Why it matters: Late notice? No prejudice? No problem. So a jury found when it voted in favor of coverage, and the Eighth Circuit Court of Appeals agreed. The insurer of a soybean manufacturer was not prejudiced by its insured's late notice of a fire at a country club that caused almost $4 million in damage even where the insured's liability carrier did not receive notice for two years following the fire. The evidence at trial—including photos, physical evidence, and the descriptions of the investigation procedures conducted by the fire marshal as well as the country club's own insurer—demonstrated that the manufacturer's insurer was able to conduct a "thorough and meaningful" investigation.

Detailed discussion: Asoyia, Inc., an Iowa producer of soybean oil, purchased a general commercial liability policy from Michigan Millers Mutual Insurance Company in 2006.

On June 18, 2007, a fire destroyed the location of one of Asoyia's customers, the Sunnyside Country Club. The club's property insurer, United Fire & Casualty Company, conducted a preliminary investigation of the fire and determined that the loss was covered by the policy, paying Sunnyside's claim. The fire was also investigated by the local fire marshal.

United Fire sent subrogation notices to several parties, including Asoyia, in late June 2007 and said that they could participate in the ongoing investigation. The soybean manufacturer did not respond, nor did it notify its liability carrier—Michigan Millers—of the subrogation demand. No one from or on behalf of Asoyia participated in the fire investigation.

Sunnyside was entirely repaired in the summer of 2008. In 2009, United Fire sued Asoyia in Iowa state court contending that the fire started due to spontaneous combustion of recently laundered kitchen rags that had been used to clean a fryer that contained Asoyia's soybean oil. Asoyia promptly notified Michigan Millers of the suit, and Michigan Millers filed a lawsuit action seeking a declaration of no coverage based on late notice.

At trial, Michigan Millers argued that the delay between the fire in June 2007 and May 2009, when it received notice from Asoyia, resulted in prejudice and it thus had no obligation to provide coverage in the pending lawsuit against the insured. Sunnyside was fully repaired before Michigan Millers received notice about the fire, the insurer said, and the existing investigations failed to adequately preserve evidence of causation, leaving the insurer deprived of the opportunity to conduct its own investigation.

United Fire told the jury that the investigations carried out by both its experts and the fire marshal were thorough and based upon well-preserved evidence. Hundreds of photographs were taken, interviews were conducted with the firefighters and employees, and debris from the site—including the rag pile and key electrical system components—were all still available. A jury concluded that Michigan Millers was not prejudiced by the delay, and the federal court judge entered judgment in Asoyia's favor.

Michigan Millers appealed to the Eighth Circuit Court of Appeals.

The special verdict form asked the jury to answer two questions: (1) "Did Defendant United Fire prove facts which show that Plaintiff Michigan Millers was not prejudiced by delayed notice of the fire?" and (2) if so, "Did Plaintiff Michigan Millers prove that it was actually prejudiced by delayed notice of the fire?"

It was not unreasonable for the jury to determine the insurer suffered no prejudice from Asoyia's delay in giving notice, the three-judge panel said.

"Faulting what it saw as Michigan Millers's tactical refusal to investigate, United Fire maintained Michigan Millers merely complained of potential prejudice from a variety of sources, but failed to show any actual prejudice ever materialized," the court said. "Although Michigan Millers may have been correct in proclaiming in its closing argument that the question of prejudice was 'a close call' for the jury in weighing the evidence, we conclude the evidence adduced at trial amply supported the jury's verdict."

To read the opinion in Michigan Millers Mutual Insurance Co. v. Asoyia, Inc., click here.