Why it matters

In a victory for policyholders, an Iowa federal court recently affirmed a jury verdict that an insurer was not prejudiced by the policyholder’s two-year delay in providing notice of a claim. In the early morning hours of June 18, 2007, a fire occurred at a country club causing $3.8 million in damages. The country club’s insurer paid the claim and then in 2009 sued Asoyia, Inc., claiming that the oil manufacturer failed to provide proper warning labels in its product. Asoyia’s insurance carrier asserted that the two-year delay in providing notice prevented it from conducting its own investigation of the fire and otherwise resulted in prejudice. But the jury disagreed, finding no evidence of prejudice because other independent parties had adequately investigated the fire.

Detailed Discussion

A fire occurred at the Sunnyside Country Club in Waterloo, Iowa, in June 2007. The club’s insurer, United Fire, conducted an investigation, as did the local fire department. During the course of the investigation, United Fire sent a subrogation notice to several parties, including Asoyia, Inc., a cooking oil manufacturer.

Asoyia did not participate in the investigation nor did it pass the subrogation notice along to its insurer, Michigan Millers Mutual Insurance Company. In June 2009, United Fire sued Asoyia in Iowa state court, alleging that the fire at the club was caused by the spontaneous combustion of recently laundered kitchen rags that had been used to clean a fryer containing Asoyia’s soybean oil.

Asoyia then – two years after the fire – notified Michigan Millers. Based on the two-year time gap, the insurer denied coverage for the underlying suit. Michigan Millers also filed a federal suit seeking declaratory relief that it had no duty to defend or indemnify Asoyia. After a three-day trial, jurors sided with Asoyia.

The parties agreed that Asoyia’s notice was late as a matter of law, leaving only the issue of whether Michigan Millers suffered prejudice. Importantly, the court said, Asoyia provided notice to the insurer promptly after being sued and did not settle with United Fire or otherwise fix its liability. Therefore, Michigan Millers’ opportunities to respond to the litigation – such as engaging in settlement negotiations, for example – were not impacted.

“Asoyia’s notice to Michigan Millers after being sued has enabled Michigan Millers to participate in and control the litigation between United Fire and Asoyia,” the court wrote. “Asoyia did not bind itself to any finding of liability or judgment amount in the underlying lawsuit.”

Also relevant to the issue of prejudice: the preservation of materials from the scene of the fire and photographs taken during the course of the investigations. “The jury could have reasonably found that any prejudice presumed by Michigan Millers’ inability to photograph the scene itself was rebutted by the hundreds of photographs of the fire scene entered into evidence,” the court ruled, especially in conjunction with the physical evidence preserved from the fire and witness statements.

In upholding the jury verdict, the court reasoned that “[b]ased on the evidence at trial, including evidence of the photographs, interview notes, and artifacts preserved from investigations conducted near the time of the Sunnyside fire, the jury had a reasonable, and legally sufficient, basis for finding that Michigan Millers was not prejudiced by Asoyia’s delay in notifying Michigan Millers of the Sunnyside fire.”

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