Giving Notice To The Insurance Company

Insurance lawyers in Aledo Texas will tell you that you need to give notice to your insurance company as soon as possible when you know of a potential claim. The United States 5th Circuit dealt with this notice issue recently in a case styled, Berkley Regional Insurance Company v. Philadelphia Indemnity Insurance Company.
This case involves an insurance claim, controlled by Texas law for this diversity action, arising from an injury sustained on the property of Towers of Town Lake Condominiums. Towers, in an attempt to satisfy the notice requirements of an umbrella insurance policy with Philadelphia, sent notice of the claim to the broker of that policy. The core of the dispute is whether this notice satisfied the requirements of the umbrella policy, and, if not, whether Philadelphia was prejudiced as a result. Finding notice to the broker insufficient and Philadelphia prejudiced, the district court granted summary judgment in favor of Philadelphia. This Court affirmed that decision.
In 2004, Venus Rouhani (Rouhani) sued Towers in Texas state court for injuries she sustained at Towers, and a jury awarded her $1,654,663.50 plus interest and costs (totaling $2,167,300.30) in 2006. The damages were covered by a $1,000,000 primary policy issued by Nautilus Insurance Company (Nautilus) and a $20,000,000 umbrella policy (Umbrella Policy) issued by Philadelphia. Nautilus tendered its policy limits plus interest in the amount of $1,457,561.41 to satisfy the judgment, but Philadelphia refused to pay the remainder of the judgment, arguing that Towers failed to give Philadelphia notice of Rouhani’s claim until after the verdict was rendered.
In fact, during the pendency of the suit in 2005, Towers forwarded the petition and notice of the suit to an alleged agent of Philadelphia, Wortham Insurance Group a/k/a Consolidated Insurance Agency, the broker of the Umbrella Policy. Additionally, after the jury verdict, Towers gave notice directly to Philadelphia and demanded that Philadelphia pay the excess. Philadelphia argued this is the first notice of the suit it received, while Berkley argued that notice to Wortham was sufficient to count as constructive notice to Philadelphia. Berkley paid the remaining $709,738.89 to Rouhani in exchange for an assignment of Rouhani’s and Towers’ rights under the Umbrella Policy.
Both parties moved for summary judgment, with Berkley arguing that even if Philadelphia received late notice of Rouhani’s claim, Philadelphia could not show it was prejudiced by the delay.
This Court first considered whether notice to Wortham sufficed as notice to Philadelphia.
As a preliminary matter, the Court must examine the language of the policy requiring notice. The Umbrella Policy, in relevant part, states that “you must see to it that ‘we’ are notified promptly of an ‘occurrence’ or an ‘offense’ which involves,” among other things, “permanent disabilities” and “any claim with an incurred exposure of $500,000 or above.” “You” is defined as the insured, Towers.
The Umbrella Policy only required Towers to “see to it” that Philadelphia was “notified promptly” of various claims, including Rouhani’s claim. This does not appear to require direct notice from Towers to Philadelphia and contemplates indirect notice. Thus, the plain meaning of the language in the Umbrella Policy allows alternative means beyond direct notice. Given that indirect notice was permitted by the Umbrella Policy, the Court then considered whether notice to Wortham was one of these permitted indirect methods. Towers enlisted Wortham as an insurance broker to help it procure an excess or umbrella policy for Towers. Wortham then contacted another broker, McGowan and Company, who ultimately secured the Umbrella Policy with Philadelphia. The Court must determine whether an agency relationship existed between Wortham and Philadelphia under this connection. It is true that, generally speaking, an insurance broker is considered the agent of the insured; if the insured reports a claim to the broker, but the broker fails to report it to the insurer, the insured is not relieved of his notice obligations. Yet, Texas courts have recognized that, under some narrow sets of circumstances, an insurance agent may be deemed to have acted as the agent of both the insured and the insurer. For instance, an insurance agent can act as the agent of both the insured and the insurer by collecting the premium and delivering the policy for the carrier, and by procuring insurance for the insured.
Philadelphia urges that “an insurance broker is considered the agent of the insured,” and that because Towers reported the claim to Wortham, the broker, “but Wortham failed to report it to Philadelphia, Towers is not relieved of its notice obligations.
To support its contention that Wortham had authority to act on behalf of Philadelphia, Berkley submited a 2002 “agent agreement” to which Philadelphia was a party with Wortham. In finding a lack of agency, the district court focused on paragraph 7 of the 2002 Agreement, which states “Wortham and its officers, agents, or employees are not agents of, and have no authority, express or implied, to bind Philadelphia.” Paragraph 7 concludes that “no insurance submitted for consideration shall be effective until Wortham receives Philadelphia’s written acceptance thereof.” Philadelphia reads paragraph 7 as not only prohibiting Wortham from binding Philadelphia to insurance contracts without Philadelphia’s approval, but also as an overall prohibition of any type of agency. Berkley, however, suggests that paragraph 7 should be read as a whole and is only a limit to Wortham’s ability to bind Philadelphia into insurance contracts. Thus, Berkley urges, paragraph 7 is not a prohibition of all agency relationships between the two. Examining the 2002 Agreement as a whole, there are other facts that tend to support an agency arrangement between Wortham and Philadelphia. The 2002 Agreement is titled “Agent Agreement.” The 2002 Agreement names Wortham as “Agent.” The purpose of the 2002 Agreement was for “Philadelphia to insure risks of Wortham’s clients.” Paragraph 1 of the 2002 Agreement appoints Wortham as Philadelphia’s “representative, without exclusive territorial rights, subject to restrictions placed upon Wortham by the laws of the state or states in which Wortham is authorized to write insurance and further subject to the terms and conditions set forth therein.” Reading the 2002 Agreement as a whole, it at least arguably created an agency relationship between Wortham and Philadelphia. Paragraph 7 seems to be an exception to Wortham’s authority that would prevent it from binding Philadelphia to insurance contracts. The express authority from the 2002 Agreement permits Wortham to act as Philadelphia’s representative and delineates how premiums, commissions, and refunds are to be handled between the two. If the 2002 Agreement was not meant to establish an agency relationship between Wortham and Philadelphia and allow Wortham to represent Philadelphia as its agent for brokerage purposes, it is difficult to imagine its purpose.
In Texas, it is well settled that if an agent’s acts are within the scope of his authority, then notice to the agent of matters over which the agent has authority is deemed notice to the principal. Conversely, an agent’s notice of matters which is outside the scope of the agency or not related to its purposes is not imputed to the principal. As such, “before notice or knowledge of an agent is imputed to his principal it must first be shown that the authority of such agent extended to the very matter about which and concerning which such knowledge or notice was acquired.
Under the 2002 Agreement, Philadelphia expressly allowed Wortham to act as an insurance broker and sell Philadelphia policies as Philadelphia’s representative, subject to Philadelphia’s approval. The 2002 Agreement is silent as to whether Wortham had the ability to accept notice of claims on behalf of Philadelphia. Thus, Wortham did not have express authority to accept notice of claims.