(Article from Insurance Law Alert, December 2015)
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A Georgia appellate court issued a mixed ruling on an excess insurer’s late notice defense, finding that notice was untimely as a matter of law, but that policy language required the insurer to establish prejudice, which presented a disputed issue of fact. Plantation Pipe Line Co. v. Stonewall Ins. Co., 2015 WL 7306254 (Ga. Ct. App. Nov. 20, 2015).
The coverage dispute arose from a leak in one of Plantation’s pipelines. The leak was discovered and immediately repaired in 1976. More than thirty years later, in 2007, contaminated soil traced to the 1976 leak was discovered at the site. Plantation then sent notice to its primary insurer and three excess carriers. Three years later, in 2010, when Plantation discovered the existence of the Stonewall policy through a search conducted by Plantation’s former counsel, it notified Stonewall that its policy was likely to be implicated by third-party claims arising from the contamination. Stonewall denied coverage on several bases, including late notice. Ruling on cross-motions for summary judgment, a Georgia trial court ruled that Plantation forfeited coverage under the Stonewall policy by failing to give timely notice. The appellate court affirmed in part and reversed in part.
The appellate court affirmed the trial court’s ruling that Plantation’s notice was untimely as a matter of law. The appellate court rejected Plantation’s arguments that (1) it did not reasonably believe that its losses would reach the $2 million attachment point of the Stonewall policy before 2010; and (2) notice was reasonably prompt under the circumstances. As to the first point, the court explained that the factual record established that Plantation knew as early as 2008 that its costs would likely exceed $2 million, evidenced by the fact that Plantation notified other excess carriers at that time. As to the second point, the court held that even assuming that an insured’s inability to locate a policy could constitute an excuse for late notice (an issue the court declined to reach), there was “no evidence that the policy could not have been . . . discovered any earlier.”
However, the appellate court parted ways with the trial court on the issue of prejudice. It explained that if a policy makes prompt notice an express condition precedent to coverage, an insurer is not required to establish prejudice. Conversely, where a notice provision does not contain explicit “condition precedent” language, an insurer must demonstrate prejudice as a result of the untimely notice. The court ruled that the trial court erred in concluding that general introductory policy language requiring both parties to adhere to contract provisions was a “condition precedent” clause. The appellate court further ruled that Stonewall failed to establish prejudice as a matter of law, notwithstanding the more than two-year delay in providing notice. The court explained that although Stonewall was entitled to timely investigate claims, an excess insurer is “not necessarily . . . entitled to an opportunity to investigate in the early days following an occurrence that gives rise to an insured’s liability, as a primary carrier may be.” In this respect, the decision highlights the distinction between the events that typically trigger an insured’s obligation to provide notice to a primary insurer (i.e., knowledge of an occurrence giving rise to liability) and the events that trigger notice obligations under excess policies (i.e., assessment regarding likelihood that exposure will exceed primary limits). The appellate court noted that although Stonewall may succeed in establishing prejudice as a matter of fact based on “particularized evidence of harm,” its “bare assertion” that it was deprived of an opportunity to investigate during the two-year delay was insufficient to establish prejudice as a matter of law.