No Coverage for Underlying Lawsuits Due to Insured’s Failure to Provide Notice as Soon as Practicable

The United States District Court for the Northern District of Georgia, applying Georgia law, has held that there is no coverage for multiple lawsuits under employment practices liability insurance policies where the insured failed to comply with the policies’ notice requirements.  Nat’l Cas. Co. v. Fulton Cnty., Ga., 2018 WL 1523089 (N.D. Ga. Mar. 28, 2018).

The insured county was a defendant in several lawsuits filed by hundreds of attorneys who were current or former county employees.  The plaintiff-attorneys asserted that the county breached their employment contracts by not paying salaries at rates set forth in the county’s personnel regulations.  The county sought coverage for the lawsuits from its liability insurance carrier.  The carrier denied coverage, and subsequently refused to indemnify the county for the settlement payment it made to the plaintiffs.

In the ensuing coverage litigation, the insurer sought a declaration of no coverage, arguing that the allegations in the underlying lawsuits were not within the scope of the policies’ coverage, exclusions applied to bar coverage in any event, and coverage was precluded because the county failed provide timely notice of the lawsuits.  The court rejected the insurer’s first two arguments.  First, the court found that the allegations fell within the policies’ definition of “employment practices wrongful act.”  The court held that the core issue in the lawsuits – the county’s failure to compensate at required levels – satisfied parts of the definition concerning “breach of any express or implied covenant” and “failure or refusal to advance, compensate, employ or promote.”  Second, the court rejected the insurer’s argument that certain exclusions applied to bar coverage, as none of the laws or statutes referenced in those exclusions were at issue in the lawsuits.

The court then examined whether the county satisfied the policies’ notice provisions.  As an initial matter, the court dismissed the county’s argument that loss runs disclosed to the underwriter during the underwriting process constituted proper notice of the lawsuits.  Although the county later provided notice pursuant to the reporting procedures set forth in the policies, which included sufficient detail regarding the lawsuits, the court concluded that the notice was not provided “as soon as practicable,” as required under the policies, due to delays of 11 to 24 months between when the lawsuits were filed and when the county notified the insurer.  The court held that such delays were untimely as a matter of law, and that, accordingly, the county had failed to satisfy the applicable notice provision, which was a condition precedent to coverage.  In reaching this conclusion, the court relied on other Georgia cases which held that delays of as little as three or four months were unreasonable as a matter of law.  Notably, the court did not require the insurer to show how it was prejudiced by the county’s late notice in order to deny coverage on this ground.

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