The U.S. Court of Appeals for the Seventh Circuit, reversing adistrict court's decision, has ruled that an insured's 21-monthdelay in notifying his insurer about a “minor” accident was notreasonable and, as a result, the insurer had no duty to defend himin the lawsuit that ultimately was filed against him.

The case

On September 6, 2013, Carl Brumit, the owner of Brumit Services,Inc., a small business that performed residential concreteconstruction work, was in the parking lot of a Phillips 66 gasstation in Columbia, Illinois, with the truck he used for hisbusiness. When he backed out of his parking space, he unwittinglystruck 68-year-old Delores Menard with the truck's tailgate.

Menard fell and suffered scrape wounds on her elbow and knee.She was treated by an EMT and declined a trip to the hospital,instead choosing to drive herself home.

For his part, Brumit was unaware that he had hit Menard until abystander alerted him as he was driving away. He then came back tothe scene, called for an ambulance, and provided the police officerat the scene with a statement. He observed that Menard was sittingdown and “may have had a scratch on her knee.”

After everyone parted ways, Brumit thought the incident so minorthat he was not required to report it to State Auto Property andCasualty Insurance Company, from which he had purchased a businessauto liability insurance policy.

However, on June 22, 2015, Brumit was served with a lawsuit inconnection with the accident. Menard alleged in her complaint thatthe accident had caused her to “sustain severe, permanent andpermanently disabling injury; including injuries to her back andspine and the soft tissue structures thereof.” She sought damagesin excess of $50,000. Her husband also sued Brumit, alleging, amongother things, loss of consortium.

The next day, Brumit notified State Auto that he had been sued.State Auto then sought a declaratory judgment in the U.S. DistrictCourt for the Southern District of Illinois that it had no duty todefend Brumit in the lawsuit because he had breached the policy'snotice requirement.

The parties filed cross-motions for summary judgment. Thedistrict court granted Brumit's motion and denied State Auto's. Thedistrict court reasoned that it would not make sense for State Autoto want to know about “each and every accident” its insureds wereinvolved in because its “phones would never stop ringing.” Thedistrict court then concluded that Brumit's 21-month delay innotifying State Auto about the accident was reasonable as a matterof law.

State Auto appealed.

The policyholder's failure to report the minor accident tohis insurer left him solely responsible for defending against theplaintiff's lawsuit. (Photo: Shutterstock)

The State Auto Policy

The State Auto policy provided that it had no duty to defendBrumit unless he provided: prompt notice of the “accident” or“loss.”

The Seventh Circuit's Decision

The circuit court reversed.

In its decision, the Seventh Circuit explained that there was nodispute that an accident had occurred when Brumit backed his truckinto Menard.

Where an accident was covered by the policy, the insured had a“duty to report the accident,” according to the circuit court. Itadded that it was “not our job to determine how many phone calls aninsurance company [was] equipped to receive.”

In the Seventh Circuit's opinion, “any reasonable driver” wouldhave recognized that the accident with Menard might lead to aclaim. The circuit court said that although everyone at the sceneon the day of the accident apparently viewed it as minor, it was“fairly common for individuals involved in automobile accidents toexperience injuries that don't manifest themselves until days,weeks, or even months after the accident.”

Moreover, the circuit court added, “every reasonable drivershould know that making contact with a person could plausibly leadto an insurance claim or a lawsuit,” especially when the contactcaused the person to fall down. Striking a person was “muchdifferent from bumping into a curb, grocery cart or door,” theSeventh Circuit reasoned.

Because a reasonable person would have known that a claim mightbe filed after the accident, the circuit court ruled, Brumit couldnot avoid the mandatory policy language. It concluded that Brumit's21-month delay was unreasonable as a matter of law and that he hadbreached a mandatory notice provision without a reasonable excuse.Therefore, State Auto had no duty to defend or indemnify Mr. Brumitin the personal injury suit arising out of the accident.

The case is State Auto Property and Casualty Ins. Co. v. BrumitServices, Inc., No. 17-1700 (7th Cir. Dec. 11, 2017).

Steven A. Meyerowitz, Esq., ([email protected])is the director of FC&S Legal, the editor-in-chief of theInsurance Coverage Law Report, and the founder and president ofMeyerowitz Communications Inc. This story is reprinted withpermission from FC&S Legal, the industry's only comprehensivedigital resource designed for insurance coverage lawprofessionals.