In a recent Illinois Supreme Court decision, the court found that a claimant's late notice to his insurance carrier precluded coverage where there was an extended delay in notifying the insurance carrier. The insurance carrier succeeded in its Complaint for Declaratory Judgment without having to prove prejudice as a result of the delay.
In Country Mutual Insurance Company v. Livorsi Marine, Inc., 358 Ill. App. 3d 880 (2006), two companies, each carrying a commercial general liability policy with the plaintiff carrier, Country Mutual, were involved in a trademark dispute. In December of 1999, each filed suit against the other in federal district court, which were later consolidated.
While attempting to resolve the dispute, each party waited more than 18 months to notify its insurance company. However, each of the policies at issue contained the common provision that the insured must provide reasonable notice to its carrier of a lawsuit for which the policy may provide coverage. As such, Country Mutual filed a Complaint for Declaratory Judgment against both companies, which was ultimately granted by the Circuit Court of Cook County and upheld on appeal before the Appellate Court of Illinois, First District.
On review, the Illinois Supreme Court held that the circuit court applied the appropriate, existing rule in this case. Under this established rule, prejudice is only one factor to be considered in determining whether notice was reasonable. Once it is determined that notice was not reasonable, the insurer is not required to show prejudice in order to deny liability. The Supreme Court then affirmed the circuit court's legal conclusion that, in the absence of reasonable notice, Country Mutual was relieved of its duty to defend.
This new ruling has significant implications for the unwary insured and provides great protections to insurers. The majority of insurance policies require an insured to provide reasonable notice of an occurrence involving personal injury or property damage, along with reasonable notice of any pending lawsuit. However, under prior cases it was often difficult for insurers to rely on this contractual language in the policy, as it is often difficult for an insurer to show its position was materially affected by any late notice.
As a result of this decision, it is necessary for parties to consider insurance coverage issues early on in a dispute in order to ensure that their interests will be fully protected. Additionally, insureds should review their existing insurance policies and ensure their internal claims operations are properly documented in order to comply with the apparent stricter reading notice language in insurance policies will receive in Illinois following this decision.
