Met-Coil Systems Corp. v. Columbia Cas. Co.

• Decision Date: 23 November 1994
• Docket Number: MET-COIL,No. 93-1204,93-1204
• Citation: 524 N.W.2d 650
• Parties: SYSTEMS CORPORATION and The Lockformer Company, Appellants, v. COLUMBIA CASUALTY COMPANY, Hartford Accident and Indemnity Company, International Insurance Company, Pacific Employers Insurance Company, and Home Insurance Company, Appellees.
• Court: Iowa Supreme Court

Page 650

524 N.W.2d 650

MET-COIL SYSTEMS CORPORATION and The Lockformer Company, Appellants, v. COLUMBIA CASUALTY COMPANY, Hartford Accident and Indemnity Company, International Insurance Company, Pacific Employers Insurance Company, and Home Insurance Company, Appellees.

No. 93-1204.

Supreme Court of Iowa.

Nov. 23, 1994.

Richard S. Fry, Diane Kutzko and Douglas R. Oelschlaeger, Shuttleworth & Ingersoll, P.C., Cedar Rapids, for appellants.

Stuart C. Levene, Ford Marrin Esposito Witmeyer & Gleser, New York City, and David J. Dutton, Dutton, Braun, Staack, Hellman & Iversen, Waterloo, for appellee Columbia Cas. Co. Frank A. Comito, Terence L. McAtee and Kent A. Gummert, Frank A. Comito, P.C., Des Moines, for appellee Hartford Acc. and Indem. Co.

Glenn L. Smith, Finley, Alt, Smith, Scharnberg, May & Craig, P.C., Des Moines, for appellee Intern. Ins. Co.

Robert M. Jilek, Simmons, Perrine, Albright & Ellwood, Cedar Rapids, and Paul R. Koepff and Stephen V. Kovarik, O'Melveny and Myers, New York City, for appellee Pacific Employers Ins. Co.

Diane M. Stahle and William J. Koehn, Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C., Des Moines, for appellee Home Ins. Co.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, LAVORATO, and SNELL, JJ.

McGIVERIN, Chief Justice.

This case raises issues regarding whether plaintiffs, Met-Coil Systems Corporation and the Lockformer Company, the insured, substantially complied with the notice provisions of several insurance policies issued to the insured at various times by defendant insurance companies. The district court granted defendant insurers' motions for summary judgment, ruling that the insurers were prejudiced as a matter of law due to the insured's failure to comply with the policies' notice provisions and that the insured, therefore, had no liability coverage under the policies. We affirm the result and judgment of the district court.

I. Background facts and proceedings. Met-Coil Systems Corporation and its subsidiary, the Lockformer Company, jointly the insured or Met-Coil, is a business engaged in the design, manufacture, and marketing of computerized systems for the estimating, design, and production of heating, ventilating, and air-conditioning duct work.

Between the years 1981 and 1988, the insured purchased various types of liability insurance from the defendants, Columbia Casualty Company (Columbia), Hartford Accident and Indemnity Company (Hartford), International Insurance Company (International), Pacific Employers Insurance Company (PEIC), and Home Insurance Company (Home), collectively the insurers, through an insurance broker, Bayly, Martin & Fay of Connecticut, Inc. and its then executive vice president, Richard Newman (broker). ¹

The purchased insurance was for general liability primary or umbrella coverage, and consisted of varying policies effective during different periods of time. Although the language in the various insurance contracts differed, all of the policies required the insured to provide prompt notice directly to the insurers with respect to claims made or suits brought against the insured.

A. Underlying CTI suits. In 1986, Lockformer was sued in the United States District Court for the Southern District of New York by Construction Technology, Inc. (CTI) based on a claim of patent infringement. Construction Technology, Inc. v. Lockformer Co., No. 86 Civ. 0457 (S.D.N.Y. filed Jan. 14, 1986). CTI filed a second suit against Met-Coil and Lockformer in 1988 claiming they were guilty of unfair competition, false advertising, deceptive trade practices, misappropriation of confidential information, inducing breach of contract, interference with advantageous business relations, and violation of the Racketeer Influenced and Corrupt Organizations Act of 1970. Construction Technology, Inc. v. Lockformer Co., No. 88 Civ. 0742 (S.D.N.Y. filed Feb. 2, 1988).

In April 1986, Met-Coil advised its insurance broker of the first CTI suit. Also, in addition to other alleged forms of notice to its insurance broker in 1988, in late November 1990 Met-Coil asked its insurance broker to review the two CTI suits and to determine whether any insurance coverage existed for the claims asserted against them.

In that same year, the two CTI lawsuits against Met-Coil were consolidated for trial and, on March 13, 1991, a verdict was returned against Met-Coil which ultimately resulted in a judgment totaling $18,481,830. This total judgment included damages for unfair competition and trade secret violations, and doubled damages for willful patent infringement. See Construction Technology, Inc. v. Lockformer Co., 781 F.Supp. 195, 200-01 (S.D.N.Y.1990). Based in part on the conduct of Met-Coil and its attorneys, the court also included in the total judgment an award against Met-Coil for costs and attorney fees. Id. Met-Coil itself expended in excess of $4 million on its defense.

Although the exact dates vary, only one of defendant insurers received notice of the CTI litigation prior to the federal jury's rendering of the adverse verdict against Met-Coil. Columbia received written notice on February 7, 1991, four days before the underlying CTI action was to be tried in New York. Hartford, PEIC, and Home received written notice of the CTI litigation on or about March 22, 1991, over five years after the initial lawsuit had been filed, three years after the companion suit had been commenced, and nine days after the adverse jury verdict had been rendered. The form of the notice was correspondence from Met-Coil's insurance broker to either the defendant insurers or their agents.

International, however, has never received written notice from the insured regarding potential claims arising from the CTI litigation and judgment. International first received actual notice of such claims for coverage under its policies on or about April 14, 1992 when served with notice of the present action.

B. Present suit. On April 14, 1992, the plaintiff Met-Coil filed the present action against its insurers, Columbia, Hartford, PEIC, International, and, subsequently, Home, for coverage for the New York federal court judgment entered against it and for insured's costs and attorney fees incurred by it in the underlying CTI litigation. Met-Coil conceded during oral argument of the present appeal that in early 1992 Met-Coil and CTI settled the judgment.

Defendants Columbia, Hartford, PEIC, International, and Home moved for summary judgment, see Iowa R.Civ.P. 237, alleging noncompliance with the insurance policies' provisions and thereby lack of coverage for Met-Coil's claims arising from the CTI litigation and judgment.

Met-Coil resisted, contending that it had substantially complied with the defendant insurers' policies' notice provisions by giving notice to its insurance broker who was allegedly an agent of the insurers; that it had a valid excuse for any late notice; that defendant insurers had waived the notice requirements; and that fact issues existed concerning reasonableness of insured's compliance and prejudice to insurers which precluded disposition of the case by summary judgment.

The district court granted the defendant insurance companies' motions for summary judgment. The court concluded that insured's unexcused and unjustifiable failure to provide defendant insurers with reasonable notice of the CTI suits was a breach of the policies' provisions, that defendant insurers were substantially prejudiced by insured's noncompliance as a matter of law, and that defendant insurers did not have to provide Met-Coil with liability coverage for any claims arising from the CTI litigation and judgment.

Met-Coil appealed the district court's grant of summary judgment to defendant insurers.

The record consisted of the pleadings, motions for summary judgment and resistances, affidavits, and exhibits. See Iowa R.Civ.P. 237(c).

II. Scope of review. We will uphold a grant of summary judgment when no material fact is at issue and the moving party is entitled to judgment as a matter of law. Iowa R.Civ.P. 237(c); Kapadia v. Preferred Risk Mut. Ins. Co., 418 N.W.2d 848, 849 (Iowa 1988). When we review a grant of summary judgment, the question is whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. Kapadia, 418 N.W.2d at 849 (citations omitted).

In determining whether the movant has met this burden, we review the record in the light most favorable to the party opposing summary judgment. Downs v. A & H Constr., Ltd., 481 N.W.2d 520, 522 (Iowa 1992). If the conflict set forth in the record concerns only the legal consequences flowing from undisputed facts, we will uphold the entry of summary judgment. Farm Bureau Mut. Ins. Co. v. Milne, 424 N.W.2d 422, 423 (Iowa 1988).

III. Compliance standard and proof burden regarding notice provisions of insurance policies which are a condition precedent to coverage. When a notice provision is written as a condition precedent to policy coverage in an insurance contract, substantial compliance with such a condition must be shown by the claimant. Bruns v. Hartford Accident & Indem. Co., 407 N.W.2d 576, 579 (Iowa 1987) (citing Henderson v. Hawkeye-Sec. Ins. Co., 252 Iowa 97, 103-07, 106 N.W.2d 86, 89-92 (1960)). Absent the claimant proving substantial compliance, in order to maintain the action against the insurer the claimant must show that failure to comply was excused, or that the requirements of the condition were waived, or that failure to comply was not prejudicial to the insurer. Bruns, 407 N.W.2d at 579 (citing Henderson, 252 Iowa at 107, 106 N.W.2d at 92).

Unless the claimant meets this burden of showing substantial compliance, or excuse from compliance, or waiver of requirement, or lack of prejudice to the insurer, prejudice to the insurer must be presumed. American Guar. & Liab. Ins. Co. v. Chandler Mfg. Co., 467 N.W.2d 226, 228 (Iowa 1991...