Accidents happen. To protect ourselves from financial disaster, virtually all of us carry liability insurance on our homes, businesses, and vehicles, as well as health insurance in the event we are injured or ill. We expect our insurer to respond to our needs and defend and indemnify us from losses. After all, that is why we pay premiums. However, an insurer’s contractual obligation to defend or indemnify in the event of a loss is not unconditional. Often the policy of insurance will contain conditions with which the insured must comply in order for there to be coverage.
For example, on May 1, 2013, the Fifth Circuit Court of Appeals decided the matter of Insurance Company of North America v. Board of Commissioners of the Port of New Orleans, 2013 WL 1811892. This dispute arose in connection with a $2.6 million judgment against the Port for injuries sustained by John Morella in 2001. The Port had in place a primary policy with a limit of $1 million. Above this, the Port had purchased an excess marine insurance policy to which three underwriters subscribed by percentages, forty (40%) percent, forty (40%) percent, and twenty (20%) percent.
The case went to trial in 2007. The Port’s representatives had timely notified the insurance company, which provided the primary layer of insurance. However, the excess insurers were not notified until late March 2007, approximately a month after the state court judgment was entered. In May, 2007 the underwriters filed suit seeking declaratory judgment that they were not required to pay under the policy because the Port did not provide timely notice of Morella’s claim. In May 2009, the excess insurers filed for summary judgment. Applying New York law, the district judge found that the notice was untimely and that the Port should have notified the underwriters of the claim when its defense counsel indicated that Morella’s economic loss exceeded $1.8 million. The district judge also found, however, that “loss summaries” provided to two of the insurers could have constituted timely “notice” under the policies. Accordingly, the district court rendered summary judgment in favor of the third insurer because it did not receive loss summaries detailing the incident as its co-excess insurers had and notice to its co-excess insurers did not constitute notice to St. Paul.
The policy contained the following policy provisions:
Whenever any Assured has information from which the Assured may reasonably conclude that an occurrence covered hereunder involves an event likely to involve this Policy, notice shall be sent to Underwriters as soon as practicable, provided, however, that the failure to notify Underwriters of any occurrence which at the time of its happening did not appear to involve this Policy, but which, at a later time, would appear to give rise to claims hereunder, shall not prejudice such claims.
It its decision in favor of the insurer that did not receive notice via the “loss summaries,” the court rejected the Port’s argument that notice to one or more co-excess insurers triggered a duty of coverage by all the excess insurers, regardless of whether some underwriters did not receive notice like the others. The court stated that “the policy language requires that all of the subscribing insurers must receive notice,” and affirmed the district court’s summary judgment in favor of the insurer because it did not receive notice under the policy as its co-excess insurers may have received.
On receipt of this ruling, the remaining two insurers filed another summary judgment and argued that the ruling required notice to all insurers before any were required to provide coverage. That is to say that because one of the three did not receive notice, all were relieved of any duty to provide coverage under the policy. The district court agreed and ruled that the notice provision required that each and every insurer needed notice and found that no excess coverage was available.
On appeal from the Fifth Circuit, the district judge was reversed. The Fifth Circuit found that any insurer who receives notice is liable for providing coverage, regardless of whether its co-insurers received notice. Because these two insurers had received “loss summaries” earlier in the litigation, this constituted sufficient notice and they provided coverage.
The moral of the story is clear. Better to be safe than sorry. Read your policies and when a loss occurs, make sure that all insurers, primary and excess, are timely placed on notice in writing. Failure to promptly place your insurers on notice of a claim may leave you uninsured.