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Vol. 5, Iss. 4
March 30, 2016

Late Notice: Supreme Court Says Notice To Broker Could Be Notice To Insurer


It is not unusual to see an insured challenge a late notice disclaimer on the basis that its notice wasn’t late at all. To the contrary, the insured says that it provided notice a very short time after the insured became aware of the incident or claim. However, such notice wasn’t provided to the insurer, but, rather, to the insured’s broker. And it turns out that the broker didn’t pass along such notice to the insurer. The insurer’s response to this will likely be that it has no relationship with the broker, so, therefore, notice to the broker does not qualify as notice to the insurer. In other words, the broker is not authorized to accept notice on the insurer’s behalf. Hence, as far as the insurer is concerned, by the time it actually received notice of the claim, a long time had passed and it was not timely, i.e., the notice provision in the policy was breached.

[Of course, with the usual requirement that, for “occurrence” policies, an insurer must prove that it was prejudiced by an insured’s untimely notice, which can be difficult, the significance of notice to a broker is most likely to be relevant in the few “no prejudice” states, in situations where the delay is really long, and in the context of “claims made” policies, where prejudice is not usually a factor to establish a violation of a notice provision.]

In Southern Cleaning Service, Inc. v. Essex Insurance Company, Nos. 1140970 and 1140918 (Ala. Feb. 19, 2016), the court addressed whether an insured could defeat a late notice challenge on the basis that it provided immediate notice of an incident to its broker -- and the fact that the insurer, itself, did not receive notice until much later is not relevant.

A company called Phase II Maintenance Systems had a subcontract to provide janitorial services to Winn-Dixie grocery stores. As part of the arrangement, Phase II was required to obtain insurance and name Winn-Dixie and Southern Cleaning Service, Inc. (SCSI), the main contractor, as additional insureds. Phase II got in touch with Alabama Auto Insurance Center, an independent insurance agency, to obtain the insurance it needed. Alabama Auto turned to Genesee General Agency, a managing general agent that connects independent agents with insurers. Genesee obtained a quote from Essex Insurance Company for a policy to meet Phase II’s needs. Phase II accepted the quote. Genesee, which had Essex’s authority to do so, issued the Essex policy to Phase II.

On March 5, 2011, “Beverly Paige was shopping at a Phase II-serviced Winn–Dixie in Montgomery when she allegedly slipped on a wet floor, fell, and was injured. A Phase II employee on duty at the store at the time of the fall reported the incident to Phase II’s owner and president, William Wedgeworth, that same day, and Wedgeworth has given sworn testimony indicating that he separately notified both SCSI and Alabama Auto of the incident on Monday, March 7, 2011, and further specifically asked Alabama Auto to notify Genesee of the incident.”

To make a long and winding story short, notice of the claim did not get to Essex until June 2012. Essex disclaimed coverage based on late notice: “Essex had not been notified of the claim until approximately 15 months after Paige’s fall, notwithstanding the fact that the Essex policy obligated the insureds to notify it ‘as soon as practicable’ of any occurrence ‘which may result in a claim.’ … On September 25, 2012, Paige sued Phase II, SCSI, and Winn–Dixie, alleging that their negligence and wantonness was responsible for the injuries she sustained in her March 5, 2011, fall. Phase II, SCSI, and Winn–Dixie again asked Essex to provide them with a defense and indemnity under the terms of the Essex policy; however, their requests were denied.”

A settlement of the Paige action was eventually reached for $540,700. Putting aside a lot of procedural and extraneous issues, the principal issue before the Alabama high court was whether Essex could maintain its late notice defense based on the 15 month delay before it received notice. [Alabama is a no prejudice state.]

The argument against Essex was that “Alabama Auto was notified of Paige’s accident within days of its occurrence and, SCSI argues, Alabama Auto had either real or apparent authority to accept notice of claims on behalf of the insurance defendants [Essex and Genesee].”

It was not disputed that Alabama Auto was not an agent in fact for Essex and Genesee. The relevant contracts, discussing the parties’ relationships, bore this out. The issue was whether Essex and Genesee “cloaked Alabama Auto with the apparent authority to accept notice of claims on their behalf.” On this point, the court, while making clear that nothing was conclusively established, had little difficulty concluding that substantial evidence of genuine issues of material fact existed. There were three reasons for the court’s conclusion that summary judgment for the insurer defendants was improper.

The declarations page of the Essex policy listed Alabama Auto as “agent” – but with no further description. The court concluded: “[W]e note that a fair-minded person could reasonably understand the Essex policy to be referencing Alabama Auto as a dual agent or as the agent of the insurance defendants in some limited respect.” Further, “the fact that the insurance defendants issued an insurance policy without placing their own contact information on that policy further indicates that Alabama Auto-whose contact information was provided on the policy-had some authority to serve as the proper conduit for communication between the insureds and the insurance defendants.”

Second, Phase II’s owner’s sworn testimony indicated that he never had any direct dealings with Essex or Genesee. All communications, including premium payments, went through Alabama Auto.

Third, the insurance defendants accepted and responded to notices of claims forwarded to them by Alabama Auto on behalf of Phase II in other cases. As the court saw it, “if the insurance defendants had not accepted the notice provided via Alabama Auto in subsequent cases, or had at least told Phase II, SCSI, or Winn–Dixie that notice provided in such manner was improper, that would have apprised those parties that they needed to give notice of claims directly to the insurance defendants in all cases, including Paige’s. They might then have been able to provide direct notice of Paige’s claim more than 15 months before they actually did so, instead of continuing to operate under a belief that Alabama Auto had the authority to accept notice on behalf of the insurance defendants.”

As I see it, the biggest lesson from Southern Cleaning Service for insurers, that do not wish to face an apparent authority argument concerning notice, comes from the Dec Page. Listing Alabama Auto as “agent” – but with no further description – and then providing Alabama Auto’s contact information, but not Essex’s, gave the court an easy opportunity to make hay.


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