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Watch your language: Notice wording bites insurer

Watch your language: Notice wording bites insurer

December 27
09:55 2016

Watch your language: Notice wording bites insurer

Tim Clark was injured in a car accident in Missouri in 2010. The driver of the other vehicle, Carla Zender, was at fault. Zender carried a $100,000 automobile liability policy, and Clark settled with her and her insurer for that amount. In consideration of the settlement, Clark released Zender and her insurer from further liability arising out of the accident. Clark did not give his own auto insurer, Southern Farm Bureau Casualty Insurance Company (SFB), prior notice of the settlement.

At some point, Clark indicated to SFB that his damages exceeded Zender’s policy limits and that he would seek UIM benefits. SFB filed suit, seeking a declaration that Clark’s failure to give prior notice of the Zender settlement precluded UIM coverage. SFB subsequently moved for summary judgment based on the following policy provision: NOTICE REQUIREMENTS AND SETTLEMENT OF LOSS

You must provide us written notice if you reach, or if the covered person reaches, a tentative agreement to settle the loss with the owner, operator, or liability insurer of the underinsured auto.

The written notice must be by registeredor certified mail, return receipt requested, and include:

a. written documentation of the pecuniary losses incurred, including copies of all medical bills; and

b. written authorization or court order authorizing us to obtain medical reports from all employers and medical providers; and

c. written confirmation from the underinsured motorist’s liability insurance carrier confirming the alleged underinsured motorist’s liability limits and the terms of the tentative settlement. (Emphasis in original.)

The policy further provides that, within 30 days after receiving written notice of a settlement, SFB will pay its insured an amount equal to the settlement and recoup its payment through subrogation or, failing that, lose its right to decline UIM coverage by reason of the settlement.

The circuit court granted summary judgment to SFB. The court ruled that the above-quoted notice of settlement provision was a condition precedent to UIM coverage and that Clark’s failure to abide by the provision forfeited his claim for UIM benefits. Clark appealed.

Clark presented several arguments for reversal, but the appellate court directed its analysis to the sole basis on which the circuit court granted summary judgment: that prior notice of the Zender settlement was a condition precedent to Clark’s UIM coverage. The court said that when a notice provision operates as a condition precedent to coverage, the insured must strictly comply with it. If the insured fails to comply, he forfeits coverage. Clark contended that SFB’s notice of settlement provision did not rise to the level of a condition precedent.

The court agreed, noting that for timely notice to be a condition precedent to insurance coverage, the policy must use language expressly to that effect, or language that necessarily
implies that notice is a condition precedent.

In this case, the court said, the SFB policy stated that its insured must give notice of a tentative settlement with the underinsured motorist. However, the policy provision did not expressly state or necessarily imply that UIM coverage was conditioned on SFB’s receiving such notice. The policy language fell short of declaring that UIM coverage would be completely forfeited or excluded if such notice was not given.

The court held that SFB must demonstrate that it was prejudiced by the lack of notice to deny UIM benefits to Clark by reason of the settlement. Because the circuit court had not had the opportunity to rule on whether SFB was prejudiced, the appellate court reversed and remanded the summary judgment order for further proceedings.

Clark vs. Southern Farm Bureau Casualty Insurance Company-Court of Appeals of Arkansas, Division 1-May 11, 2016-No. CV–15–675.

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