Countryside Cooperative (Countryside) owned a trailer-mounted tank that it kept on its property in Lancaster County, Nebraska. The tank was filled with anhydrous ammonia. William Boden was working on property that he owned that was adjacent to the Countryside property in October 2004. He sued Countryside, alleging that the tank had leaked and that he was injured as a result of being exposed to the ammonia.

Countryside was insured under two liability policies. One was a commercial general liability policy issued by Michigan Millers Mutual Insurance Company (Michigan Millers). The other was a claims-made pollution legal liability policy issued by American International Specialty Lines Insurance Company (AISLIC).

Harry A. Koch was Countryside's insurance broker on the AISLIC policy. Countryside informed Koch of the Boden claim on a timely basis. However, Koch did not notify AISLIC until several days after the reporting period expired. For various reasons (including failure to report the claim), AISLIC refused to defend Countryside. Michigan Millers received timely notification and defended Countryside under its policy. The parties eventually settled for $900,000.

Countryside and Michigan Millers entered into a post-settlement "memorandum of understanding" pursuant to which they agreed to jointly sue Koch for failure to report the Boden claim to AISLIC on a timely basis. They filed a negligence action against Koch, claiming Countryside sustained damages because it lost the benefit of the AISLIC policy.

The parties waived a jury trial and submitted the issue of damages to the court on a stipulation of facts. The trial court determined that both policies were primary and awarded Countryside and Michigan Millers one-half of the $900,000 settlement, one-half of the costs Michigan Millers incurred to defend the claim, and the attorney fees that Countryside incurred. The total judgment against Koch was $478,237.14. Koch appealed and the Supreme Court of Nebraska agreed to take the case.

On appeal, Koch first argued that neither Countryside nor Michigan Millers had rights or interests that would entitle them to recover damages in the case. Koch specifically argued that Countryside had not sustained a loss because it had received benefits under the Michigan Millers policy. Koch also argued that Michigan Millers did not have an interest in the case because there was no contract between Koch and Michigan Millers.

The Supreme Court disagreed with both of these arguments. It noted that Koch could not escape liability to Countryside based on the benefits the Michigan Millers policy paid. In addition, Michigan Millers had subrogation rights as a result of its paying the Boden claim. As a result, both parties had standing to file the lawsuit.

Koch next argued that the lawsuit against him could not proceed because the lower court did not find that the AISLIC would have covered the claim if it had been reported on a timely basis. The court again disagreed. It addressed AISLIC's alternative reasons for not providing coverage and found that none of them applied. It then evaluated the effect of Koch's failure to report the claim on a timely basis.

The AISLIC policy was written on a claims-made basis. AISLIC was obligated to pay claims "provided such Claims are first made against the Insured and reported to the Company, in writing, during the Policy Period, or during the Extended Reporting Period, if applicable." Countryside's extended reporting period expired on February 11, 2005. Evidence showed that Countryside reported the claim to Koch in November 2004 but that Koch did not report the claim to American International until February 14, 2005.

The Supreme Court applied these facts and found that Koch's failure to report the Boden claim on a timely basis was the sole reason that the AISLIC policy did not cover the claim. It determined that the lower court had properly found Koch liable for failure to report the claim on a timely basis and affirmed its judgment.

Countryside Cooperative vs. Harry A. Koch Co.-No. S-09-896-Supreme Court of Nebraska-November 12, 2010-2010 WL 4539186