Failure To Provide Immediate Notice Of An Occurrence Dooms First-Party Asbestos Claim

On December 26, 2007, the First District of the Illinois Appellate Court affirmed Clausen Miller’s successful motion for summary judgment in Board of Education of Township High School District No. 211, Cook County, Illinois  v. TIG Ins. Co., --- N.E.2d ---, 2007 WL 4563440 (Ill. App. 1st Dist.).  In District 211, a school district sought more than $20 million in damages from its property insurer for the removal of asbestos and asbestos containing materials in a series of high school buildings.  The decision reaffirms a sophisticated insured’s obligation to comply with important conditions precedent; in this instance, a notice provision.

Two first party property policies spanning 1981 through 1986 required a suburban Chicago school district to provide its insurer with “immediate” written notice of “any occurrence the cost of which is likely to result in payment.”  Though this policyholder first learned in June 1983 that asbestos in some of its high schools had become friable, it waited until July 1991 to notify its insurer, many years after it had expended nearly $15 million on asbestos removal projects.  

The First District considered four factors in determining whether the timing of the notice was “reasonable”: (1) the policy language; (2) whether the policyholder could be deemed “sophisticated” in matters of insurance; (3) when the policyholder became aware of the occurrence; and (4) the diligence in determining available coverage after the policyholder learns of the occurrence.  

The First District stated, “[i]n this case there can be no dispute that the language of the policies required immediate notice to TIG by the Board when the Board knew of an occurrence which would cause it to incur costs likely to be paid by TIG.  The Board attempts to argue, as it did in the trial court, that the notice requirement was not a condition precedent to coverage by TIG.  We disagree.”  (Emphasis in original.)  The First District found the policies’ notice provision – a condition precedent to coverage which cannot be ignored – clear and unambiguous and the policyholder’s failure to comply with its requirement fatal to the claim. 

   

The First District also found that “[i]t is clear from the record that we are not dealing with an unsophisticated insured.”  This policyholder hired a consultant within months of learning of the occurrence.  The consultant determined in rather short order that the buildings contained friable asbestos and recommended wholesale removal of the asbestos.  The policyholder, however, elected to notify its insurer in writing in July 1991.  “By any measure, a notice that is sent over eight years after an occurrence cannot be considered ‘immediate’,” wrote Justice Joy Cunningham for the unanimous appellate panel.    

The policyholder tried to excuse its delay by contending it was unaware of precedent prior to 1991 which would allow recovery under the policies.  Citing to a 1989 decision by the Illinois Supreme Court, the appellate panel “concur[red] with the trial court that there is no merit to the Board’s contention that it was not aware of any legal precedent for an action against [the insurer] in the first years after discovery of friable asbestos in their schools. … [I]n 1989, the Board sued a number of asbestos manufacturers, distributors and sellers, seeking to recover damages for its costs in removing asbestos from its buildings.”  Though the policyholder was represented by counsel experienced in asbestos matters, it did not examine its policies to determine whether its insurer may have been liable.  As such, there was “no satisfactory explanation for the delay.”    

The First District also noted while there was ample support for the contention that the insurer was prejudiced by the delay in notice, under Illinois law a lack of prejudice does not excuse a lack of timely notice.  

Similarly, the court followed well-established Illinois cases holding that “actual notice” by an insurer does not excuse the policyholder’s responsibility to give reasonable notice and that the “actual notice” by the insurer must be communicated within a reasonable time.  The policyholder unsuccessfully attempted to argue that its 1989 suit against asbestos manufacturers, distributors and sellers who were also insured by TIG under separate and unrelated liability policies placed TIG on notice of an occurrence that was likely to result in payment under the first party policy.  The court stated that “[w]e will not hold an insurer liable to investigate and determine whether there are possible collateral claims forthcoming from other insureds when some of the insurer’s insureds are sued for damages.”   

While disposition of the case ultimately turned on the application of a straightforward notice provision, the litigation spanned 15 years and included an earlier appeal.  In an effort to excuse its failure to provide proper notice and circumvent application of the policies’ “wear and tear” and “contamination” exclusions, the policyholder also pursued several convoluted theories regarding manifestation of physical damage, calculation of the number of “occurrences” and the scope of “ordinance deficiency coverage.”  Among other things, the court found “unavailing” the contention that as asbestos became friable over time there were distinct occurrences of damage, each of which created a new or different notice obligation.

District 211 clearly reinforces the fundamental principle that policyholders must timely notify their property insurers as required by their contracts of insurance or else lose coverage which may have otherwise been afforded had notice been properly given.  

More subtly, District 211 gives some context to Illinois’ “equitable continuous trigger” theory which is difficult to apply in first party property matters.  In the first appeal of this matter, the Illinois Appellate Court deemed asbestos property damage an “ongoing, continuous process, triggering every policy … in effect during the period beginning with the installation of the friable, fiber-releasing asbestos materials and ending when those materials are removed or contained.”  Board of Education of Township High School District No. 211, Cook County, Illinois, v. International Ins. Co., 308 Ill.App.3d 597, 604, 720 N.E.2d 622 (1st Dist. 1999).

Against this backdrop, in this subsequent appeal stemming from its failure to provide proper notice, the school district argued that the claim involved progressive losses, and their successive discoveries.  If it prevailed on this theory, the school district would have arguably complied with the policies’ notice requirements for “occurrences” transpiring in and around July, 1991, the time when it first gave written notice.  However, the court rejected the suggestion that a “progressive loss” consists of a series of discrete “occurrences,” each independently implicating the notice requirement.   

We therefore tentatively surmise that Illinois’ First District considers the presence of friable asbestos in buildings to be a “single occurrence” of property damage, albeit an “ongoing, continuous process,” which triggers all policies in effect from the date of installation to the date of removal or containment.  

On January 24, 2008, Illinois’ First District rejected the policyholder’s petition for rehearing.  Clausen Miller’s Sava Vojcanin and Jim Ferrini briefed the case before the Appellate Court, with Jim presenting a compelling oral argument.  Sava successfully litigated the matter in the trial court.