In its recent decision in Wheeler's Moving & Storage v. Markel Ins. Co., 2012 U.S. Dist. LEXIS 125726 (S.D. Fla. Sept. 5, 2012), the United States District Court for the Southern District of Florida had occasion to consider under what circumstances an insured’s failure to comply with a policy’s notice provision results in a forfeiture of coverage.

Markel Insurance Company insured Wheeler’s Moving & Storage under a general liability policy that, among other things, required notice of occurrence or suit “as soon as practicable.”  Wheeler’s was named as a defendant in a personal injury lawsuit, but failed to give notice of the suit to Markel until eighteen months after suit was filed, by which time discovery had already closed.  At the time notice was received, a mediation was scheduled for one week later and the trial scheduled for two weeks later.  Markel denied coverage on the basis of late notice, as well as on the basis of its policy’s auto exclusion.  Subsequent to Markel’s denial of coverage, Wheeler’s defense counsel successfully withdrew from the case and Wheeler’s elected not to retain new counsel.  The matter ultimately went to trial on damages alone and the underlying plaintiff was awarded $1.4 million.

Wheeler’s later sued for coverage, arguing that Markel’s late notice disclaimer was invalid.  On motion for summary judgment, the court began its analysis by observing that under Florida law, an insured’s failure to provide timely notice creates a “rebuttable presumption of prejudice to the insurer.”  Thus, it is the insured’s burden to prove that its late notice did not result in prejudice to the insurer.   Notwithstanding, it is the insurer’s burden of showing a lack of any material facts as to “(1) what the policy required with respect to notice, (2) when notice was provided, within the meaning of the policy and Florida law, (3) whether notice was timely, and (4) whether prejudice exists, either by operation of the unrebutted presumption or otherwise.”

In considering these factors, the court agreed that Wheeler’s failure to have provided notice to Markel of the underlying suit until eighteen months into the litigation -after discovery had closed and on the eve of trial - was late as a matter of law.  Notice as soon as practicable, as required by the Markel policy, required that notice be given with reasonable dispatch and within a reasonable time in view of the facts and circumstances.  As the court explained, “[n]o reasonable interpretation of the record evidence supports a finding that notice was timely.”  As such, Markel was entitled to a presumption of prejudice.

Wheeler’s attempted to rebut this presumption by proffering two expert opinions concluding that Markel was not prejudiced and, in fact, that Markel had breached its policy obligations by not undertaking a thorough investigation into whether Wheeler’s late notice actually prejudiced its ability to defend the underlying case.  The court rejected this assertion, explaining that because prejudice is presumed, Markel was not required to undertake an investigation into prejudice.  The court also rejected the experts’ opinions concerning Markel’s ability to defend the underlying case, concluding that the opinions were based on speculation only and without any credible supporting evidence.

Wheeler’s also argued that Markel was not entitled to rely on the late notice defense since it also denied coverage on the basis of its policy’s auto exclusion.  Wheeler’s specifically argued that “[w]here an insurer possesses enough information to permit it to deny the claim on other grounds, Florida courts have consistently held that an insurer waives the right to reject coverage on the basis that the insured failed to provide timely notice of the claim.”  This argument relied on the decision in Keenan Hopkins Schmidt and Stowell Contractors, Inc. v. Continental Cas. Co., 653 F. Supp. 2d 1255, 1263 (M.D. Fla. 2009), in which a Florida federal district court held that the insured successfully rebutted a presumption of prejudice by demonstrating that the insurer was able to fully investigate and determine the application of a policy exclusion. 

The court held that Wheeler’s attempt to broaden the Keenan decision was unavailing, since by Wheeler’s reasoning “no insurer would ever be able to assert late notice as a defense unless it was the sole basis of a denial of coverage.”  Moreover, the court found Keenan inapplicable to the facts involving Wheeler’s:

The facts in Keenan and in the instant case, however, are radically different. In Keenan, the insurer had ten months notice and was able to investigate the claim, whereas in this case, Markel effectively had no notice and no ability to conduct discovery. Wheeler's asserts that Markel had an opportunity to investigate potential coverage defenses prior to the entry of judgment and had sufficient information to deny coverage on other grounds other than the late notice defense. These assertions are rejected.

Thus, concluded the court, Wheeler’s failed to rebut the presumption of prejudice, thereby entitling Markel to judgment as a matter of law based on the insured’s failure to comply with its policy’s notice provision.