A rare late notice holding in New Jersey

New Jersey courts rarely find late notice of a claim to be a proper basis for an insurer to disclaim coverage under an occurrence policy. The New Jersey Supreme Court has held that in order to disclaim coverage for late notice, an insurer must prove both “a breach of the notice provision and a likelihood of appreciable prejudice.” Cooper v. Gov’t Employees Ins. Co., 51 N.J. 86, 94 (1968); Gazis v. Miller, 186 N.J. 224, 226, 228 (2006).

Courts interpreting this rule have strictly applied the “appreciable prejudice” requirement, such that even delays of several years have been held not to justify a disclaimer based on late notice. Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 89 F.3d 976, 996 (3d Cir. 1996)(finding delay of four years in providing notice did not bar coverage); Green v. Selective Ins. Co. of Am., 144 N.J. 344, 348 (1996) (“seven year delay between the date of the accident and [insured’s] claim … for UIM benefits” did not relieve insurer absent showing of prejudice); Sagendorf v. Selective Ins. Co. of Am., 293 N.J. Super. 81 (App. Div. 1996)(delay of over two years did not sufficiently prejudice insurer so as to permit a disclaimer of coverage)

The D'Andrea decision

On March 26, 2019, the Superior Court of New Jersey, Bergen County, held that an excess automobile liability insurer had no obligation to provide coverage for a bodily injury claim, because the insurer had not received notice of the claim until four years after it had been settled by another insurer, such “it cannot seriously be contended there was no prejudice” to the excess auto insurer. D’Andrea Construction Company v. Old Republic Insurance Co. et al., Docket No. BER-L-23-13 (March 26, 2019).

The court further found that the accident had no causal relationship to the use, or loading or unloading, of the insured vehicle, where the worksite injury at issue took place while a welding machine was being transported across a construction site via backhoe, to ultimately be loaded onto the insured truck.

The decision, authored by Judge Mary F. Thurber, was issued in a declaratory judgment action brought by Certain Underwriters at Lloyd’s of London (“Underwriters”), as well as by Underwriters’ insured, D’Andrea Construction Company (“D’Andrea”), which had been the general contractor for the project. Underwriters was the excess general liability insurer that had been involved in the defense and settlement of the underlying case. Underwriters and D’Andrea named Everest National Insurance Company (“Everest”) as a defendant (as well as other insurers who had settled prior to the court’s decision). D’Andrea sought additional insured status under the excess automobile policy Everest had issued to the welding subcontractor, Thomas Lindstrom Steel & Company (“Lindstrom”). Underwriters sought reimbursement from Everest for the amounts Underwriters had paid in settlement.

Underwriters and D’Andrea alleged that they were entitled to coverage under the Everest policy on the grounds that the subject accident had occurred while the injured claimant Craig Crumley was “using” a truck insured under the Everest policy. Discovery in the underlying lawsuit filed by the injured Crumley showed that, at the time of the accident, a Lindstrom welding machine was being transported across the worksite on D’Andrea’s backhoe; the welder was dangling from the backhoe’s forks. Crumley was walking next to the welder, holding a chain to prevent the welder from swinging too much. A Lindstrom truck was waiting on-site to pick up the welder and remove it from the site. While D’Andrea’s employee was driving the D’Andrea backhoe across the site to stage the welder for loading, the backhoe drove over Crumley’s leg, injuring him.

The accident occurred on August 19, 2008, and Crumley filed his underlying suit on September 2, 2009. Underwriters, as well as D’Andrea’s primary liability insurer, settled Crumley’s claim on January 19, 2012 for US$5.8 million. No party provide notice to Everest until December 15, 2015, when Underwriters and D’Andrea added Everest as a defendant to the declaratory judgment action it had filed in December 2012 against other insurers. The other insurers settled out, and the court considered the remaining claims against Everest by way of cross-motions for summary judgment.

Following oral argument on those motions, the court found that the claims against Everest must be dismissed, because its policy did not provide coverage due to late notice and due to the lack of a “use” of an insured auto at the time of the accident, as required by the Everest policy’s insuring agreement.

On the “use” of an insured auto issue, the court made a thorough review of prior decisions construing “use” to include loading and unloading operations. Observing that each of those decisions was grounded in the specific facts of each case, the court then conducted a searching review of the facts before it. It noted that the accident happened during transport of the welder by a backhoe that was neither owned nor operated by the Everest insured. In addition, it was the condition of the worksite, which was under D’Andrea’s control, that prevented the Lindstrom truck from being able to drive all the way to the welder that was to be taken away. Also, D’Andrea had elected to move the equipment by dangling it from the backhoe’s forks, and driving it over uneven and rough terrain, at the time the accident occurred.

Reviewing the applicable precedent, the court stated that the appropriate analysis was whether “the accident, within reason, [was] causally connected to the loading of the truck.” It found that based on the facts before it, the causes of the accident were the condition of the worksite and the decision to use the backhoe to move the welder. For these reasons, the court held that the accident did not have a causal connection to the loading of the Lindstrom truck, such that there was no coverage under the Everest policy.

Finding of appreciable prejudice

The court further found that even if the accident had been causally connected to loading or unloading operations, Everest was nevertheless entitled to summary judgment for the failure to fulfill the notice conditions of the policy. The court highlighted that “New Jersey case law on the effect of an insured’s failure to provide timely notice to the insurer of a claim favors coverage for the insured,” such that coverage can be avoided due to late notice only where an insurer “established a ‘likelihood of appreciable prejudice.’” However, it also cited a prior decision from the New Jersey Supreme Court that recognized that New Jersey law “does not require that every notice provision must be discarded in favor of an appreciable prejudice requirement.”

Turning to the facts of the case before it, the Superior Court observed that, “without excuse or explanation,” Underwriters and D’Andrea had failed to provide notice to Everest until four years after the underlying case had been settled and seven years after the accident itself.

Further, the court noted that Underwriters had no motivation to develop information in the Crumley case to defeat a loading and unloading claim. It found that Everest’s ability to do so had been prejudiced by the passage of time and the witnesses’ own admission that, by 2016 when Everest was able to take their deposition, their memories were less clear than they were at the time of discovery in the Crumley action.

Based on those facts, the court stated that “it cannot seriously be contended there was no prejudice.” Thus, the court held that the failure to provide timely notice was a separate basis to dismiss Underwriters’ and D’Andrea’s claims against Everest.

Everest was represented by Gary S. Kull and Alexa J. Nasta Schmid of Kennedys CMK LLP. Underwriters and D’Andrea were represented by London Fischer LLP.

Read other items in Coverage Digest - May 2019