Tendering claims as soon as possible is always a good practice. Here is a case in point.
In February of 2016, the Illinois Appellate Court held that untimely notice by a company holding a certificate of insurance as an additional insured under a defendant’s policy barred coverage under the policy and precluded the company from seeking contribution from that defendant for a settlement paid by the company in an underlying action.
The Appellate Court’s decision in AMCO Ins. Co. v. Erie Ins. Exch., et. al. 2016 IL App. (1st) 142660 was triggered by an underlying negligence action filed on March 15, 2007, by a worker on a construction site. In the underlying case, the plaintiff sued the general contractor, a carpentry subcontractor and a concrete subcontractor for injuries sustained on a construction project. The carpentry subcontractor was insured by AMCO Insurance Company (“AMCO”) and the concrete subcontractor was insured by Erie Insurance Exchange (“Erie”). On May 7, 2008, the general contractor tendered its defense of the underlying action to AMCO, who accepted under a reservation of rights. A year and a half later, on December 2, 2009, the general contractor then tendered its defense of the underlying action to Erie, advising that it was currently being defended under a reservation of rights by AMCO and was also requesting defense and indemnity from Erie. Erie accepted the tender subject to a reservation of rights.
On March 25, 2011, AMCO settled the underlying matter for $1,000,000 on behalf of the general contractor. Erie ultimately settled the underlying action against the concrete subcontractor for $5,000, but did not reimburse AMCO for any portion of the settlement amount that AMCO paid on behalf of the general contractor. AMCO filed a declaratory judgment action against Erie seeking contribution for the settlement amount it paid on behalf of the general contractor. Erie asserted a policy defense that the tender was untimely. The trial court found that the general contractor’s notice to Erie was untimely as a matter of law. AMCO appealed.
The Appellate court upheld the trial court’s decision, finding the general contractor’s formal notice to Erie almost 3 years after the filing of the underlying action to be unreasonable as a matter of law and could not realistically be considered an immediate submission of the claim. Accordingly, it agreed that AMCO had violated Erie’s policy requiring “immediate” notification of any occurrences or offenses. The court further held that the general contractor’s duty to immediately notify Erie of the occurrence as soon as practicable was not removed by the fact that Erie had “actual” notice of the underlying claim more than a year prior to the tender. The court considered the sophistication of the general contractor and the fact that it had knowledge of the claim more than two years prior to notifying Erie in finding that the untimely notice barred coverage and precluded AMCO from seeking contribution for its settlement payment.
In rendering its decision, the Appellate Court distinguished its decision from that of the Illinois Supreme Court in The Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317 (1998) where, despite a tender on the eve of trial, the Supreme Court found actual notice sufficient to trigger a duty to defend. In supporting its distinction, the Appellate Court found that the Cincinnati Cos. court did not determine if notice was unreasonable as a matter of law. It further stated that the relevant inquiry before it was whether the general contractor’s delayed notice to Erie was unreasonable and whether it complied with the notice requirement under the plain terms of the Erie policy. It disagreed with AMCO's arguments in favor of applying the actual notice rule in Cincinnati Cos. refuting the implication that the duty to defend and the duty to indemnify are the same.
The Appellate Court’s finding in AMCO seemingly stands for the proposition that while actual notice of a claim may be sufficient to trigger a duty to defend, it is not sufficient to excuse an unreasonable delay in tendering claims of a defense. As a result, contractors and their insurers are on notice that tendering claims as soon as practicable upon knowledge that you are covered under a policy is a good practice.
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