In Rent-A-Roofer, Inc. v. Farm Bureau Property & Casualty Insurance Co., 291 Neb. 786, 2015 WL 5301556 (Neb. 2015), the Nebraska Supreme Court, applying Nebraska law, found that an insurer properly denied coverage under a commercial general liability insurance policy because the policyholder did not report the claim to the insurer until after the policyholder had entered into a settlement agreement, which prejudiced the insurer as a matter of law. The court further held that the insurer’s denial of a prior, similar claim did not waive the policyholder’s obligation to provide notice of the later claim.
In August 2010, the policyholder was sued based on alleged poor workmanship relating to a construction and renovation project. See id. at *2. More than a year later, after it had already settled the case, the policyholder notified the insurer and made a demand under the insurance policy. See id. The insurer denied the claim on the ground that the insured breached the policy’s notice and voluntary payment provisions. See id. Those provisions required the policyholder to notify the insurer “as soon as practicable of an ‘occurrence’ or an offense which may result in a claim” and provided that “[n]o insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Id. The insured filed suit against the insurer, alleging breach of contract and bad faith. See id. The trial court granted summary judgment to the insurer, finding that the insurer was prejudiced as a matter of law because the insured entered into a settlement without bringing the underlying suit or the settlement to the attention of the insurer. See id. at *3. The trial court noted that it need not engage in speculation as to what the insurer might have done if given proper notice, saying that the loss of a meaningful opportunity to protect its interests constituted prejudice under Nebraska law. See id.
On appeal, the policyholder dropped its claim for indemnity and sought only recovery of its defense costs. See id. at *4. The Nebraska Supreme Court initially addressed, as a matter of first impression under Nebraska law, whether a breach of the voluntary payments provision would relieve the insurer from any coverage obligation even in the absence of a showing of prejudice. See id. at *5. Having previously determined that prejudice must be shown in cases involving a breach of the notice provision, Herman Bros. v. Great West Casualty Co., 255 Neb. 88, 582 N.W.2d 328 (1998), the court found that the prejudice requirement should extend to the voluntary payment provision. See Rent-A-Roofer, Inc., 2015 WL 5301556, at *5. It reasoned that both provisions served the same purpose – allowing the insurer an opportunity to protect its interests. See id. Thus, it held that it was proper, under Nebraska law, “to maintain the prejudice requirement when an insurer seeks to avoid the policy for breach of a voluntary payments provision.” See id. (citations omitted).
However, the court made clear that where an insurer is deprived of an opportunity to participate in the litigation and/or settlement discussions, prejudice will be presumed as a matter of law. See id. at *6. Specifically, the court stated:
In this case, at the time the insured entered into an enforceable settlement agreement, it was too late for [the insurer] to act to protect its interests. There was nothing left for [the insurer] to do but issue a check. An insurer cannot fail in defending a suit that it has no knowledge of. In this case, we conclude that this complete denial of [the insurer’s] opportunity to engage in the defense, take part in the settlement discussions, or consent to the settlement agreement was prejudicial as a matter of law to [the insurer] and find that [the insurer] is not liable for defense costs.
The court also rejected the policyholder’s argument that its duty to notify the insurer was waived because the insurer had declined coverage over a prior, allegedly similar claim. See id. Although both claims involved allegations of a failure to perform construction work in a good and workmanlike manner, the matters involved different claimants and different properties. See id. The court held that “[w]here the two claims against the insured are so different as to involve different parties, different complaints, and different occurrences, the insured must give notice to its insurer of both claims. The insurer does not waive notice by denying coverage over a prior, and wholly different, claim.” Id.
The Rent-A-Roofer case confirms that, under Nebraska law, prejudice to the insurer can be established, as a matter of law, in cases involving a breach of notice and/or voluntary payments provisions, where the insurer is deprived of an opportunity to participate in the litigation and/or settlement of a matter. In addition, this case shows that an insured cannot rely on an insurer’s denial of a prior, similar claim to justify its failure to provide timely notice to the insurer of a later claim.