Court Rejects Maritime Insurer’s Late Notice Defense
In a maritime insurance coverage dispute involving late notice to the insurer, a federal district court in Louisiana recently denied an insurer’s motion for summary judgment notwithstanding its findings that the insureds unreasonably delayed in reporting the loss and the insurer established actual prejudice resulting from the insureds’ unreasonable delay. Champagne v. M/V Uncle John, et al., No. 21-476, 2022 WL 6742007 (E.D. LA October 11, 2022).
The insureds, the owner and operator of a vessel, were involved in an allision with the underlying plaintiffs’ concrete bank. The emails from the underlying plaintiffs reflected that the insureds did not want to involve their insurers, and thus, their late notice was intentional. The underlying plaintiffs were willing to settle for $3,500 before they undertook efforts to seize the vessel and file a lawsuit.
The underlying plaintiffs ultimately filed a lawsuit in federal court, at which time the insureds provided notice to their insurer nearly one year after the allision. The insureds also filed a third-party complaint against their insurer. The insureds and underlying plaintiffs ultimately settled for approximately $200,000. The cost of settlement increased substantially due to costs incurred by the underlying plaintiffs in the course of arresting the vessel. These vessel seizure costs were among the costs that the district court ultimately agreed could have been avoided by timely notice to the insurer.
The insurer argued in its motion for summary judgment that the notice provisions within its policy were conditions precedent, and therefore, the insurer need not demonstrate prejudice to prevail on a late notice defense. However, the provisions cited within the policy did not expressly identify the notice requirements as conditions precedent. The insurer argued in the alternative that even if the notice provisions were not conditions precedent, the insurer demonstrated actual prejudice as a result of the late notice.
The district court’s opinion did not address the issue of whether the notice provisions were conditions precedent. However, the district court found that the insureds’ delay was unreasonable, and that the insurer established prejudice given that it could have potentially investigated and settled the loss for the initial demand of $3,500 rather than $200,000.
Notwithstanding its factual findings, the district court held that it was not willing to void the policy as a remedy for the breach of the notice requirements. The district court reasoned that “[i]f the policy contained language that either expressly or impliedly required such a draconian result then the Court would not hesitate to enforce that language.” However, the district court refused to void the policy in its entirety, and permitted the insurer to file a more narrow motion for summary judgment. The district court’s opinion implied that it would consider limiting the policy’s coverage to $3,500 – the amount it would have cost the insurer to resolve the matter if promptly reported. The insurer has until October 31, 2022 to file an amended motion for summary judgment, and it remains to be seen whether it will accept the district court’s invitation to do so.