| In a recent decision of the Wisconsin Court
of Appeals, the importance of complying with the requirements
of a commercial general liability policy issued to a contractor
was highlighted.
In Kreckel v. Walbridge Aldinger Company, 721 N.W.2d 508
(Wis.App. 2006), an action was brought against a general contractor,
Walbridge, for injuries suffered by Kreckel, a subcontractor’s
employee. The agreement between the general contractor and
the subcontractor required the subcontractor to obtain a commercial
general liability policy naming the general contractor as
an additional insured and to indemnify the general contractor
for any liability arising out of work performed by the subcontractor.
The subcontractor did obtain the coverage and named Walbridge,
the general contractor, as an additional insured.
While on a project, the subcontractor reached into an electrical
transformer box, receiving 15,000 volts of electricity. The
subcontractor employee sued Walbridge for negligence. Walbridge
tendered defense of the case to its commercial general liability
insurance carrier, St. Paul Fire & Marine, which filed
an answer on behalf of Walbridge.
The subcontractor contacted its insurance company, CNA, who
then contacted St. Paul. CNA was of the opinion that Walbridge
was the cause of the employee’s injury and demanded
reimbursement of the worker’s compensation benefits
that CNA had also paid to the employee. Thereafter, the parties,
through their lawyers, filed many documents and engaged in
much discovery and finally a few years later, St. Paul formally
tendered Walbridge’s defense to CNA, who rejected the
tender. Walbridge then filed a third-party action against
the subcontractor and CNA claiming indemnification from the
subcontractor and asserting that CNA had the duty to defend
Walbridge.
Not surprisingly, out of this tangle of claims and counterclaims
on the subject of whose insurance applied, the subcontractor
and its insurance carrier, CNA, asserted that Walbridge’s
tender of defense was untimely and prejudicial and the trial
court concluded that neither the subcontractor nor CNA owed
any duty to defend, insure or indemnify Walbridge. Walbridge
appealed.
The Court of Appeals noted that it was undisputed that the
subcontractor had agreed to indemnify Walbridge as the general
contractor and that the subcontractor’s insurance carrier,
CNA, considered Walbridge an additional insured. Thus, the
Court noted that the only real issue was whether Walbridge
had given timely notice to the subcontractor and CNA, thereby
invoking the coverage that the subcontractor had obtained
through CNA. If timely notice was not given, a second issue
arose, i.e., whether the delay in giving timely notice was
prejudicial to the subcontractor.
The Court noted that decisions interpreting timely notice
have held that when the insured fails to give notice within
one year of the time required by the policy there is a rebuttable
presumption that there has been prejudice and the burden of
proving that there is no prejudice shifts to the claimant.
Without going into the detail of the specific dates, the injury
to the subcontractor’s employee occurred in September
of 2000, but the general contractor, Walbridge, after tendering
the subcontractor’s employee’s lawsuit to Walbridge’s
insurance carrier, did nothing about tendering the case to
the subcontactor and its insurance carrier until April, 2004.
Under the terms of the CNA insurance policy covering the subcontractor,
Walbridge, as an additional insured, was required to give
written notice of any claim or lawsuit to CNA “as soon
as practicable.” Walbridge’s argument was that
timely notice was given to CNA because CNA had paid worker’s
compensation benefits to the subcontractor’s employee.
It argued that CNA had in fact sought a recovery of the worker’s
compensation benefits from Walbridge’s insurance carrier
in August of 2002. However, the Court concluded that CNA’s
letter requesting reimbursement of its worker’s compensation
benefits was a product of a specialist in CNA’s worker’s
compensation department, not the product of a specialist in
CNA’s general liability department. CNA argued that
the mere fact that CNA’s worker’s compensation
department was granting benefits and investigating the WC
claim, did not absolve Walbridge of its duty to notify CNA
of the negligence claim which would expose CNA under the terms
of its general liability insurance contract.
The Court of Appeals agreed with CNA.
The Court reviewed other cases as a guidance to when a claim
notice is untimely. It noted that in other cases 22 months
between the filing of a lawsuit and a notice to the insurer
was untimely, or that an unexplained delay of 3 months constituted
untimely notice. In this case, the subcontractor employee
filed the negligence claim against Walbridge in February,
2002, and Walbridge’s insurance carrier tendered Walbridge’s
defense to CNA in April, 2004, a delay of approximately 26
months. The Court concluded that such a delay was beyond what
the law would allow.
The Court then turned to the question of whether the untimely
notice was prejudicial to the subcontractor and its insurance
carrier. The Court concluded it was because the amount of
time that had lapsed between the accident and the tender of
the claim to CNA was so long that witnesses may not be available
and memories may be dim. Further, the Court concluded that
CNA should have some latitude in securing the investigator
and attorney of its choice, and that untimely notice may prejudice
an insurer in that it cannot seek an immediate determination
of coverage, cannot participate in alternative dispute resolution
efforts and cannot select defense counsel and control the
defense. In this case, as already explained, the lawyers who
were already involved in the action by the time the subcontractor
and its insurance carrier, CNA, was tendered the defense,
had done extensive work.
The Court concluded that Walbridge as general contractor
had not overcome the presumption of prejudice to the subcontractor
and its insurance carrier as a result of not tendering the
defense of the subcontractor’s employee’s claim
to the subcontractor promptly.
This case exemplifies nicely the importance of giving timely
notice to any insurance carrier that may expect to receive
notice of a claim and a tender of defense.
Design professionals should not only discuss a claim filed
against it for personal injury or property damage with the
design professional’s insurance agent, but also with
the design professional’s attorney in order to cover
the full panoply of notice possibilities and obligations.
Robert J. Kay is the senior partner in the law firm of Kay
& Andersen, S.C. and devotes his time to representing
professional engineers, architects, contractors, material
suppliers and owners of construction projects. Please feel
free to contact him at (608) 833-0077 or at rjkay@kayandandersen.com.
TOP |
