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By: Connor Bateman
The Georgia Court of Appeals recently ruled in Plantation Pipe Line Co. v. Stonewall Ins. Co. that an insured’s two-year delay in notifying its excess liability insurer of potential third-party claims, although untimely as a matter of law, did not necessarily preclude coverage under the policy. This decision could carry significant implications for insurers with excess liability policies issued in Georgia. In addition, the case provides a comprehensive overview and application of Georgia’s current law on notice provisions in primary and excess liability policies.
The insured, Plantation Pipe Line Co. (“Plantation”), sought coverage from its excess liability insurer, Stonewall Insurance Co. (“Stonewall”), for third-party claims arising from a 1976 pipeline leak in North Carolina. Although Plantation immediately repaired the leak and compensated the only affected landowner, the leak resulted in significant soil contamination that that went undiscovered for nearly thirty years.
At the time of the initial leak in 1976, Plantation had $1,000,000 in primary coverage under a comprehensive general liability policy and two tiers of excess coverage. The first level of excess coverage provided $1,000,000 of additional insurance under an umbrella policy issued by Lexington Insurance Company. The second tier provided $4,000,000 of excess coverage under policies issued by six different carriers, including the defendant Stonewall. Although Plantation was generally aware of these coverage limits when it discovered the contamination in April of 2007, the identity of many of the excess carriers, including Stonewall, remained unknown.
In February of 2008, Plantation notified the known carriers of an estimated $2.061 million in costs stemming from investigating, remedying, and defending the soil contamination issue. Two years later, in February of 2010, Plantation’s coverage counsel uncovered the 1975-1976 Stonewall policy while gathering documents from Plantation’s former law firm. Finally, in April 2010, Plantation sent written notice to Stonewall that this excess liability policy may be implicated by third-party claims arising from the 1976 leak. Stonewall denied liability, arguing that Plantation’s notice was untimely.
Initially, the Court noted that the question of timely notice depends largely on the event that triggers the insured’s duty to provide notice to its carrier. The Court explained that, under an excess liability policy, the notice obligation is typically triggered by the insured’s assessment of whether their liability might exceed the coverage ceiling of an underlying primary policy or lower-level excess policy. Thus, because Plantation knew in 2008 that its remediation and defense costs would likely exceed $ 2 million (the “attachment point” of Stonewall’s policy), the Court found Plantation’s two-year delayed notice untimely as a matter of law.
Plantation argued that its notice to Stonewall was reasonable under the circumstances because it did not become aware of the Stonewall policy until 2010. In rejecting this argument, the Court noted that Plantation was generally aware of several unidentified companies that had issued excess liability policies for the 1975-1976 period. Because there was no evidence that Plantation could not have discovered the Stonewall policy earlier than 2010, the Court concluded that Plantation’s ignorance of the policy’s existence did not excuse the delayed notice.
Despite the untimeliness of Plantation’s notice, the Court proceeded to explain why Stonewall could not automatically deny coverage to Plantation on this ground. First, the Court reaffirmed that, absent a showing of justification for the late notice by the insured, an insurer is not obligated to provide a defense or coverage if the insurance contract expressly makes timely notice a condition precedent to coverage. Further, the Court explained that an insurer is not required to show that it suffered prejudice from the delay when the insurance contract makes timely notice a valid condition precedent. If, however, the insurance contract does not make coverage expressly conditional on timely notice, an insured’s failure to comply with the notice provision will not result in a forfeiture of coverage unless the insurer can show that it suffered actual harm from the delayed notice.
The Court thus looked to whether the Stonewall policy expressly made notice a condition precedent to coverage. The pertinent provision in the Stonewall policy reads:
When an occurrence takes place which, in the opinion of the insured, involves or may involve liability on the part of the company, prompt written notice shall be given by or on behalf of the insured to the company or its authorized agents. . . . Failure to so notify the company of any occurrence which at the time of its happening did not, in the opinion of the insured, appear to involve this policy but which, at a later date, appears to give rise to a claim hereunder shall not prejudice such claim provided notice is then given. For purposes of this policy, the word “opinion” shall mean informed opinion or opinion formed on advice of counsel.
According to the Court, this language did not expressly stipulate that compliance with the notice provision was a condition precedent to coverage. Further, the Court pointed out that the policy did not contain even a general provision stating that no action would lie against the insurer unless, as a condition precedent thereto, the insured fully complied with all terms of the policy. Thus, because the policy did not make coverage expressly conditional on timely notice, the Court concluded that Stonewall could only deny coverage by showing prejudice suffered as a result of the delay.
To make this showing, Stonewall contended that the late notice deprived them of the opportunity to timely investigate the soil contamination issue. The Court concluded, however, that this bare assertion was insufficient to meet Stonewall’s burden of showing prejudice as a matter of law. The Court reasoned that while excess carriers are indeed entitled to “timely” investigate claims for which they may ultimately be held liable, the notice obligations under excess policies are triggered by events distinct from those which trigger the notice duties under primary policies. Specifically, while an insured’s duty to notify its excess carrier is generally triggered by an assessment of whether its exposure is likely to exceed the ceiling of the underlying primary policy, the notice obligation under a primary policy is triggered by the insured’s actual or constructive knowledge of an occurrence that may result in liability. Thus, the Court explained that an excess insurer will not automatically be entitled to an opportunity to investigate in the early days following an occurrence, as a primary carrier may often be. Accordingly, as an excess carrier, Stonewall was required to show more than a deprivation of its opportunity to immediately investigate the issue—an opportunity generally afforded only to primary insurers. For these reasons, the Court concluded that Plantation’s delay in notice did not preclude coverage under Stonewall’s excess policy.
Over a strong dissent, the Court stressed that its ruling should not be construed to suggest that excess carriers are never entitled to timely notice or never prejudiced by untimely notice. Instead, the Court explained that such carriers must show prejudice with particularized evidence of harm, rather than bare assertions that an inability to promptly investigate an occurrence is inherently prejudicial. Nevertheless, excess carriers should be aware of this decision’s potential impact on their burden of showing prejudice in cases of delayed notice. In addition, this case highlights the importance of including express language in primary and excess liability policies to make timely notice a condition precedent to coverage.