Notice of claim or suit requirements in insurance policies are often viewed as a condition precedent to coverage. If the insured’s carrier is not given notice of the claim in a timely manner, the insurer may have no obligation to defend or indemnify the insured. But what happens if a claimant sues an insured defendant and the insured defendant defaults? Can the claimant force the insurer of the defaulted insured to pay the default judgment? The 5th Circuit Court of Appeals recently answered that question.
In Nautilus Insurance Co. v. Miranda-Mondragon, No. 17-20261 (5th Cir. Sum. Cal. Oct. 20, 2017), a claimant sued a security company in Texas state court for negligence in failing to provide adequate security after a shooting left her injured. The security company did not appear in the personal injury case and the claimant obtained a default judgment. The claimant’s lawyer sent a latter to the security company’s insurer and asked for payment of the default judgment. In response, the insurance company commenced a declaratory judgment action in federal court and sought a determination that it had no duty to defend or indemnify the security company.
On cross-motions for summary judgment, the district court found for the insurance company. The basis for the decision was that under Texas law, a more than 40-day delay in providing notice of the original underlying lawsuit was untimely and relieved the insurance company from any duty to defend the security company or pay the claimant the default judgment. On appeal, the 5th Circuit affirmed.
In affirming, the circuit court noted that there were no genuine issues of fact present in the case. The court held that Texas law was well-settled in that compliance with a notice of suit provision is a condition precedent to the insurer’s liability on an insurance policy. Texas law, according to the court, provides that if an insurer first receives notice of a suit after a default judgment, prejudice exists as a matter of law. In this case, the security company’s policy required notice to the carrier as soon as practicable if a claim or suit is brought against the insured and required the insured to immediately provide copies of the legal papers.
The court held that because the carrier’s first notice of the lawsuit came from the claimant’s counsel 41 days after the default judgment was entered, the delayed notice prejudiced the carrier as a matter of law and relieved the carrier of liability under the policy.
Not all states treat notice in the same way. Nevertheless, claimants who think getting a default judgment against a party will require that party’s insurance company to pay the default judgment may be sadly misinformed in many jurisdictions, and clearly in Texas. Where a claimant’s lawyer sees that a defendant has not appeared in a case and wishes to obtain a default judgment against that defendant and then go after that defendant’s insurance carrier, the claimant’s lawyer would be wise to provide notice of the suit or claim to that defendant’s insurance carrier as soon as possible before the default judgment to avoid the same outcome as in this case.