Late Notice Defense Difficult to Prove

Notice Requirement Must be Clear & Unambiguous

Every liability insurance policy contains a requirement that the insured report claims promptly. Each policy contains a variation on that requirement. Excess policies contain different reporting clauses than do primary policies. In Essex Insurance Company v. Village of Oak Lawn, United States District Court, N.D. Illinois 2016 WL 3058407  (05/31/2016) Essex Insurance Company (“Essex”) asked the USDC, Northern District of Illinois for a declaration that it has no duty to indemnify its insured, the Village of Oak Lawn (“Village” or “Oak Lawn”), because Oak Lawn breached the notice condition of Essex’s insurance policy with respect to an underlying lawsuit. Third-Party Defendant Cannon Cochran Management Services, Inc. (“CCMSI”) seeks a declaration that it provided timely notice of that lawsuit to Essex on behalf of Oak Lawn.


Charles Petrishe, Nikki Caputo-Petrishe, and Dianne McGann sued the Village and obtained a $3 million settlement agreement between the parties, with Defendants’ two insurance companies—Essex and non-party Illinois Union Insurance Company (“ACE”)—paying out $1 million and $2 million, respectively. Essex now seeks to recoup that $1 million payment, along with applicable interest, pursuant to a Non-Waiver Agreement that it entered into with Oak Lawn as a condition precedent to settlement. Essex argues that: (i) it is entitled to a finding that Oak Lawn breached its insurance policy; and (ii) Oak Lawn must therefore reimburse Essex for its settlement payment under the Non-Waiver Agreement. Oak Lawn disagrees, arguing that it did not breach the insurance policy and therefore has no obligation to reimburse Essex.

Essex issued to Oak Lawn an Excess Liability Policy covering a policy period of March 15, 2010 to March 15, 2011 (the “Essex Policy”). The Essex Policy had a liability limit of $10 million per occurrence and $10 million in the aggregate, and was excess over other underlying policies, including the ACE Policy.

The Essex Policy also contained the following condition (the “Notice Condition”): “Duties in the Event of Accident, Occurrence, Claim or Suit. ¶ You must see to it that we or our authorized representative and your underlying insurers: ¶ a. are notified as soon as practicable of any accident or occurrence which may result in a claim if the claim may involve this policy or any underlying insurance; b. receive notice of the claim or suit as soon as practicable. Notice shall include: ¶ 1) How, when and where the accident or occurrence took place; ¶ 2) The insured’s name and address; ¶ 3) The names and addresses of any injured persons and witnesses; and ¶ 4) The nature and location of any injury or damage arising out of the accident or occurrence. ¶ c. are assisted, upon our request, in the enforcement of any right against any person or organization which may be liable to you or any other Insured because of injury or damage to which this insurance may apply; and ¶ d. receive the Insured’s full cooperation in the investigation, adjustment, settlement, or defense of any claim or suit.” (emphasis added)

Factual Background

Both CCMSI and the Village were aware that the underlying plaintiff, Petrishe had been in the ICU for six weeks following the shooting.  By March 2011, Petrishe’s claimed medical expenses had surpassed $672,000 – more than the Village’s SIR.

At least by May 2011, the Village and its claims handlers knew that the Village’s exposure—but not its liability—could exceed the $150,000 SIR.  Yet, the Village and CCMSI did not believe that the Petrishe claim implicated either the ACE Policy or the Essex Policy because they “did not believe that there would be liability for the allegations in the Petrishe matter until Mr. Petrishe was found not guilty” in the parallel criminal action since Petrishe was charged with attempted first-degree murder for his attack on the Oak Lawn police officers. At this time, the officers’ actions appeared justified and warranted and therefore, they did not impose any negligence on the Officers and didl not post a loss reserve for Petrishe’s claim.

In June 2012 and again in November 2012, defense counsel in the Underlying Action informed the Village and ACE that the criminal proceedings were ongoing. Throughout this period, the Village and CCMSI held quarterly meetings to discuss the Underlying Action and other civil matters pending against the Village. At no time during 2011 and 2012, however, did the Village’s “potential liability would involve the ACE Policy or the Essex Policy.

On February 1, 2013, the criminal court acquitted Petrishe of all charges. Defense counsel in the Underlying Action advised the Village that the Plaintiff was acquitted in his criminal trial and plaintiff’s attorney told defense counsel that the plaintiff’s medical bills are in excess of $1,000,000. The Village had been confident that the attempted murder charges brought against the plaintiff would result in a conviction. The unexpected acquittal eliminates any number of legal defenses and raises the possibility that the Village of Oak Lawn and the two responding officers could potentially be held liable. Counsel advised the Village that he expected that a demand from the plaintiff’s attorney well in excess of $5,000,000 –and likely in excess of $10,000,000 was forthcoming.

On January 21, 2014, the Petrishe plaintiffs made a $12 million settlement demand in the Underlying Action. On January 22, 2014, Essex issued a reservation of rights letter, reserving its right to deny coverage to the Village on several grounds, including “on the basis that the Village failed to comply with the policy condition which requires notice as soon as practicable of any accident or occurrence which may result in a claim if the claim may involve the Essex Policy or any underlying insurance.”


In construing the language of an insurance policy, a court must view the policy “as a whole and take into account the type of insurance purchased, the nature of the risks involved, and the overall purpose of the contract.” Illinois courts recognize that primary and excess insurance policies “inherently serve different functions, cover different risks and attach at different stages.

The Notice Condition contains two principal notice provisions – Subsection (a) relating to “any accident or occurrence,” and Subsection (b) relating to “the claim or suit. The language clearly specified that, in the event of “a” claim made or “ ‘suit’…brought against any insured,” MHM must give notice and forward copies of legal papers received “in connection with the ‘claim’ or ‘suit.’ ” This provision is non-discretionary.

Considering the nature of excess insurance, Essex does not need—and chose not to require—notice of each and every claim made or lawsuit filed, regardless of coverage implications. The Essex Policy, therefore, did not require the Village to notify Essex of the Underlying Action unless and until it believed such lawsuit “may involve” either the underlying insurance (including the ACE Policy) or the Essex Policy.  Concluding that the “may involve” clause at issue is ambiguous and subjective and the fact that no evidence resolves the ambiguity, the Court found it must construe the clause it in favor of the Village.

The Village’s Awareness of a Potentially Covered Event

The Village knew about the Petrishe shooting on December 8, 2010, knew about the Underlying Action and its allegations on December 15, 2010, and gave ACE notice on March 15, 2011. Yet, Essex argues, the Village did not inform Essex of the incident or the lawsuit until May 21, 2013.

The Village responds that, while it had “awareness” of the Petrishe claim in 2010, it did not believe that such claim “may trigger insurance coverage” until February 2013, after Petrishe’s acquittal. Indeed, the record reflects that CCMSI set an initial reserve of only $10,000 and—prior to 2013—did not anticipate the Petrishe claim exceeding the Village’s $150,000 SIR.

The Village’s Diligence in Ascertaining Coverage Availability

The fourth factor—the Village’s diligence in ascertaining the availability of excess coverage—also weighs in favor of the Village. The Court is not convinced by Essex’s argument that the Village’s delay had nothing to do with its belief about its liability. The Court further notes that defense counsel in the Underlying Action continued to view the case as “highly defensible” on liability grounds, even after the unanticipated acquittal.

Prejudice to Essex

Lastly, the Court considers prejudice to Essex resulting from the 30-month delay in receiving notice of the Underlying Action. Once the Underlying Action became active, Essex waited several months to issue a reservation of rights letter, and then participated in settling the action through its eventual dismissal in November 2014.


A potentially effective denial of a claim was destroyed by inadequate policy wording. By making the notice requirement of the policy subjective – only requiring a report when it “may” result in a claim it made it impossible to prove that the insured did not, in good faith, believe until the plaintiff was acquitted of the charge that he attempted to kill the police officers and eliminated the civil defenses available to the police for shooting the plaintiff. The adverse result could have been eliminated by requiring notice of the filing of suit rather than a “suit that ‘may’ result in a claim.”

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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