Failure by the named insured to comply with the notice provisions of a policy does not preclude coverage for additional insureds, an Illinois appellate court has ruled in a construction dispute.

Cobra Concrete Cutting Service entered into an ongoing subcontract agreement with Robinette Demolition Company under which Cobra would perform concrete cutting services for Robinette. Pursuant to the agreement, Cobra promised to indemnify Robinette and obtain an insurance policy including an endorsement naming Robinette – and any other parties Robinette required – as additional insureds.

The policy issued to Cobra by Mt. Hawley Insurance Company required under section 2(a), notice “as soon as practicable” of an occurrence or an offense which may result in a claim. Under 2(b), when a claim is made or “suit” is brought against any insured, the policy required that the insured immediately record the specifics of the claim or “suit” and the date received, and notify Mt. Hawley as soon as practicable.

Another portion of the notice provision, section 2(c), required that an insured immediately send to Mt. Hawley copies of any demands, notices, summonses or legal papers received in connection with the claim or suit.

In February 2009, a Cobra employee was injured while working on a project and filed suit against Robinette and Valenti Construction, another subcontractor, in October 2010.

Robinette and Valenti tendered their defense and indemnification in the suit to Mt. Hawley in November 2010. The insurer denied the claim, arguing that it had not been notified of the employee’s accident until almost two years had passed, which violated the terms of the policy.

Adjudicating the coverage dispute, the Illinois Court of Appeals said it was undisputed that Cobra, the named insured, had breached the policy notice provision. Despite this error, the court reversed summary judgment in favor of Mt. Hawley.

“Only Cobra, as the named insured, was required to comply with sections 2(a) and (b) by providing notice of [the employee’s] accident and the suit to Mt. Hawley,” the panel wrote. Robinette and Valenti “complied with section 2(c) in that they immediately tendered their defense and indemnification request to Mt. Hawley,” less than two months after the employee’s suit was filed.

The court further added, “[w]hile Cobra and [Robinette and Valenti] are under the same policy for purposes of Cobra’s duty to notify Mt. Hawley of [the employee’s] accident, only Cobra, as the named insured, had the duty to provide notice of the occurrence.”

Looking to the intent of the parties gleaned from a review of the policy language, the court said it “does not evidence the parties’ intent to make the coverage for the additional insureds contingent on the named insured’s compliance with its duty to notify under the policy.” Because Robinette and Valenti “complied with their duty under the notice provision of the policy, they are entitled to coverage as additional insureds,” the court concluded.

Mt. Hawley also argued that Valenti was not an additional insured because the company was not referenced in the original agreement between Cobra and Robinette. However, noting that the agreement contemplated future projects, the panel read the document in conjunction with a work order sent by Robinette to Cobra requesting Valenti be added as an insured and the certificate of insurance obtained by Cobra naming Valenti as an additional insured.

“Construed together, the agreement, the work order and the certificate of insurance satisfied the policy requirement that there be a written contract requiring Cobra to name Valenti as an additional insured,” the court wrote. “Contrary to Mt. Hawley’s position and the circuit court’s determination, the policy’s written contract provision did not require that Valenti’s name appear in the agreement.”

To read the decision in Mt. Hawley Insurance Co. v. Robinette Demolition Inc., click here.

Why it matters: Additional insureds scored a victory from the Illinois appellate court, winning coverage despite the conceded failure by the named insured to comply with the policy notice requirements. The court said the only notice requirement relevant to the additional insureds in the policy was complied with when Robinette and Valenti tendered defense of the employee’s personal injury suit shortly after its filing. Because the policy did not explicitly require the additional insureds to comply with the other more stringent notice requirements, the court said the insurer could not avoid coverage based on the failure to comply by the named insured.