Most liability insurance policies require notice of an occurrence promptly or as soon as practicable. They also generally require the policyholder to notify the insurance company if a claim is made or a suit is filed and served. In most instances, these are considered two separate notice requirements—both of which must be met in order to avoid losing coverage for an otherwise covered claim.
There are many reported cases where an insured provided the first required “notice of an occurrence” but failed to submit the second “notice of a suit.” Under these circumstances, outcomes favorable to the insured are extremely rare.
Generally, the duty to notify an insurance company of an incident, accident, occurrence or claim is independent of the duty to notify the carrier of a lawsuit. For example, in a case from the U.S. Court of Appeals for the Eleventh Circuit, the plaintiff slipped and fell at the insured’s shopping mall. After notifying its insurance company of the incident, the mall's owner believed the carrier would take care of its defense if and when the injured person later sued. Based on that assumption, the mall’s owner decided not to defend the lawsuit, nor did it notify the insurance company that a lawsuit had been filed. The plaintiff’s lawyer obtained a default judgment against the mall, sent a copy to the mall owner’s insurance company, and then sued the insurance company to collect the judgment. The insurance company refused to pay, arguing that the mall’s owner breached the policy condition requiring that “the Named Insured...immediately forward to the insurer or adjuster every demand, notice, summons, or other process upon receipt....” The court agreed with the insurance company, concluding that the insurance company's awareness of the claim before the lawsuit was filed did not fully satisfy the “Notice of Claim or Suit” clause in the policy. As the court explained, the policy had two distinct requirements, both of which had to be satisfied before coverage would be available.
Unfortunately, it isn’t always enough to satisfy both notice requirements. In Texas, for example, an accident led to a lawsuit, which the plaintiff’s lawyer sent to the defendant’s insurance company. The lawyer later withdrew the lawsuit due to a defect, then fixed it and filed the lawsuit again. The lawyer did not, however, send timely notice of the new filing to the insurance company. In fact, he completely failed to inform the insurance company about the new lawsuit until one day after the appeal period expired. Because no one informed the insurance company about the new lawsuit until it was too late to do anything about it, the court decided that the insurance company did not have to pay.
In another case with an interesting twist and a very harsh outcome, a school bus accident led to a lawsuit against the bus company and its driver. The company, but not the driver, notified the carrier of the lawsuit. Later, the bus company was dropped from the lawsuit, leaving the driver as the only defendant. In this instance, the court held that the carrier did not have to defend the driver because both the bus company and the driver were required to give notice.
These cases, and others like them from all over the country, teach us that simply notifying your insurance company of an incident is not enough. In fact, informing your carrier that a lawsuit has been filed may also be insufficient.
How should a business navigate these tricky waters? Remember these basic rules:
- If you become aware of an incident, notify your insurance company.
- If you are sued, notify your carrier.
- If you receive a summons, subpoena, motion, demand, settlement offer or other lawsuit papers, forward them to your carrier.
- If in doubt, consult with your attorney and err on the side of notice.