Waiting More than a Year After Default is Always Prejudicial
When an insured delayed notifying his insurer of his need for coverage was both unexcused and unreasonable. When the action was commenced against the insured in 2010, a reasonably prudent person would have understood that liability might be incurred. Moreover, when default was entered against the insured he certainly should have known that he could be found liable. Nevertheless, the insured failed to notify the insurer until one and a half years after the lawsuit was commenced and 15 months after the default. Insofar as the insured argued that his untimely notice should be excused because the entity that sued him engaged in unscrupulous tactics, he fails to explain how that conduct prevented him from timely providing notice of the action to the insurer whose summary judgment motion was granted.
In Graham Zahoruiko v. Federal Insurance Company, Chubb National Insurance Company, DBA Federal Insurance Company, Chubb Group Of Insurance Companies, collectively and individually, No. 17-965-cv, United States Court Of Appeals For The Second Circuit (January 5, 2018) the Second Circuit affirmed the judgment in favor of Federal on a summary order.
Plaintiff J. Graham Zahoruiko, proceeding pro se, appeals from an award of summary judgment to Federal Insurance Company (“Federal”) on Zahoruiko’s breach of contract and related claims based on Federal’s denial of coverage under a director and officer liability insurance policy. Specifically, Zahoruiko challenges the district court’s determination that he was not entitled to coverage under Connecticut law because he did not timely notify Federal of the claims for which he sought insurance coverage. The court reviewed the challenged award de novo and will affirm only if the record, viewed in the light most favorable to Zahoruiko, shows no genuine dispute of material fact and Federal’s entitlement to judgment as a matter of law. In doing so, the court assumed the parties’ familiarity with the underlying facts, the procedural history of the case, and the issues on appeal, which it referenced only as necessary to explain the decision to affirm substantially for the reasons stated by the district court.
Under Connecticut law, an insurer can be discharged from its coverage obligations pursuant to the “notice” provision of an insurance policy only by showing: “(1) an unexcused, unreasonable delay in notification by the insured; and (2) resulting material prejudice to the insurer.” Arrowood Indem. Co. v. King, 605 F.3d 62, 77 (2d Cir. 2010).
Insofar as Zahoruiko argued on appeal that Federal failed to show prejudice, he forfeited the argument by failing to raise it in the district court. It is a well-established general rule that an appellate court will not consider an issue raised for the first time on appeal. Regardless, upon an independent review of the record and relevant case law, the Second Circuity concluded, as the district court did, that Federal is entitled to summary judgment.
An insured’s “duty to give notice does not arise unless and until facts develop which would suggest to a person of ordinary and reasonable prudence that liability may have been incurred, and is complied with if notice is given within a reasonable time after the situation so assumes an aspect suggestive of a possible claim for damages.” Arrowood Indem. Co. v. King, 605 F.3d at 77 (internal quotation marks omitted). “The purpose of the requirement for prompt notice is to give the insurer a full opportunity to investigate the claim.” As to the prejudice prong, “the insurer bears the burden of proving, by a preponderance of evidence, that it has been prejudiced by the insured’s failure to comply with a notice provision.” Arrowood Indem. Co. v. King, 39 A.3d 712, 725-26 (Conn. 2012).
Zahoruiko’s arguments that the district court improperly assumed prejudice and that Federal failed to carry its preponderance burden are equally meritless. Federal provided a declaration from a senior claim officer stating that Zahoruiko’s failure to give notice until after default was entered denied it the opportunity to interview witnesses or participate in the defense or any proposed settlement of the claim. Zahoruiko argues that the declaration is speculative, and that Federal would not have defended his claim because it denied coverage based on a different clause of the policy. The argument does not persuade. Connecticut recognizes that the denial of the opportunity to investigate, as well as entry of default, are prejudicial to an insurer.
Entry of a default judgment against an insured is evidence of prejudice as well as the lack of opportunity for the insurer to investigate a claim and to pursue a compromise or settlement. Zahoruiko’s prejudice challenge is further belied by his own waiver in the underlying action of defenses that Federal could otherwise have asserted.
Federal having carried its burden, and Zahoruiko having failed to adduce evidence sufficient to support a jury verdict in his favor, or even to challenge Federal’s showing of prejudice in the district court, summary judgment was correctly entered in Federal’s favor.
It took a great deal of gall to bring this action. The prejudice was obvious. The failure to comply with the policy condition was blatant. The insured did not act in good faith to his insurer and should have been sanctioned by the court for making the spurious assertions delineated by the Second Circuit.
© 2017 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.