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Late Notice Continues to be a Hot Button Issue

Blogs, Insurance Coverage

Late notice, the issue of insurer’s right to deny insurance benefits as a result of a failure to provide timely notice, continues to be a dynamic question in insurance coverage litigation. 

In two separate late notice cases decided on October 22, 2012, two federal courts ruled in favor of the insurer. The Eleventh Circuit, in State Farm Fire & Cas. Co. v. LeBlanc, No. 12-11637, 2012 WL 5199253 (11th Cir. October 22, 2012), applying Georgia law affirmed summary judgment in favor of State Farm Fire & Casualty Company (“State Farm”) on late notice grounds, where notice was received four months after the insureds were sued for trademark infringement. However, the court reversed the grant of summary judgment as to new claims added in an amended complaint, because the notice was promptly given as to those claims. The Eastern District of Michigan, in AMI Entertainment Network, Inc. v. Zurich American Ins. Co., No. 12-cv-12972 (E.D. Mich. October 22, 2012), granted a motion for summary judgment in favor of the insured based on late notice, where the insureds engaged in extensive litigation activity and incurred over $1.3 million in defense fees and costs prior to notifying Zurich American Insurance Company (“Zurich”) about the underlying suit.

In-State Farm Fire & Cas. Co. v. LeBlanc, the Eleventh Circuit found that although the policy did not contain the terms “condition precedent,” the policy clearly expressed that the notice provisions be treated as conditions precedent to coverageThe Court also rejected the insureds’ argument that State Farm should have been held to a similar immediacy standard in seeking a declaration of its obligations under the policy, finding that Georgia law, does not impose an immediacy requirement where the insured fails to object to the insurer’s reservation of rights. The Court separately addressed the issue of whether notice was timely as to claims raised in an amended complaint. The Court noted a failure to provide notice of the original claims did not bar coverage of the later claims if notice was properly given as to the later claims. Because the notice was timely given as to the later claims, the Court reversed the grant of summary judgment as to the new claims asserted in the amended complaint and remanded for further proceedings.

In AMI Entertainment Network, Inc. v. Zurich American Ins. Co. the insured waited over a year to notify Zurich of the underlying lawsuit, and before providing notice, the insured engaged in extensive litigation activity, including filing motions to compel, a motion to dismiss and motions in limine. The insured argued that the duty to defend arose at the commencement of the underlying lawsuit, irrespective of whether notice was given or the request to defend was sought. The District Court for the Eastern District of Michigan rejected the insured’s argument holding that Zurich had no duty to defend absent a request to defend and that an insured which chooses voluntarily to respond themselves is not entitled to pre-tender fees and costs.

Also, recently, the Pennsylvania Supreme Court has agreed to answer three certified questions regarding the states late notice law. Under Pennsylvania law, an insurer seeking to deny coverage, for late notice of a claim must prove that it suffered prejudice. The state court has agreed to answer the following questions: (1) what constitutes actual prejudice to relieve an insurance company of its obligation to pay insurance benefits to an insured?; (2) should actual prejudice involve proof by an insurance carrier that it suffered a real material impairment of its ability to investigate and defend and uninsured claim?; and, (3) what constitutes a reasonable basis for a trial court finding that prejudice exists in a late report of a phantom vehicle?” Vanderhoff v. Harleysville Ins. Co., No. 375 MAL 2012 (Pa. Nov. 14, 2012).