Why it matters: An insured's notice to its broker satisfied the policy's notice requirements, an Illinois appellate panel recently concluded—even though the broker didn't pass along the notification for more than two years. A salesperson was involved in a car accident while driving to work and was sued by the other driver. The employer provided notice to its insurance broker of the car accident, but the insurer didn't receive notice until several months later, after the lawsuit was filed. The insurer responded with a declaratory judgment action against the insured, the employee, and the driver of the other vehicle, arguing that it owed no duty to defend because the insured did not provide timely notice of the claim. The insurance broker was not an agent of the insurer for purposes of providing notice, the carrier told the court. But based on the facts of the case, the court disagreed. The insured's normal course of dealings was to contact its broker first, with the broker listed as an "agent" on the policy documents and payment schedules. Under the circumstances, the insured provided proper and timely notice of the claim, the appellate panel ruled, affirming judgment for the insured.
Detailed discussion: On August 17, 2005, Michael Molda was driving to a construction site as part of his job with Metrolift when he got into a car accident with Nola Wilson. Molda—who was not offered a company vehicle to drive and was expected to use his own car—was driving his mother's car at the time. After the accident, he notified State Farm, which insured the vehicle, as well as Metrolift.
When Metrolift learned of the accident, a company executive reached out to the insurance broker, Associated Specialty Insurance, which had helped Metrolift purchase its policy with First Chicago Insurance Company. The executive and the broker decided to wait to notify First Chicago.
Wilson later filed suit against Molda, later amending her complaint to add Metrolift as a defendant. Molda was served with the lawsuit in October 2007. The broker notified First Chicago of the lawsuit in March 2008.
First Chicago then filed a declaratory judgment action in Illinois state court, claiming it owed no duty to defend either Molda or Metrolift. Molda's vehicle was not covered under its policy, First Chicago argued, and Metrolift failed to provide timely notice of the accident as required by the policy.
The trial court judge granted summary judgment in favor of First Chicago, but a panel of the appellate court reversed. On remand, the trial court conducted a bench trial and ruled in favor of Metrolift. The insurer appealed and an appellate court affirmed.
Molda was an insured under the policy, the court held, and his vehicle was a covered auto under the policy. Metrolift purchased coverage for different types of automobiles, including "Category 9," described as "Nonowned Autos Only." The provision provided coverage for "Only those autos you do not own, lease, hire or borrow which are used in connection with your business. This includes autos owned by your employees or members of their households but only while used in your business or your personal affairs."
The panel rejected First Chicago's contention that the provision required Molda (and not his mother) to own the vehicle. "First Chicago's interpretation of the definition of nonowned autos is overly restrictive," the court wrote. Applying "the plain language" of the definition of nonowned auto, Molda's vehicle was not owned, leased, hired or borrowed by Metrolift, and if used in connection with Metrolift's business, it would be a covered auto.
Molda testified at trial that he was on his way to a construction site at the time of the accident, and Metrolift was aware that he was driving his own vehicle. Given the requirement that the vehicle be "used in connection with your business," a broad and vague term, "Molda's vehicle was properly considered to be a 'nonowned auto' under the First Chicago policy," the court opined.
Molda also qualified for coverage under a provision for "[a]nyone liable for the conduct of an 'insured,'" the court found. "At the time of the accident Metrolift had potential liability under the doctrine of respondeat superior, and, in fact, was included as a defendant in Wilson's case on that basis."
Whether or not Associated Specialty was First Chicago's agent for purposes of accepting notice was the next question the court addressed. Although an insurance broker is generally considered to be the agent of the insured, there are situations where an insurance broker can act as the agent of the insurance company or even both, the court opined.
And even if the broker does not have actual authority to act as the carrier's agent for purposes of notice, it may have apparent authority, the court further held. Apparent authority can be established through the course of dealings between the broker and the insurer. In the case at bar, there was evidence presented at trial that First Chicago included Associated Specialty's name, address, and telephone number on its declarations page as the producer.
"It did not provide any other contact information, nor was any individual or business other than Metrolift named anywhere within the policy," the panel commented. "If a claim was to be made, there was no reference to a phone number or person in his representative capacity to contact other than 'our authorized representative.' Additionally, in payment schedules admitted into evidence, Associated Specialty's information is listed under the underlined heading 'Agent' and an 'Agent Number' is provided under Associated Specialty's information."
Further, e-mails between the Metrolift executive and Associated Specialty supported the contention that Metrolift notified Associated Specialty almost immediately after learning about the accident. In addition, a First Chicago executive testified the insurer encouraged policyholders to report claims to their broker if they felt more comfortable doing so.
In light of these facts, "[w]e cannot find that it was against the manifest weight of the evidence for the trial court to conclude that this evidence gave rise to apparent authority for the purpose of accepting notice," the court concluded.
Even though First Chicago learned of the accident approximately 31 months after it occurred, notice was timely and did not violate the policy requirements, the panel added. "Associated was First Chicago's apparent agent for purposes of accepting notice of the loss," the court said. "Associated was notified of the loss almost immediately, and First Chicago does not argue that the notice provided to Associated was unreasonable."
In addition, while prejudice is not dispositive, the court noted that First Chicago did not establish that it suffered any prejudice. First Chicago did not make a serious attempt to investigate the matter. In particular, it failed to obtain the entire police report, did not interview either Wilson or Molda, and did not even attempt to reach State Farm about the results of its investigation. Accordingly, the court determined that the trial court's finding that notice was timely was not against the manifest weight of the evidence.
To read the opinion in First Chicago Insurance Company v. Molda, click here.