Many policyholders unwittingly put their insurance coverage at risk by failing to provide insurers with prompt and broad notice of a lawsuit or claim. Initially, policyholders tend to focus their attention on the primary coverage since that insurer has an immediate obligation to defend the claim. Excess insurers are often overlooked because the size or scope of the potential liability is not immediately apparent when the claim is presented. Although the excess insurer will not be on the "front lines" at the outset of the claim, excess policies still impose requirements that specify the time and manner for reporting claims. Failure to provide timely notice may allow insurers – including excess insurers – to deny coverage for otherwise covered claims.
Waldorf Holding Corp. v. Chartis Claims Inc., decided by New Jersey's Appellate Division under New York law, is a recent example and cautionary tale. Waldorf, a demolition and construction company, was sued as a result of injuries sustained by a worker at a demolition project. Waldorf tendered the claim to its primary insurer (Arch) but not to its excess carrier (AIG). The AIG excess policy required that the insured (1) provide notice of an occurrence "as soon as practical," (2) "immediately send [the insurer] copies of any" legal papers, and (3) send the notice to AIG's New York address.
When Arch confirmed coverage in December 2008, it copied AIG on its coverage position letter at a Georgia address. In August 2010, the injured worker made a settlement demand of $6 million, which reached AIG's excess layer. At that point, Arch provided "formal notice" of the loss to AIG at its New York address. AIG denied coverage, asserting late notice.
The Appellate Division agreed with AIG. The court found that the 21 months that had elapsed since Waldorf was sued – and Waldorf's lack of explanation for the delay – was unreasonable. The court also rejected the policyholder's argument that AIG had "constructive notice" via Arch's December 2008 coverage position letter. According to the Appellate Division, Arch copying AIG did not "absolve the insured of its obligation . . . to timely send notice."
Waldorf reinforces best practices that policyholders should employ to protect and maximize their insurance asset when a claim is presented:
- Receipt of a claim usually triggers a reporting requirement; therefore, policyholders must understand how the policy defines a "claim," which is often broader than a lawsuit or written monetary demand. It can include oral demands, requests for injunctive relief, requests for mediations, and tolling agreements.
- As soon as a claim is received, immediate notice should be given to all insurers – primary and excess – even if the claim may be resolved within the primary policy's deductible or below the excess carrier's level.
- Strict compliance with the policy's reporting provisions is critical. This includes any requirements specifying the manner in which (e.g., certified mail, e-mail, facsimile, regular mail) and location where notice must be provided.
- Policyholders should have a procedure to ensure all legal proceedings and demands (written and oral) are transmitted to a designated corporate officer for appropriate action.
- If there is a delay in notifying an insurer, the policyholder should be prepared to explain why notice was delayed.
- Policyholders should negotiate with the insurer to identify the specific corporate officer(s) who must have knowledge of a claim before the notice obligation is triggered. This type of provision can help avoid a denial when a low-level employee receives a claim but does not report it to management.
- Policyholders should negotiate with the insurer to obtain an endorsement that bars the insurer from asserting a late notice defense unless the insurer proves it is materially prejudiced by the delay.