The insurer's denial of coverage for receipt of late notice of a claim was upheld by the federal district court. Evanston Ins. Co. v. Yeager Painting, LLC, 2018 U.S. Dist. LEXIS 130316 (N.D. Ala. Aug. 3, 2018).
Yeager Painting was in the business of sandblasting and painting. Yeager Painting was hired as a subcontractor to sandblast water tanks in the city of Pelham, Alabama. Yeager Painting subcontracted the work to Delgado Painting. An employee of Delgado Painting was seriously injued when he fell 25 to 30 feet to the ground from a man-lift basket.
Yeager Painting's insurer, Evanston, received notice of the accident, but it was unclear who gave the notice. Evanston sent Yeager Painting a reservation of rights letter and hired an adjusting firm to investigate the claim. After the investigation, Evanston sent a letter to Yeager Painting denying the claim based upon a policy exclusion for injuries sustained by subcontractors. Evanston invited Yeager Painting to submit any additional information it might have.
The injured employee later filed suit, but did not name Yeager Painting as a defendant. Yeager Painting was named as a defendant in an amended complaint served in February 2016. Seven months later, on September 16, 2016, an attorney for Yeager Painting sent a letter to Evanston enclosing the amended complaint and demanding a defense and indemnity under the policy. Evanston agreed to defend Yeager Painting with the exception of the claim for workers' compensation, but under a reservation of rights.
Evanston filed suit against Yeager Painting for a declaratory judgment that it had no duty to defend or indemnify under the policy. Evanston filed a motion for summary judgment. The policy required Yeager Painting to notify Evanston "as soon as practicable " about an "occurrence" that "may result in a claim." Further, Yeager Painting was to notify Evanston "as soon as practicable" after a lawsuit was filed.
The question of reasonableness of a delay in giving notice was a question of fact for the jury. But under Alabama law, when the insured unduly delayed in giving notice and failed to show a reasonable excuse or the existence of circumstances which would justify a delay, the court could, as a matter of law, hold that there was a breach of the condition as to notice. Yeager Painting waited seven months to send the amended complaint to Evanston. This was unreasonable as a matter of law under the circumstances. Therefore, Evanston's obligations under the policy were not triggered. The motion was granted.
Further, the exclusion for bodily injury to subcontractors barred coverage. The policy excluded claims for bodily injury "arising out of, caused or contributed to by any injury sustained by any . . . subcontractor . . ." Yeager Painting subcontracted the work to Delgado Painting. The injured employee was employed by Delgado Painting at the time of the accident. Consequently, the injured employee was a subcontractor of Yeager Painting and the exclusion barred coverage.