dooms Coverage – Even in Absence of Prejudice
December 31, 2012The U.S. Court of Appeals for the Eleventh Circuit has ruled that an insurer did not have to defend claims against its insured where the insured did not notify the insurer of the claim for over eight months, in violation of the policy’s notice requirement, even in the absence of prejudice to the insurer.
The Case
After Sharp Realty & Management, LLC (“SRM”), was sued for alleged misconduct relating to its management of Shades Creek Plaza, it sought coverage under the Errors & Omissions policy that had been issued to it by Allied World Assurance Company. Allied argued that SRM had forfeited any available coverage by failing to comply with the policy’s notice provision. The district court granted summary judgment in favor of the insurer, and SRM appealed.
The Eleventh Circuit’s Decision
In its decision, the Eleventh Circuit explained that, under applicable Alabama law, the failure of an insured to comply within a reasonable time with a condition precedent in an insurance policy requiring the insured to give notice of an accident or occurrence released the insurer “from obligations imposed by the insurance contract.” Moreover, the circuit court continued, in these circumstances, courts had to consider only two factors in determining the reasonableness of a delay in giving notice to the insurer: the length of the delay and the reasons for the delay. Prejudice to the insurer was “not a factor” unless there was “no express provision making the insured’s failure to give such notice a ground of forfeiture or a condition precedent.”
The Eleventh Circuit then rejected SRM’s argument that prompt notice was not a condition precedent in its policy and that prejudice therefore was a relevant factor in determining the reasonableness of the delay. The circuit court found that the policy required that SRM promptly notify the insurer of any claim before it could bring an action against it. Even though the term “condition precedent” was not used in the policy, the circuit court ruled, SRM had to provide notice of claims to Allied, which meant that prejudice to Allied was not an issue.
The circuit court then pointed out that SRM had not notified Allied for over eight months, holding that to be unreasonable as a matter of law. Finding no factual question as to whether there was a reasonable excuse for the delay, the Eleventh Circuit affirmed the district court’s decision in favor of Allied.
The case is Sharp Realty & Management, LLC v. Capitol Specialty Ins. Corp., No. 12-13344 (11th Cir. Jan. 4, 2013).