Insurer Not Prejudiced by Two Year Delayed Notice of Claim

An Iowa federal court judge recently issued a ruling in Michigan Millers Mut. Ins. Co. v. Asoyia, Inc. et al., U.S. Dist. Court for the S.D. Iowa, Case No. 11-cv-00006-CRW (April 23, 2014), addressing a liability insurer’s claim that it did not have a duty to defend or indemnify its insured due to the delay in providing notice of the claim.  The insured waited almost two years to notify the insurance company of the loss, which was allegedly cause by the insured’s product.  After analyzing the evidence presented in the case, the court upheld the jury’s verdict that the liability insurer was not actually prejudiced by the delayed notice because evidence obtained as part of the investigation by the property insurer and local fire department was still available.

In the case, the liability insurer claimed it did not have a duty to defend or indemnify the fire that was allegedly caused by soybean oil manufactured by the insured.   The liability insurer’s position was that it was prejudiced by the insured’s failure to notify it of the fire loss, or its potential liability, until nearly two years after the fire.  At trial on the matter, the liability insurer introduced testimony that it was unable to completely investigate the loss because the damaged building was repaired a year before it received notice of the claim.  The inability to adequately investigate meant the liability insurer was unaware of potential additional evidence  and unable to determine whether all witnesses were identified and interviewed.  It also introduced the testimony of a fire expert that opined that the investigation was inadequate in many respects.

The property insurer conducted an investigation of the claim immediately following the loss.  Following its investigation, the property insurer determined that the loss was covered under its policy, paid its insured, and tendered subrogation notices to a number of potentially responsible parties, including the soybean manufacturer.  The property insurer introduced testimony from the fire marshal, who testified he was “able to confidently determine the origin and cause of the fire.”  Additionally, it provided the testimony of a cause and origin expert, electrical engineer, and other individuals involved in the investigation.  Each of the witnesses authenticated photographs that were taken of the scene and testified regarding efforts that were undertaken to preserve the evidence found at the scene of the loss.

Following the property insurer’s case-in-chief, the liability insurer moved for directed verdict.  The court took the motion under advisement and submitted the case to the jury, which returned a special verdict finding that the property insurer proved facts showing that the liability insurer was not prejudiced by the delayed notice.  The court thoroughly examined the evidence presented in the case and ultimately upheld the jury’s verdict on the issue.  Based on the evidence adduced at trial, the court concluded that the evidence retained by the property insurer and fire department provided the liability insurer with sufficient basis to investigate the fire, which undercut any claim of prejudice resulting from the insured’s delayed notice.

MLR frequently handles duty to defend and indemnify issues for its clients.  Please contact us with any questions about this case or any other matter you see on the Insurance Coverage Blog.

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