No Duty to Defend when Insured Failed to Notify Insurer of Incident for Twenty-One Months

 

December 18, 2017

 

The United States Court of Appeals for the Seventh Circuit decided last week that an insurer had no duty to defend its insured because a twenty-one-month delay in notifying an insurer of an accident is unreasonable as a matter of law, and that the insurer had no duty to defend the insured in the lawsuit that followed the accident. In making this decision, the Court of Appeals reversed a district court's decision. The case is State Auto Prop. & Cas. Ins. Co. v. Brumit Servs., No. 17-1700, 2017 U.S. App. LEXIS 24920 (7th Cir. Dec. 11, 2017).

 

Carl Brumit is the owner of Brumit Services, Inc., a small, two employee business that performs residential concrete construction work. The company operates out of Brumit's home. Brumit purchased a Business Auto Liability insurance policy from State Auto to cover the truck used for the business. As a typical auto insurance policy, the State Auto policy provided that State Auto would defend or indemnify Brumit in the event he was sued for an accident causing bodily injury or property damage. The policy specified that State Auto had no duty to provide coverage if Brumit did not comply with his duties under the policy. One of those duties was to provide prompt notice of an accident or loss.

 

In September 2013 Brumit was parked at a gas station in the covered truck. When he backed out of his parking space, he unintentionally hit the sixty-eight-year old Mrs. Menard with his tailgate, knocking her to the ground. She suffered a few scrapes and bruises, and was taken care of by an EMT at the scene of the accident. The accident was so insubstantial, Brumit was unaware he collided with Mrs. Menard until a witness alerted him while he was driving away. He returned to the scene, called an ambulance, and gave a statement to a police officer. After leaving the scene, Brumit assumed the incident so minor he did not have to report it to State Auto. In June 2015 Brumit was served with a lawsuit in connection with the accident. Mrs. Menard alleged in the suit that the accident caused her to “sustain severe, permanent and permanently disabling injury; including injuries to her back and spine and the soft tissue structures thereof.” and sought more than $50,000 in damages. Her husband Mr. Menard also sued Brumit for, among other things, loss of consortium.

 

The next day Brumit told State Auto he was being sued. State Auto brought a declaratory judgment in the district court arguing that it had no duty to defend Brumit in the lawsuit because he had breached the notice requirement mentioned above. Both parties filed for summary judgment, and the district court granted Brumit's and denied State Auto's. The court determined that the twenty-one-month delay was reasonable as a matter of law.

 

Since both sides filed motions for summary judgment, none of the facts in the case are disputed. The Illinois Supreme Court has held several times that notice provisions in insurance policies are reasonable. The Court has stated in previous cases that notice provisions are conditions precedent to an insurer's contractual duties, so a breach of a notice requirement absolves the insurance company of any obligation to defend or indemnify the insured. At issue here is the district courts determination that twenty-one months is a “reasonable time” The Illinois Supreme Court considers 5 factors when determining the reasonableness of a delay in giving notice. “(1) the specific language of the policy's notice provision; (2) the insured's sophistication in commerce and insurance matters; (3) the insured's awareness of an event that may trigger insurance coverage; (4) the insured's diligence in ascertaining whether policy coverage is available; and (5) prejudice to the insurer.” (West Am. Ins. Co. v. Yorkville Nat'l Bank, 238 Ill. 2d 177, 939 N.E.2d at 346) In this case, the Court determined that (1) the policy terms are unmistakably clear, (2) it is safe to say that due to education and experience, Brumit is probably more sophisticated than a majority of insured drivers on Illinois roads, (3) “no matter how minor the incident, a reasonable driver would understand that a claim might be filed against him in such a situation” (4) Brumit took no action and therefore could have been more diligent and (5) By not informing State Auto, Brumit prevented them from doing their own investigation into the incident, so State Auto is prejudiced.

 

The Court determined that each of the factors leans toward a finding that the twenty-one-month delay in providing notice of the incident to State Auto was unreasonable, so State Farm did not have to defend or indemnify Brumit.

 

Editor's Note:

The relationship between an insurer and an insured is a contractual relationship bound by the specifics in the contract. The Court in this case had to determine the rights and responsibilities of each party under the contract. In this case the notice requirement was specifically stated, and Brumit knew of his responsibility to notify State Auto that he had been in an accident that may lead to a claim. The fact that he did not notify State Auto until after a claim had been filed is an inexcusable failure to notify under Illinois law. Sometimes insureds will avoid reporting incidents that seem minor to their insurers, in order to avoid an increased insurance premium. As we found in this case, a prudent insured will notify their insurer of any incident in order to avoid having to defend themselves against a lawsuit in court.