Why it matters: The Nebraska Supreme Court upheld an insurer's duty to defend even though the policyholder did not provide timely notice of the underlying litigation because of confusion about the carrier at the time of the occurrence. After 30 years of employment, a worker suffered permanent hearing loss in both ears. During his time at the company, ownership changed hands more than once. So when the employee filed suit, the current owner tendered the claim to what they thought was the correct insurer. Not until several years later and liability had been decided did the parties realize that a different insurer was the carrier during the relevant time period. The correct insurer balked at being added to the litigation, arguing that it didn't even receive notice of the claim until after the award was entered. But the state's highest court held that the correct insurer wasn't deprived of its due process rights and had substantially the same interests as the other insurer that provided a defense for the policyholder. It was undisputed that the correct insurer was the sole provider of coverage during the relevant time, the court said, affirming a ruling that it was solely responsible for the award.

Detailed discussion: James E. Risor worked at a boiler manufacturing plant in Lincoln, Nebraska, from 1973 until 2004. During the course of his employment, Risor suffered permanent hearing loss in both ears. He filed a claim against his employer—colloquially referred to as Nebraska Boiler—in the Nebraska Workers' Compensation Court in January 2004, listing the date of his injury as 2001.

The plant was owned by several different entities during Risor's 30-year employment, and multiple companies provided workers' compensation insurance coverage to the plant over the years. The current owners of the plant, Cleaver-Brooks, Inc., purchased it from an entity known as National Dynamics in 1998. When the company sold, National Dynamics entered into an agreement with Twin City Fire Insurance Co. to provide coverage for claims made by employees working at the plant from 1992 to 1998. Cleaver-Brooks contracted with American Insurance Company to provide coverage from 1998 through 2002.

Cleaver-Brooks tendered Risor's workers' compensation claim to both insurers and each retained separate counsel. However, during the course of the litigation American operated under the mistaken belief that it had provided workers' compensation insurance coverage for the plant from 1992 to 1998.

In April 2006, a judge of the compensation court determined that Risor was permanently and totally disabled as a result of the hearing loss, setting the date of the accident as October 19, 1993. The date came as a surprise to the parties; even Risor had alleged his injuries started much later, in 2001.

After the order was filed, an adjuster for American realized that the carrier was not the plant's insurer at the time of the injury. Twin City was given notice of the claim on August 1, 2006, and subsequently filed a motion to participate as a party in the appeal to the review panel. That motion was denied and Twin City did not participate in Risor's appeal, where the review panel affirmed the date of Risor's injury as 1993.

Cleaver-Brooks then filed a declaratory judgment action in Nebraska state court for a judicial determination as to which party or parties were liable for Risor's claim. The various parties filed motions for summary judgment, and a trial court judge issued an order finding that Twin City was solely liable for the award.

Twin City appealed. The delay by Cleaver-Brooks in providing notice to Twin City was inexcusable, the insurer argued, judicial estoppel should prevent the order finding it solely liable for Risor's claim, and it could not be liable as Risor referenced the incorrect name of the employer on his workers' compensation form.

But the Nebraska Supreme Court disagreed, affirming Twin City's liability.

Twin City was not deprived of its right to procedural due process when its motion to intervene in the proceedings was denied, the court explained, because American had the same interests in defending the suit. From Risor's perspective, he simply wanted to receive compensation for his injury, regardless of who owned the plant or who the insurer was.

"The compensation court found that Risor's injury occurred in 1993," the court said, and "it is undisputed that Twin City, through its policy with National Dynamics, was the sole provider of coverage for workers' compensation claims for employees working at the plant during that time period. Therefore, Twin City is liable for the award and cannot elude payment by relying on a technical inaccuracy, the designation of [National Dynamics], rather than Nebraska Boiler, as the employer in Risor's claim."

As for Twin City's equitable defenses, the court rejected the argument that Cleaver-Brooks was asserting an inconsistent proceeding by accepting American's defense in the workers' compensation proceedings and now seeking Twin City's responsibility for the claim.

"[B]ad faith or an actual intent to mislead on the part of the party asserting inconsistent positions must be demonstrated before the judicial estoppel doctrine may be invoked," the court wrote. "In this case, we find no evidence of any bad faith or an intent to mislead on the part of either Cleaver-Brooks or American. In fact, it was in neither Cleaver-Brooks' nor American's interest to initially represent to the compensation court that Cleaver-Brooks owned the plant or that American's policy covered the plant in 1993."

At the time of the original workers' compensation trial, the parties believed the earliest possible date of Risor's injury was 2001, and only after the compensation court determined the date of the injury did the parties realize their error about the appropriate carrier. "Further, American's attorney sought to correct the information once the mistake was uncovered," the court said. "There is no reason to believe that Cleaver-Brooks or American intentionally misrepresented the facts in order to mislead or gain some type of advantage."

Twin City's laches argument met a similar fate. Twin City could not prove that any delay in notification by Cleaver-Brooks and American was inexcusable and that Twin City was prejudiced by the delay.

"Because the original dates of the alleged injuries in Risor's claim were all while Cleaver-Brooks owned the company, Cleaver-Brooks or American had no reason to notify Twin City until the compensation court determined the date of the injury to be in 1993," the court said, and Twin City was notified of the claim within four months of the determination.

"Even if Cleaver-Brooks had some reason to know before the trial court entered its award that there was a potential claim for which Twin City could be liable, the evidence still does not establish that Twin City was prejudiced by any delay," the Nebraska Supreme Court wrote. "American 'vigorously defended against Risor's claim' and the outcome likely would not have differed had Twin City participated."

Finally, the state's highest court found that neither Cleaver-Brooks nor American negligently injured Twin City by failing to provide notice of Risor's claim. "Twin City cites to no case law in Nebraska, or any other jurisdiction, which has found that one insurance company owes a duty to notify another insurance company of potential claims," the court said, with no case law supporting the contention that Cleaver-Brooks owed a duty either.

"Given the facts of this case, when presented with a workers' compensation claim alleging injuries that occurred no earlier than 2001, Cleaver-Brooks and American could not have reasonably been expected to notify Twin City, an insurer which covered claims arising from the plant only between 1992 and 1998," the court concluded.

To read the decision in Cleaver-Brooks, Inc. v. Twin City Fire Insurance Co., click here.