A case was just decided in January of this year by the highest court in the state of Maryland, which is known as the Maryland Court of Appeals. What the Maryland high court did was require that the insurance company, National Union, cover an animal rights group’s portion of a $16M settlement for a RICO violation against two high-profile circus operators.
Two of the circus operators (including Ringling Brothers and Barnum & Bailey Circus) alleged that the animal rights activists paid off witnesses to testify about their mistreatment of African Elephants in order to shut down the circus performances. These large circus act companies sued multiple animal rights groups alleging Federal Civil RICO violations—allegations that ultimately resulted in an almost 16-million-dollar settlement.
The company who was insured by National Union, Fun for Animals, Inc., specifically had to pay $2.5M for their portion of this $16M settlement. They asked National Union to cover it. National Union refused, stating over two years had passed and National Union never received notice of the claims or the lawsuit. The Maryland Court of Appeals ruled that the loss was covered, reasoning that even though the notice was late, the insurance company had to prove that it was prejudiced by the lateness of the notice. The Maryland high court specifically said that the insurance company had to demonstrate “concrete prejudice and rely on more than conjecture.”
That means the insurance company must prove that its ability to investigate was somehow hampered by the lateness of the notice—that witnesses disappeared or were unavailable, evidence was destroyed or not preserved, or some other example where the insurance company’s ability to investigate and determine its responsibility to pay for the loss was hampered by the insured’s failure to provide notice.
In this particular state and this particular case, the Maryland high court said that the insurance company had not met that standard, not even came close, and therefore they had to cover the settlement. As I always say in so many of my blogs, you always have to look to the law of the state that applies to your case with these types of issues to see what the law of late notice is and determine whether or not your state will require such a showing of prejudice if the notice is late.
For insureds out there, don’t take this as the freedom not to give timely notice to your insurance companies. I would always encourage insureds to timely notify insurance companies to avoid the potential of a late notice defense. But, there are many states where prejudice must be demonstrated by the insurance company in order for it to get out of liability for paying an insurance claim.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack