7th Cir. / Late Noticeshoke2013
Broker Did Not Have Apparent Authority to Accept Notice on Behalf of Excess Insurer
The Seventh Circuit, in an opinion written by Chief Judge Wood, applying Illinois law, upheld the District Court’s ruling that due to the policyholder’s failure to provide prompt notice, the excess insurer was not liable to pay any part of a $2.3M judgment. Notice to the excess insurer’s insurance broker was not sufficient.
On January 16, 2008, an employee of Deerfield Construction, Inc. (“Deerfield”) was involved in a car accident. Laurus Strategies (“Laurus”), an insurance consultant and Deerfield’s insurance broker, and Arthur J. Gallagher Risk Management Services, Inc. (“AJG”), another insurance broker, procured for Deerfield a primary commercial automobile policy from American States with coverage limits of $1M and an excess policy from Landmark American Insurance Company (“Landmark”) with coverage limits of $10M. Soon after the car accident, Deerfield, through Laurus, notified American States and AJG of the accident. Deerfield believed that “notice to AJG constituted notice to Landmark,” but Landmark did not actually receive notice of the accident at that time.
On December 22, 2009, a lawsuit was filed against Deerfield related to the accident. As soon as it was served, Deerfield notified Laurus. Sometime between December 30, 2009 and January 19, 2010, Deerfield notified American States of the lawsuit. On December 5, 2014, AJG notified Landmark. On January 16, 2015, the jury entered a verdict against Deerfield and the state court entered judgment against Deerfield. On January 29, 2015, Landmark notified Deerfield that it reserved its rights to deny coverage under the excess policy due to late notice. Landmark then brought an action against Deerfield seeking a declaratory judgment that there was no coverage under the Landmark excess policy due to Deerfield’s failure to provide timely notice about the accident and lawsuit.
Under Illinois law, whether a policyholder’s notice to its insurer was timely is determined by the totality of the circumstances. The Illinois Supreme Court has identified five non-dispositive factors to aid the inquiry: “(1) the specific language of the policy’s notice provision; (2) the insured’s sophistication in commerce and insurance matters; (3) the insured’s awareness of an event that may trigger insurance coverage; (4) the insured’s diligence in ascertaining whether policy coverage is available; and (5) prejudice to the insurer.” Both the American States and Landmark insurance policies required Deerfield to give “prompt” notice to the insurer of any “accident,” “suit,” “claim,” or “loss,” and to “immediately” send the insurer copies of any documents concerning a claim or lawsuit.
The Seventh Circuit found that the notice was not “prompt” as required by the policy language. The Seventh Circuit weighed the other four factors and found that “[w]hen considering the totality of the circumstances, at some point common sense comes into play. Landmark did not receive notice until seven years after [the accident].” Thus, the Seventh Circuit held that Deerfield’s notice was untimely and unreasonable as a matter of law.
Deerfield argued (1) that Landmark should be estopped from asserting a late notice defense; and (2) that Gallagher was Landmark’s apparent agent, and thus, the notice it immediately provided to Gallagher should be imputed to Landmark. The Seventh Circuit disagreed. As to estoppel, the issue was whether Landmark misrepresented or concealed material facts and whether Deerfield reasonably relied upon the representations in good faith to its detriment. The Seventh Circuit found that Landmark’s actions during the trial were fully consistent with an insurer that wished to assert its right not to cover a loss. As to whether Gallagher was an apparent agent, under Illinois law, a broker does not become the apparent agent of an insurer where, as here, it performs traditional brokerage activities. “[I]t is only Landmark’s actions, and not Laurus’s statements, that can create an apparent agency relationship between Gallagher and Landmark.”
In conclusion, the Seventh Circuit found that “[w]aiting five to seven years before telling an insurance company that its policy may be implicated in a suit is too long.” Landmark American Ins. Co. v. Deerfield Const., Inc. No. 18-2205 (7th Cir. Aug. 12, 2019).