Fifth Circuit Finds Prejudice, Upholds Excess Insurer’s Rights to Notice

Berkley Reg. Ins. Co. v. Phil. Indem. Ins. Co. U.S. Ct. Apps. 5th Cir. (Tex.) Aug. 2, 2012 The underlying lawsuit involved a slip and fall with $1 million of primary coverage and excess/umbrella coverage of $20 million. The case went to trial and the jury awarded $1,654,663.50. Thereafter, the primary insurer demanded the excess insurer to pay the amount of the judgment in excess of the primary coverage amount. The excess insurer refused and contested coverage based on policy defenses including late notice, claimant that this was the first notice of the suit or claim that it had received. The only issue before the district court on cross motions for summary judgment was whether the failure to give the excess insurer notice prior to the jury verdict barred coverage under the policy. The excess policy required prompt notice of any occurrence involving “permanent disabilities,” “any coverage issue which may trigger a reservation of rights or coverage declination,” and any “incurred exposure of $500,000 or above.” The policy further granted the excess insurer the right to join with the insured and primary insurer in the investigation and settlement and defense of all claims and suits that may exceed the underlying insurance. The district court found against the excess insurer citing to a lack of prejudice, a requirement under Texas Insurance Law. On appeal, the Fifth Circuit reviewed Texas case law regarding the protections afforded to both the insurer and insured finding that “notice requirements thus afford valuable rights…Although we distill these principles from cases involving primary carriers, we discern no basis for a different rule for excess carriers. While their responsibilities are different and, thus, they may not suffer prejudice in all of the circumstances where a primary carrier would, they nonetheless have a contract with the insured and are entitled to rely upon the same contract principles discussed above.” The court held that notice is clearly too late once the case is over and that “wholly lacking notice, as opposed to merely late notice, supports a finding of prejudice as a matter of law.” True to Texas, the court stated that “The cows had long since left the barn when [the excess insurer] was invited to close the barn door.” The Fifth Circuit reversed the district court’s grant of summary judgment relying on: an affidavit of the excess insurer’s representative citing its lost rights and opportunities; the fact that significant settlement demands and a mediation occurred without the excess insurer’s knowledge; and the rendering of a jury verdict before notice was given. For a copy of this decision, click here. Thomas F. Segalla and Fallyn B. Reichert LinkedIn_GS.jpg

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