Mailroom Mix-Up Cannot Excuse Notice Requirement Noncompliance
The United States Court of Appeals for the Eleventh Circuit, applying Georgia law, has held that mishandling of mail by an insured’s employee which led to noncompliance with a notice requirement in an insurance policy cannot, as a matter of law, excuse the noncompliance. Johnson & Bryan, Inc. v. Utica Mut. Ins. Co., 2018 WL 3387525 (11th Cir. July 11, 2018). In affirming the grant of the insurer’s motion to dismiss, the appeals court agreed that whether a delay was justified was not a question for a jury where the insured’s failure to meet the requirement resulted from its own negligence.
The insured insurance broker helped some homeowners procure a property insurance policy. The policy required the homeowners to have a fence, but their yard was fenceless. After the property insurer denied a claim for damage from vandalism on that ground, the homeowners sued the broker for failing to flag the fence requirement. When a pre-suit demand letter arrived at the broker’s office, it was assumed to be general correspondence about the claim with the property insurer and no further action was taken. The broker did not learn that suit had been filed against it until 70 days later; it then provided notice to its E&O insurer on the 72nd day after first receiving the letter.
The broker’s E&O policy required, as a condition precedent to coverage, that the insured “immediately send … copies of any demands … received in connection with a ‘claim’ or ‘suit.’” Georgia courts construe “immediate notice” provisions to require notice to be provided “with reasonable diligence and within a reasonable length of time in view of the attending circumstances of each particular case.” Thus, the insured had to show either compliance or a reasonable justification for noncompliance. Georgia cases holding delays of 46 and 24 days to be noncompliant foreclosed an attempt to argue compliance.
The insured argued that the district court erred by not allowing its asserted justification for the non-compliance – a reasonable clerical mistake – to be considered by a jury. The Eleventh Circuit agreed that potential justifications are ordinarily questions of fact, but the court relied on Georgia cases holding that when a delay results from the insured’s own negligent failure to act on a document in its possession, noncompliance with a policy’s notice requirement is unreasonable as a matter of law. Finally, the court rejected the insured’s argument that summary judgment against it was improper because the trial court failed to consider a lack of prejudice to the insurer, noting that, under Georgia law, courts may consider lack of prejudice but are not required to do so. The appellate court concluded that the district court’s decision not to consider whether the insurer suffered any prejudice therefore did not constitute reversible error.