First District Affirms Summary Judgment Based on Late NoticeAMCO Insurance Company (“AMCO”) filed an action against Erie in which AMCO sought equitable contribution from Erie for an indemnity payment that AMCO made to settle an underlying bodily injury lawsuit against AMCO’s Additional Insured, Hartz Construction Company (“Hartz”). Hartz acted as the general contractor on a residential construction project in which Kevin Smith, the underlying plaintiff, allegedly sustained bodily injury by tripping over anchor bolts installed in the foundation of the home. AMCO insured Hartz as an Additional Insured through two insurance policies that AMCO issued to its Named Insured, Cimarron Construction Co. (“Cimarron”), another subcontractor on the project. Erie insured subcontractor Van Der Laan Brothers Concrete Construction Co., Inc. (“VDL”). VDL installed the anchor bolts.
Hartz tendered its defense as an Additional Insured to AMCO less than 1 month after Cimarron, AMCO’s Named Insured, was named as a defendant in the lawsuit filed by Smith. Hartz did not tender its defense of the Smith lawsuit as an Additional Insured under the Erie policy until 18 months after VDL, Erie’s Named Insured, was named as a defendant in the Smith lawsuit and nearly 3 years after the original complaint in the Smith lawsuit was filed against Hartz.
AMCO settled the Smith lawsuit on behalf of Hartz for $1M and sought contribution from Erie on the grounds that Hartz was an Additional Insured on the Erie policy. The First District affirmed summary judgment in Erie’s favor because Hartz did not timely notify Erie of the claim. In reaching its decision, the First District evaluated the late notice factors as set forth in Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 856 N.E.2d 338 (2006). As to whether Hartz complied with the literal terms of the insurance policy, the court concluded that Hartz’s tender nearly three years after the complaint was filed violated the policy terms that required “immediate” submission of the complaint to Erie and notice “as soon as practicable.” Slip op. at 13. The court also reviewed the deposition testimony from the Hartz employees to conclude that Hartz was sophisticated in insurance matters and understood that it needed to tender the claim to Erie. Id. at 14-15. The third factor that Hartz was aware of the lawsuit was virtually uncontested. Id. at 15. The court also considered the fourth factor that Hartz failed to exercise reasonable diligence. The court concluded that Hartz need only to have compared the allegations in the original complaint to the insurance coverage to have ascertained that the Erie policy potentially provided coverage. Id. at 16. Finally, the court provided a useful reminder that under Livorsi “prejudice is but one factor in the reasonableness analysis.” Id .at 17. Thus, even if the insurer has not suffered any prejudice, the insured “must still give reasonable notice according to the terms of the insurance policy.” Id. at 18.
The First District also rejected AMCO’s argument that Erie’s “actual notice” of the complaint after VDL was named as a party was sufficient notice for purposes of defending Hartz. VDL was named as a party to the case 15 months after the original complaint was filed and 18 months before Hartz tendered its defense to Erie. Under the “actual notice” rule in Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 701 N.E.2d 499 (1998), actual notice may excuse a tender of defense to the insurer. However, the court noted that Cincinnati addressed only the insurer’s duty to defend. Slip op. at 21. AMCO was seeking indemnity from Erie. Therefore, the court held that the actual notice rule in Cincinnati did not apply. The First District also stated that Erie’s actual notice 15 months after the complaint was filed against Hartz was unreasonable as a matter of law. Id. at 22.
Bruce Lichtcsien (email@example.com) represented Erie in the trial and appellate courts.