11th Circuit To Hear Dispute Over Notice Requirements After Dismissal Without Prejudice

Since 2008, litigation has been ongoing between G.M. Sign, Inc. and Brink’s Manufacturing Co. over allegations that Brink’s violated the Telephone Consumer Protection Act by sending out unsolicited faxes without any ability by the recipient to opt out of receiving the faxes.  The original 2008 lawsuit was dismissed without prejudice in 2009.

G.M. Sign immediately filed an identical suit in Illinois State Court, which settled for $22.54 million.  As part of the deal, G.M. Sign was assigned Brinks’ insurance rights under its policy with St. Paul Fire & Marine Insurance Co.  However, Brink’s did not tender the defense of the action brought in Illinois State Court and did not otherwise provide notice to St. Paul of the fact that the suit had been re-filed.

In 2014, G.M. Sign went after St. Paul in Georgia federal court.  St. Paul responded that it was not required to cover the claim brought in Georgia because, after the 2009 dismissal without prejudice, it did not receive notice of ongoing or re-filed litigation between the parties.  St. Paul maintained that Brink’s failure to provide notice deprived St. Paul of the ability to consider any settlement demand or otherwise resolve the 2009 action.

G.M. maintains that, since the second suit is identical to the first suit, and since St. Paul knew of the first suit, then notice was adequately provided.

Judge Eleanor Ross, serving the Northern Federal District of Georgia, ruled that a dismissal without prejudice “means the suit is over.”  Therefore, an insured must provide notice of a re-filed claim or other litigation, no matter how similar to the first lawsuit it may be.  Because no such notice was provided in this case, Judge Ross relieved St. Paul from having to provide coverage.

The case has made its way to the 11th Circuit Court of Appeals: G.M. Sign, Inc. v. St. Paul Fire & Marine Ins. Co., 1:14-cv-02977.

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Fourth Circuit Denies Coverage when Developer Failed to Timely Notify Insurer

The Fourth Circuit recently ruled against the Insured in a construction defect action as to coverage when the Insured failed to timely notify its insurance companies of a potential claim. The court ruled the Insured was not covered under its two insurance policies (St. Paul Mercury Insurance Co. and National Surety Corp.) because it delayed giving notice to the insurance companies, depriving them of the opportunity to pursue claims against the subcontractors involved in the project.

THF Clarksburg Development Two LLC (“THF”) entered into two agreements in 2002 with Lowe’s Home Centers, Inc. (“Lowe’s”) for over $4,000,000 to develop a large track of land in Clarksburg, West Virginia, including the preparation of a building pad area where a Lowe’s store could be built. THF subcontracted with CTL Engineering (“CTL”) to build the pad and provide geotechnical engineering certification that would support the construction of the Lowe’s store. CLT delivered the certified building pad to THF on April 9, 2002 and THF delivered it to Lowe’s on April 15, 2002.
Lowe’s built the store, but during the one-year inspection Lowe’s discovered a settlement problem that would likely cause worsening foundation failure and continued wall movement. Lowe’s notified THF of the issue on April 20, 2003. THF then notified CLT of the problem and hired them again to determine the cause of the settlement. CLT investigated and determined the problem was unrelated to the construction of the building pad and was likely caused by an external force. THF sent the findings to Lowe’s on March 20, 2005.

After eight months without a response from Lowe’s, THF sent another letter saying it presumed Lowe’s lack of response meant Lowe’s was in agreement with the findings in the report. After almost two years had passed, Lowe’s sent a letter to THF stating the delay in response was due to its own engineers investigating the issues. Lowe’s engineers ultimately determined the soil failures were a latent defect to which THF’s extended warranty applied and subsequently put THF on notice of the claims. On April 26, 2012, over nine years since becoming aware of the issue, Lowe’s filed suit.
In June 2012, THF notified its insurers St. Paul Mercury Insurance Co. and National Surety Corp. about the lawsuit and two years later, in 2014, the Insurers moved for a declaratory judgment seeking a determination by the court regarding of the existence of coverage. The Northern District of West Virginia determined THF was not entitled to coverage due to its delay in notifying the insurers of the potential claims.

The court determined the delay in notice prejudiced the insurers as a matter of law because West Virginia’s 10-year statute of repose would bar the insurers from asserting claims against the subcontractors. The court upheld the district court’s ruling in favor of St. Paul Mercury Insurance Co. and National Surety Corp. and against THF.

This case is a hard lesson of which developers, builders, design professionals, and contractors should take note. Whenever there is the existence of even a potential claim, the insurance carrier must be notified as soon as possible to avoid prejudice to the carrier. Even if the claims appear to be unrelated to a construction entity’s scope of work, allowing the Insurer to have the relevant information to determine liability could have a huge impact on the Insured as in the instant case. Finally, this case reinforces the ever-present need by attorneys and insurance carriers to determine relevant dates during construction and delivery to avoid issues related to statute of limitation and statute of repose in construction defect cases.

This case is St. Paul Mercury Ins. Co. v. THF Clarksburg Dev. Two, LLC, No. 15-1453, 2016 WL 715007 (4th Cir. Feb. 23, 2016). Please contact us if you would like a copy of the case or have any questions.

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Hoover: The Georgia Supreme Court Reverses

The Georgia Supreme Court has weighed in and overruled the holding of the Georgia Court of Appeals inHoover v. Maxum Indem. CoThe facts of the case are outlined here in our earlier post of this case.  In short, the question presented to, and ruled on by the Georgia Court of Appeals, was whether the insured’s delay in notifying the insurer about the occurrence was unreasonable as a matter of law. Id.

The Georgia Supreme Court determined in Hoover v. Maxum Indem. Co., —S.E.2d —, 2012 WL 2217040 (2012), however, that the question of whether the notice to the insurer was timely was moot because the insurer waived its right to assert a defense to coverage based on untimely notice.

After being notified of the occurrence, the insurer denied coverage and refused to defend the insured, citing the policy’s Employer’s Liability Exclusion. Id. at * 2.  In the denial letter, the insurer also purported to reserve its right to allege numerous other defenses to coverage, including the notice provisions of the policy. Id.  Thereafter, the insurer filed a declaratory judgment action alleging that it owed no duties to the insured because the Employer’s Liability Exclusion applied, and later filed a motion for summary judgment based solely on the Employer’s Liability Exclusion. Id.

The Georgia Supreme Court determined that the insurer was estopped to deny that coverage applied for failure to comply with the notice provisions because “[a]n insurer cannot both deny a claim outright and attempt to reserve the right to assert a different defense in the future.” Id.  The Court held that “[a] reservation of rights does not exist so that an insurer who has denied coverage may continue to investigate to come up with additional reasons on which the denial could be based if challenged.” Id. at *3.

Essentially, the Court held that a reservation of rights “is only available to an insurer who undertakes a defense while questions remain about the validity of the coverage.” Id.

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