FIFTH CIRCUIT HOLDS “NOTICE PROVISION” JURISPRUDENCE APPLIES TO EXCESS CARRIERS THE SAME AS TO PRIMARY CARRIERS

The Fifth Circuit Court of Appeals determined that there was a fact issue concerning whether an excess insurer was prejudiced by lack of notice of a lawsuit prior to a jury verdict, reversing summary judgment rendered in favor of the primary insurer and remanding to the trial court for further proceedings.  In Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., 2012 WL 3126739 (5th Cir. August 2, 2012), Nautilus Insurance Company was the primary insurer for the defendant in an underlying slip-and- fall suit, with a policy limit of $1 million per occurrence. Philadelphia was the defendant’s excess insurer, with a limit of $20 million excluding the primary policy.  The plaintiff in the underlying suit was a dentist who was unable to continue her practice because of her injuries, and her experts valued her damages at $1.25 million.  Although the numbers exchanged at mediation were well below Nautilus’ policy limits, negotiations failed and the case went to trial.  The jury ultimately awarded the plaintiff more than $1.6 million, and the trial court’s final judgment added post-judgment interest and costs.

Philadelphia contested coverage based on late notice, contending that the first time it knew of the suit or the claim was after judgment, when it was asked to pay the excess amount.  The parties (plaintiff- appellant Berkley Regional Insurance Company had obtained the rights of Nautilus and the underlying parties against Philadelphia) filed competing motions for summary judgment, and the District Court for the Western District of Texas ruled as a matter of law that Philadelphia was not prejudiced by lack of notice prior to the adverse verdict.  The Fifth Circuit performed a detailed review of the history of notice provisions and the prejudice requirement in Texas Courts, observing that the notice requirements affords insurers valuable rights, including the ability to join in an investigation of the claim, to settle a case or claim, and to interpose and control the defense.  On the other hand, the Court concluded, it was clear that for an insured’s breach to defeat coverage, the breach must prejudice the insurer.  The Fifth Circuit saw no reason that these principles should apply any differently to an excess carrier than to a primary carrier.

The Court disagreed that the facts before it in Berkley paralleled various cases in Texas courts where notice was “better late than never.”  To the contrary, Philadelphia was not notified late — it was not notified at all, until the case was at a conclusion and could only be appealed.  Philadelphia could not investigate the case or perform its own analysis.  Most importantly to the Fifth Circuit, Philadelphia could not participate in mediation.  Since mediation is a “dynamic process,” the Court could not determine what effect Philadelphia’s participation might have had.  In a closing metaphor, the Court stated that “the cows had long since left the barn when Philadelphia was invited to close the barn door.”

The Fifth Circuit declined, however, to render judgment for Philadelphia, holding that fact issues still existed as to whether Philadelphia was prejudiced as a matter of law.  The Court did not identify the facts that could have demonstrated that Philadelphia was not prejudiced, but remanded to the District Court for a determination of the remaining summary judgment issue.