Actual notice is whatever we say it is.
In West American Ins. Co. v. Yorkville National Bank (docket no. 108285, 9-25-10), the Illinois supreme court, after "considering all relevant factors," reversed the appellate court and held that written notice to the carrier 27 months after the underlying lawsuit was filed was reasonable.
On September 24, 2001, Sheryl Kuzma sued Yorkville in Will County for defamation. Yorkville did not provide written notice to its GL carrier, West American, until January 19, 2004. In response to West American's declaratory complaint alleging late notice, Yorkville claimed that West American received oral notice on "several occasions" before then, which amounted to "actual notice."
More specifically, James Liggett, Yorkville's president, claimed that in late 2001 or early 2002 he advised Richard Dickson from Yorkville's insurance agency, which was West American's agent, that Yorkville was involved in a defamation lawsuit and was told that the West American policy would probably not apply. The lawsuit was also discussed at Yorkville's board meetings. Dickson was present as a board member.
The trial court entered judgment for Yorkville, for stipulated damages of $1, 982,778.78, finding that West American had actual notice of Kuzma's lawsuit from the conversation and board meetings with Dickson and that the 2004 written notice was reasonable. The appellate court (388 Ill.App.3d 769) reversed, finding actual notice irrelevant and written notice unreasonable under the policy.
The supreme court framed the issue as whether Yorkville provided written notice within a reasonable time. It stated that the factors to be considered included 1. the policy language, 2. the insured's sophistication, 3. the insured's awareness of an event that could trigger coverage, 4. the insured's diligence in determining whether coverage might be available, and 5. prejudice to the insurer. The court found that the second and third factors favored West American. The court disregarded the first factor because the notice condition did not specify a time for giving notice.
Regarding the fourth factor, the court stated that "an insured's reasonable belief of noncoverage under a policy may be an acceptable excuse for the failure to give timely notice, even where the delay is lengthy." In support the court cited cases where the insureds were young adults or homeowners.
Finally, regarding prejudice, the court stated that "actual notice to an insurer is relevant to whether the insurer has been prejudiced by a delay in receiving written notice as specified in the policy," and an insurer has actual notice of a lawsuit where "it has sufficient information to locate and defend the suit," citing Cincinnati Ins. Co. v. West American Ins. Co., 183 Ill.2d 317 (1998). Because West American, through alleged oral statements made to its agent, knew that a potentially covered suit had been filed against its insured, it suffered no prejudice.
The court held that Yorkville's written notice was given in a reasonable time and did not violate the policy's notice provision.
In his dissent, Justice Freeman noted first that the court, by focusing on the Livorsi factors only, ignored the policy language, pursuant to which Yorkville breached every notice requirement. The result, he predicted, will be increased litigation and "swearing contests" between insureds and insurers as to whether and when notice was given. Second, by extending actual notice the court effectively wrote out of insurance policies conditions precedent to coverage.As they say, read the whole thing.
