Early Verbal Notification Of Lawsuit Sufficient
November 03, 2010
The Illinois Supreme Court, over dissent, recently held that early verbal notification to an insurer of pending litigation involving an insured was sufficient compliance with the notice conditions of a CGL policy even though complete compliance with the written and other requirements of the notice conditions was not provided until 27 months after the filing of the litigation. West American Insurance Co. v. Yorkville National Bank, 2010 WL 3704985 (Ill. Sept. 23, 2010).
The insurer, West American, was represented by Robert Marc Chemers of Pretzel & Stouffer Chartered. W. Scott Porterfield of Barack, Ferrazzano, Kirschbaum & Nagelberg LLP represented the insured, Yorkville National Bank.
The underlying plaintiff filed a defamation action against Yorkville and its vice president in September 2001. At the time of the alleged defamation in November 2000, Yorkville was covered under a CGL policy issued by West American.
According to Yorkville's trial court testimony, Yorkville's president, Liggett, met with a West American agent, Dickson, in late 2001 or early 2002, told him that Yorkville was involved in the lawsuit, and asked if it would be covered by the bank's CGL policy. Dickson responded that it probably would not be. Dickson himself did not testify at trial.
Liggett further testified that he met with another West American agent during the same time period, again told the agent about the lawsuit, and asked if the CGL policy would provide coverage. That agent, Ottosen, also said it probably would not. Ottosen himself did testify at trial and denied the conversation.
The defamation lawsuit also was discussed at three meetings of the Yorkville board of directors in 2002, which Dickson attended as a board member.
In January 2004, Yorkville was advised by someone else that the CGL policy "should cover" the defamation lawsuit. Liggett then contacted Ottosen, who this time submitted the requisite claim forms and a copy of the complaint to West American. The underlying lawsuit at that point had been set for trial March 15, 2004, and March 5, West American denied coverage. On March 9, West American brought the instant coverage action. Yorkville subsequently settled the defamation lawsuit for $1.75 million without West American's participation.
In the coverage action, West American argued that notice was late based on the notice conditions of the policy. Those conditions required, among other things, that written notice be given the insurer as soon as practicable after an "occurrence," that written notice be given as soon as practicable after a claim or lawsuit, and that any suit papers be immediately transmitted to the insurer.
Following a bench trial, the circuit court found in favor of coverage and awarded Yorkville stipulated damages in the amount of $1.9 million. West American appealed, and the appellate court reversed, finding that Yorkville breached the notice conditions by waiting 27 months after the lawsuit was filed to submit a written claim for coverage and a copy of the complaint. Yorkville petitioned for leave to appeal to the Supreme Court, which petition was allowed.
In an opinion by Justice Anne M. Burke, the Supreme Court reversed the appellate court. She began her analysis by setting forth some general principles of notice under Illinois law, including the principle that timeliness of an insured's notice generally is regarded as a question for the trier of fact.
She then took up five factors relevant to late notice as set forth in Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 856 N.E.2d 338 (2006). The first factor was the specific language of the policy's notice provision. Here, according to Burke, the West American's notice provision was not helpful because it required only notice "as soon as practicable" or "immediate" without identifying a specific time frame for giving notice. Burke gave this factor no further consideration.
The second Country Mutual factor was the insured's sophistication. Burke said that since Yorkville is a bank it is presumed to be sophisticated in the areas of commerce and insurance. This factor thus weighed in favor of a finding that Yorkville's delay in sending written notice to West American was unreasonable.
The third Country Mutual factor was the insured's awareness of an event that may trigger insurance coverage. Burke noted trial evidence that Yorkville had been aware in November 2000 of the potential for a lawsuit and then became aware of the actual lawsuit in September 2001. This factor weighed in on the side of unreasonableness.
The fourth factor was the insured's diligence in ascertaining whether policy coverage is available. Here Burke observed that a lengthy delay in providing notice is not an absolute bar to coverage provided the insured's reason for the delay is justifiable under the circumstances. An insured's reasonable belief of noncoverage, moreover, said Burke, may be an acceptable excuse for the failure to give timely notice, even where the delay is lengthy.
Burke noted that Liggett's testimony about advising West American agent Dickson about the lawsuit, and being advised that the bank's policy probably did not provide coverage, was undisputed. This conversation, coupled with Dickson's presence at Yorkville's board meetings, tipped in favor of insured diligence according to the trial court, and Burke agreed. She indicated that after being informed that the policy did not provide coverage, Yorkville reasonably believed that sending written notice to the insurer would be futile.
As for the fifth Country Mutual factor, insurer prejudice, Burke said no testimony was presented at trial of such prejudice. Moreover, she found that the early actual notice to West American negated the possibility for any prejudice to have occurred.
In addition, she cited to Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 701 N.E.2d 499 (1998), for the proposition that an insurance company is deemed to have actual notice of a lawsuit where it has sufficient information to locate and defend the suit. She noted that Dickson was the authorized agent of West American, and at the very least he could have followed up with Yorkville by requesting to see a copy of the complaint before advising that the lawsuit probably was not covered.
The court concluded that, under the circumstances here, Yorkville's written notice of the lawsuit to West American was given within a reasonable time and did not violate the notice provisions of the policy. It therefore reversed the appellate court's judgment that Yorkville was not entitled to coverage.
Justice Charles E. Freeman wrote a lengthy dissent, arguing that the notice provisions of the policy are not mere technical requirements and that Yorkville had breached the unambiguous terms of the written and other notice provisions of the policy, thereby entitling it to no coverage.
