275_C010

EXCESS CARRIER'S NOTIFICATION WAS PROPER

Walsh Construction Company was the general contractor over a project that generated several lawsuits from employees injured during the project. The accidents occurred beginning in 1996 and all suits had been filed by 2000. Walsh was insured by a CGL and Umbrella issued by Reliance Insurance Company (Reliance) and another policy issued by Zurich Insurance Company (Zurich). The latter carrier's policy was in excess of the Reliance policies.

Reliance was properly notified of the employee suits and accepted responsibility for defending Walsh. At the time, Walsh did not send any information regarding the legal activity to Zurich. Accompanying its involvement with Walsh's defense, Reliance was suffering severe financial difficulties, resulting in the company being taken over by state regulatory authorities. In 2001, a court order was rendered, declaring Reliance in liquidation. Walsh advised Zurich of the pending suits within two weeks after the liquidation order.

Zurich agreed to look into the lawsuits after first reserving its rights. After a review of the matter, Zurich denied that it had an obligation to defend or respond to the employee suits. The carrier and Walsh took their dispute to court. The original court granted Walsh's motion while denying Zurich's. The carrier based its motion on an allegation that Walsh failed to meet its obligation to promptly notify it of the loss. Conversely, Walsh stated that it did not tell the excess carrier about the loss until it was clear that the situation could not be handled by the primary carrier.

An appellate court was asked (by Zurich) to find the trial court in error. The court reviewed the policy language and several cases it believed to be relevant to the dispute. The higher court recognized that both the policy and its endorsements obligated the insured to tell it about losses "as soon as practicable." In its opinion, case law defined that obligation as a need to tell the insurer as soon as it became evident that the loss could trigger the carrier's responsibility under a policy. Since an excess carrier was involved, the court saw the point of notification appearing around when the primary carrier's ability to respond was exhausted rather than when the claims first arose.

While it was undisputed that Zurich was not notified until years after the primary carrier, the facts also supported that the primary carrier's coverage (total of $3 million combined) should have been sufficient to respond to the losses. The higher court interpreted the policy (and endorsement) language as requiring notification that depended upon the insured's judgment. Under the circumstances, it appeared that Walsh acted reasonably, notifying Zurich shortly after Reliance's liquidation. In light of its review, the appeals court affirmed the trial court's decision in favor of Walsh.

Editor's note: The higher court mentioned an avenue it may have considered if it had been mentioned. Zurich only argued that Walsh's notification breached its contract; the insurer failed to allege that the timing of the notice prejudiced its position.

Zurich Insurance Company, Plaintiff-Appellant, v. Walsh Construction Co. of Illinois, Inc. Defendant-Appellee. Illinois Appellate Court. No. 1-03-2617. September 16, 2004. Affirmed. 2004 CCH Personal and Commercial Liability Cases. Paragraph 8062.