Insurance Broker’s Clerical Mistake Doomed Its Insurance Coverage Claim, 11th Circuit Rules

This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe. The U.S. Court of Appeals for the Eleventh Circuit, affirming a decision by a federal district court in Georgia, has ruled that an insurance company did not have to cover a claim against an insurance broker where the broker failed to timely notify the insurer of a claim because of a mailroom employee’s failure to properly process a letter. The Case In 2011, Johnson & Bryan, Inc., an insurance brokerage company, brokered a property insurance policy for Ellen and Joseph Brooks with Hanover Insurance. After the Brookses’ insured property was vandalized, Johnson & Bryan – acting on the Brookses’ behalf – submitted a claim to Hanover. Hanover denied the claim on the ground that the Brookses had failed to comply with a fencing requirement under their property insurance policy. On June 18, 2015, the Brookses’ lawyer sent Johnson & Bryan a demand letter asserting that Johnson & Bryan was negligent in failing to provide the Brookses with a copy of the Hanover insurance policy or to otherwise make the Brookses aware of the fencing requirement. The letter instructed Johnson & Bryan to “tender this demand letter to your errors and omissions carrier.” The letter also said that the Brookses intended to file a lawsuit if Johnson & Bryan did not respond within 20 days. The June 18 letter arrived at the Johnson & Bryan office, but a mailroom employee believed mistakenly that the letter pertained only to the Brookses’ claim with Hanover. Accordingly, the mailroom employee placed a copy of the letter in the Hanover claim file and forwarded the letter to Hanover for further handling. According to Johnson & Bryan, no principal, owner, or manager saw or was aware of the letter at that time. On August 5, 2015, the Brookses filed suit against Johnson & Bryan. Johnson & Bryan learned of the lawsuit on August 31, 2015 and notified its insurer, Republic-Franklin Insurance Company, on September 2, 2015. In preparing its notice to Republic-Franklin, Johnson & Bryan reviewed the Hanover claim file and discovered the June 18 letter. Johnson & Bryan reported the June 18 letter to Republic-Franklin and explained that it had been previously unaware of the letter’s contents. Republic-Franklin denied Johnson & Bryan’s claim on the ground that it had failed to timely notify it of the June 18 demand letter. Thereafter, Johnson & Bryan hired its own lawyer to defend against the Brookses’ lawsuit, which later settled for $80,000. Johnson & Bryan then sued Republic-Franklin, alleging claims for breach of contract, negligence, and bad faith, and for attorneys’ fees and litigation expenses. The U.S. District Court for the Northern District of Georgia granted Republic-Franklin’s motion to dismiss, concluding that Johnson & Bryan had failed to comply with the policy’s notice provision – which it ruled was a condition precedent to coverage – and that Johnson & Bryan’s asserted excuse for the delay in notification was unreasonable as a matter of Georgia law. Johnson & Bryan appealed to the Eleventh Circuit. The Republic-Franklin Policy The Republic-Franklin insurance policy required that Johnson & Bryan: [i]mmediately send [Republic-Franklin] copies of any demands . . . received in connection with the “claim” or “suit.” The Eleventh Circuit’s Decision The circuit court affirmed. In its decision, the circuit court explained that the Republic-Franklin policy’s notice provision constituted a condition precedent to coverage. Thus, the circuit court continued, to obtain coverage under the policy, Johnson & Bryan either had to show that it had complied with the policy’s notice provision or it had to demonstrate a justification for its failure to do so. The circuit court then rejected Johnson & Bryan’s assertion that it had complied with the policy’s notice provision because it filed a claim with Republic-Franklin two days after receiving notice of the Brookses’ lawsuit and discovering the June 18 letter. The Eleventh Circuit reasoned that, under the express terms of the policy, Johnson & Bryan’s obligation to provide notice to Republic-Franklin had been triggered by its receipt of the June 18 demand letter. That Johnson & Bryan’s upper-level employees were unaware of the contents of the letter did not change the “undisputed fact” that the letter had been “received” at Johnson & Bryan’s office by one of Johnson & Bryan’s employees on June 22, 2015. Johnson & Bryan’s 72-day delay in providing notice to Republic-Franklin violated the policy’s immediate notice requirement, according to the circuit court. Next, the Eleventh Circuit rejected Johnson & Bryan’s argument that the district court had erred in concluding as a matter of law that Johnson & Bryan had failed to allege a sufficient justification for the delay in providing notice to Republic-Franklin. The circuit court pointed out that, generally speaking, the sufficiency of an insured’s excuse or justification for a delay in giving notice was a question of fact for the jury. In this case, the circuit court continued, the facts and circumstances – that is, Johnson & Bryan’s own negligence and inability to locate a document that should have been within its possession and that likely could have been discovered earlier through reasonable diligence – supported a determination that Johnson & Bryan’s delay in giving notice was “unjustified and unreasonable as a matter of law.” Accordingly, it agreed with the district court that Johnson & Bryan had failed as a matter of Georgia law to sufficiently allege facts that justified the 72-day delay in notifying Republic-Franklin of the Brookses’ June 18 demand letter. After concluding that, under Georgia law, Republic-Franklin did not have to prove that it had been prejudiced by Johnson & Bryan’s failure to give timely notice because the notice requirement was expressly made a condition precedent to coverage under its insurance policy, the Eleventh Circuit affirmed the district court. The case is Johnson & Bryan, Inc. v. Utica Mutual Ins. Co., No. 17-15337 (11th Cir. July 11, 2018). Attorneys involved include: For JOHNSON & BRYAN, INC., Plaintiff - Appellant: Alan J. Hamilton, Margaret Elizabeth Randels, Shiver Hamilton, LLC, ATLANTA, GA. For REPUBLIC-FRANKLIN INSURANCE COMPANY, Defendant - Appellee: Syed Ahmad, Hunton Andrews Kurth LLP, WASHINGTON, DC; Geoffrey Binder Fehling, Andrew Stephen Koelz, Hunton Andrews Kurth LLP- Atlanta, ATLANTA, GA. Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.