In a maritime insurance coverage dispute involving late
notice to the insurer, a federal district court in Louisiana recently denied an
insurer’s motion for summary judgment, notwithstanding its findings that the
insureds unreasonably delayed in reporting the loss and the insurer established
actual prejudice resulting from the insureds’ unreasonable delay, report
10.25.2022 by Jason P. Minkin and Bradley E. Puklin of US legal firm Bates
Carey.
In Champagne v. M/V Uncle John, et al., No. 21-476, 2022
WL 6742007 (E.D. LA October 11, 2022) the insureds, the owner and operator of a
vessel, were involved in an allision with the underlying plaintiffs’ concrete
bank.
The emails from the underlying plaintiffs reflected that
the insureds did not want to involve their insurers, and thus, their late
notice was intentional. The underlying plaintiffs were willing to settle for
$3,500 before they undertook efforts to seize the vessel and file a lawsuit.
The underlying plaintiffs ultimately filed a lawsuit in
federal court, at which time the insureds provided notice to their insurer
nearly one year after the allision. The insureds also filed a third-party
complaint against their insurer. The insureds and underlying plaintiffs
ultimately settled for approximately $200,000. The cost of settlement increased
substantially due to costs incurred by the underlying plaintiffs in the course
of arresting the vessel. These vessel seizure costs were among the costs that
the district court ultimately agreed could have been avoided by timely notice to
the insurer.
The insurer argued in its motion for summary judgment
that the notice provisions within its policy were conditions precedent, and
therefore the insurer need not demonstrate prejudice to prevail on a late
notice defence. However, the provisions cited within the policy did not
expressly identify the notice requirements as conditions precedent. The insurer
argued in the alternative that, even if the notice provisions were not
conditions precedent, the insurer demonstrated actual prejudice as a result of
the late notice.
The district court’s opinion did not address the issue of
whether the notice provisions were conditions precedent. However, the district
court found that the insureds’ delay was unreasonable, and that the insurer
established prejudice given that it could have potentially investigated and
settled the loss for the initial demand of $3,500 rather than $200,000.
Notwithstanding its factual findings, the district court
held that it was not willing to void the policy as a remedy for the breach of
the notice requirements.
The district court reasoned that “if the policy contained
language that either expressly or impliedly required such a draconian result
then the Court would not hesitate to enforce that language.”
However, the district court refused to void the policy in
its entirety, and permitted the insurer to file a more narrow motion for
summary judgment. The district court’s opinion implied that it would consider
limiting the policy’s coverage to $3,500 – the amount it would have cost the
insurer to resolve the matter if promptly reported.
The insurer has until October 31st 2022 to
file an amended motion for summary judgment, and it remains to be seen whether
it will accept the district court’s invitation to do so.
