Court Upsets 11-Month Notice Delay Defense
March 03, 2010
The 1st District Appellate Court recently held that an 11-month delay by an insured in giving notice of an occurrence may or may not constitute late notice under a CGL policy, depending on the facts, and it therefore reversed the granting of the insurer's favorable summary judgment no coverage determination. Berglind v. Paintball Business Association, 2009 WL 5125671 (1st Dist. Dec. 24, 2009).
The underlying plaintiff, James Berglind as next friend to his injured minor son Joseph Berglind, was represented by Lynn D. Dowd of Wheaton. Cassiday, Schade LLP in Chicago represented the insurer, Northland Insurance Co. Walker, Wilcox, Matousek LLP of Chicago represented ILM Inc., an independent insurance agency.
Joseph Berglind sustained an injury to his eye when a paint ball gun discharged while attending a birthday party in the lobby of Adrenaline Games Inc., a paintball game facility operated by George Longfellow. The injury occurred on March 21, 2003, when Longfellow was present and received notice of the incident.
Longfellow purchased CGL coverage for Adrenaline through ILM, an insurance broker, which, in turn, procured a policy through Northland. The policy was subject to an each occurrence limit of $1 million and required, as a condition to coverage, that the insured give notice to the insurer "as soon as practicable" after an occurrence or accident.
On Nov. 3, 2003, James Berglind filed suit against Adrenaline on behalf of his son, and summons was served on Longfellow, although he did not recall being served. When Adrenaline failed to answer or otherwise plead, Berglind filed a motion for entry of a default on Feb. 17, 2004.
The following day, Longfellow received a copy of the motion and notified the office manager at ILM, but neither Adrenaline nor ILM notified Northland. No one appeared on behalf of Adrenaline at the hearing on the motion for default and, following a prove-up, a damage judgment in the amount of $6.6 million was awarded as damages in favor of Berglind.
In June 2004 Berglind filed a garnishment action, and Longfellow then hired an attorney. The attorney notified Northland of the incident in September 2004. Northland filed a declaratory action in November seeking a determination that it did not owe a duty to defend or indemnify Adrenaline due to late notice. Adrenaline, which was judgment proof, then assigned all its rights against Northland and ILM to Berglind.
Shortly thereafter, Berglind filed suit against Northland and ILM seeking the recovery of insurance proceeds, and that lawsuit and Northland's prior declaratory action were consolidated. The parties filed cross motions for summary judgment on the sole issue of reasonable notice of the occurrence. For purposes of the cross motions, Northland stipulated that Longfellow's notice to ILM imputed notice to Northland.
The trial court agreed with Northland and ILM, finding that the 11-month delay in notice of the occurrence — from March 21, 2003, the date of the occurrence, to Feb. 18, 2004, the date of notice — was unreasonable as a matter of law, and it granted their motion for summary judgment. Berglind took this appeal.
In an opinion by Justice Robert E. Gordon, the 1st District reversed. He began by acknowledging that notice provisions in policies are not merely technical requirements and must be complied with to trigger the insurer's contractual duties. Under Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 856 N.E.2d 338 (Ill. 2006), moreover, the Illinois Supreme Court has construed "as soon as practicable" to require notice within a reasonable time.
The determination of what is reasonable, said Gordon, depends on the circumstances of each case, and the specific factors a court may consider include: (a) the language of the policy, (b) the insured's sophistication, (c) the insured's awareness that an occurrence has taken place, (d) the insured's diligence in giving notice, and (e) prejudice to the insurer.
Gordon focused primarily on Longfellow's lack of sophistication. Gordon pointed out that Longfellow was a high school dropout; he did not understand what a "registered agent" was; he sometimes threw away mail he did not understand; he was not aware of state requirements for workers' compensation; he was not experienced with legal and insurance matters generally; and there was no evidence that he had outside counsel to assist him.
Gordon did observe that Longfellow had experience with a previous lawsuit that he immediately forwarded to Adrenaline's insurance company, and that he generally knew that lawsuits had to be forwarded to the insurance company upon receipt. In this case, however, he denied being served with process.
Moreover, said Gordon, Longfellow thought the plaintiff's son, whose eye had been washed out by a physician immediately following the incident, had not sustained a significant injury. In addition, the injury here occurred in the lobby outside the actual playing arena at Adrenaline's facility. Under these circumstances Gordon found that Longfellow's belief that he would not be liable for the incident was not unreasonable as a matter of law.
With respect to Longfellow's diligence, Gordon observed that the court could not make a credibility determination, and it therefore had to accept his testimony that he did not recall receiving summons. When he received notice of the default, moreover, he immediately contacted the insurer.
Finally, with respect to prejudice, at the time ILM received notice of February 2004, which notice was imputed to Northland, Gordon said there was still time for Northland to vacate the default judgment before the prove-up of damages.
Consequently, the court found that fact issues existed with respect to the unreasonableness of the 11-month delay in the insured's providing notice of the occurrence, and it reversed the grant of summary judgment.
