Late Notice and Silica

WV Supreme Court Reverses $8,000,000 Silica Jury Verdict Against Travelers Due to Late Notice

The Supreme Court of Appeals of West Virginia, applying West Virginia law, reversed a jury verdict for $8,000,000 and held that Travelers Indemnity Company (“Travelers”) had no coverage obligation to U.S. Silica under three comprehensive general liability policies finding that the decades-long delay between when the claims were filed and when notice was given was unreasonable.  The court was not persuaded by the fact that, prior to when U.S. Silica gave notice, U.S. Silica was unaware of the insurance policies’ existence.

U.S. Silica mines and processes silica sand and as early as 1975 has been named a defendant in numerous silica claims seeking damages for injuries allegedly caused by exposure to the silica sand.  Prior to September 12, 2005, the defense and indemnity of U.S. Silica’s claims were subject to an indemnity agreement.  Upon the expiration of the indemnity agreement, U.S. Silica reviewed its insurance policies to determine whether any coverage existed to pay its unreimbursed silica claims costs.  It was at this time that three Travelers comprehensive general liability policies were found for the periods of 4/1/1949 – 4/1/1958.  Upon discovery of these policies, U.S. Silica sent Travelers a letter informing Travelers of the silica claims and requesting coverage under the policies for out-of-pocket expenses and reimbursement of its pre-September 12, 2005 settlement and defense costs and requested a defense for newly-filed silica claims.  Three years later, U.S. Silica sent Travelers the complaints associated with hundreds of claims.  Travelers did not respond and therefore U.S. Silica filed a declaratory judgment action that was stayed for six years.  During the stay, Travelers sent U.S. Silica a reservation of rights letter denying coverage and a defense for all of the pre-2010 silica claims citing numerous grounds, including U.S. Silica’s failure to comply with the policies’ notice provision.  Ultimately, a trial was held which resulted in a jury verdict in favor of U.S. Silica for approximately $8,000,000.

Each of the Travelers policies contain a notice provision which required the insured to notify Travelers as follows: “If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative.” The court of appeals held that “the satisfaction of the notice provision in an insurance policy is a condition precedent to coverage for the policyholder.”

Travelers argued that it had no coverage obligation to U.S. Silica because U.S. Silica unreasonably delayed in providing notice of its claims and that it was prejudiced by the late notice.  Under West Virginia law, there is a two-step inquiry to determine whether late notice precludes coverage: (1) whether the delay was reasonable and (2) if the delay was reasonable, whether the insurer was prejudiced by the delay.  The court of appeals held that U.S. Silica, or its predecessor, was required to notify Travelers of the claims when it first received them, which occurred as early as 1975, not when U.S. Silica first found the policies 30 years later in 2005.  The court rejected U.S. Silica’s argument that because it was not aware of the insurance policies prior to 2005 that it was reasonable that it had not provided notice to Travelers.  According to the court: “An insured’s lack of knowledge of its own policies of insurance does not, however, provide reasonable grounds to justify its late provision of notice to its insurer.”  The court held that, even though a question of reasonableness is normally one for the jury, “given the undisputed and egregious facts giving rise to the subject claims and the sophisticated nature of the parties involved” the delay of notice in the case was unreasonable as a matter of law.  Because the court found that the delay was unreasonable, it did not address the issue of prejudice.  Ultimately, the court held that because the timely notice condition precedent to coverage was not met, U.S. Silica was not entitled to coverage under the Travelers policies and the jury verdict was reversed.  Travelers Indem. Co. v. U.S. Silica Co., No. 14-0343 (W. Va. Nov. 10, 2015).

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