NOTICE TO A BROKER IS NOT NOTICE TO THE UMBRELLA CARRIER
In Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., 2015 WL 329421 (5th Cir. Jan. 27, 2015), the core of the dispute concerned whether or not the umbrella policy’s notice requirements were satisfied by notice of the claim to the broker who placed the umbrella policy. The Court of Appeals held it was not because the broker was not an agent for the carrier regarding claim notification and prejudice existed as a matter of law.
Towers of Town Lake Condominiums was sued in state court on a premised liability claim. Towers was insured by a $1,000,000 primary policy with Nautilus Insurance Company and a $20,000,000 umbrella policy with Philadelphia Indemnity Ins. Company. Towers was defended by Nautilus. During the suit, Towers tendered the petition and notice of the suit to an alleged agent of Philadelphia, Wortham Insurance Group, the broker for the Umbrella policy. Notice never actually got to Philadelphia, and a jury delivered a verdict of $1,654,663 against Towers. With interest and cost, the Judgment was entered for $2,167,300. Nautilus tendered its limits and interest. Towers then gave direct notice to Philadelphia, and demanded they pay the excess. Philadelphia refused to pay based on late notice and prejudice. Nautilus obtained a supersedeas bond on the judgment through Berkley Regional Ins. Co. and Berkley paid the remainder to the Plaintiff in exchange for an assignment of the Plaintiff’s and Tower’s rights under the Umbrella Policy.
Nautilus brought the instant suit against Philadelphia as assignee and subrogee of the Plaintiff and Tower. The district court granted a summary judgment in favor of Philadelphia based on lack of notice and that notice to the broker did not constitute constructive notice to Philadelphia, and the lack of notice constituted prejudice to Philadelphia.
On appeal, the Court of Appeals noted that the Umbrella Policy required Towers to “see to it” that Philadelphia was “notified promptly.” This language does not require direct notice to Philadelphia, so the Court looked to the contract between Philadelphia and the broker to see if the broker had authority to receive notice.
On this issue, the Court of Appeals held the 2002 Agency Agreement “at least arguably created an agency relationship,” however, the contract expressly provided that the broker had authority to solicit and place business for Philadelphia, but was silent about accepting notice of a claim. The Court noted: “The claims process is distinct from policy brokering, and even though Wortham may have had authority to broker policies, this authority did not impliedly include authority to accept notice of claims.”
The Court of Appeals also held that this notice was not just late, but “wholly lacking.” Thus, Philadelphia was denied the opportunity to investigate or participate in any aspect of the suit including mediation. Whether or not Philadelphia would have participated in the trial was deemed irrelevant. The Umbrella Carrier was prejudiced as a matter of law, and the summary judgment in favor of Philadelphia was affirmed.