The U.S. Court of Appeals for the Seventh Circuit, reversing a district court's decision, has ruled that an insured's 21-month delay in notifying his insurer about a “minor” accident was not reasonable and, as a result, the insurer had no duty to defend him in 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 concrete construction work, was in the parking lot of a Phillips 66 gas station in Columbia, Illinois, with the truck he used for his business. When he backed out of his parking space, he unwittingly struck 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 a bystander alerted him as he was driving away. He then came back to the scene, called for an ambulance, and provided the police officer at the scene with a statement. He observed that Menard was sitting down and “may have had a scratch on her knee.”

After everyone parted ways, Brumit thought the incident so minor that he was not required to report it to State Auto Property and Casualty Insurance Company, from which he had purchased a business auto liability insurance policy.

However, on June 22, 2015, Brumit was served with a lawsuit in connection with the accident. Menard alleged in her complaint that the accident had caused her to “sustain severe, permanent and permanently disabling injury; including injuries to her back and spine and the soft tissue structures thereof.” She sought damages in excess of $50,000. Her husband also sued Brumit, alleging, among other 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. District Court for the Southern District of Illinois that it had no duty to defend Brumit in the lawsuit because he had breached the policy's notice requirement.

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

State Auto appealed.

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

The State Auto Policy

The State Auto policy provided that it had no duty to defend Brumit 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 no dispute that an accident had occurred when Brumit backed his truck into Menard.

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

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

Moreover, the circuit court added, “every reasonable driver should know that making contact with a person could plausibly lead to an insurance claim or a lawsuit,” especially when the contact caused the person to fall down. Striking a person was “much different from bumping into a curb, grocery cart or door,” the Seventh Circuit reasoned.

Because a reasonable person would have known that a claim might be filed after the accident, the circuit court ruled, Brumit could not avoid the mandatory policy language. It concluded that Brumit's 21-month delay was unreasonable as a matter of law and that he had breached a mandatory notice provision without a reasonable excuse. Therefore, State Auto had no duty to defend or indemnify Mr. Brumit in the personal injury suit arising out of the accident.

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

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry's only comprehensive digital resource designed for insurance coverage law professionals.

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Policyholder notified insurer 21 months after &ldquo;minor&rdquo; accident

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