Century Sur. Co. v. Jim Hipner LLC

• Decision Date: 23 November 2016
• Docket Number: No. 15-2120,15-2120
• Citation: 842 F.3d 606
• Parties: Century Surety Company, Plaintiff–Appellant v. Jim Hipner LLC; Robert Lopez; Huey Brock; Jose Chavez; Abraham Reyes, Defendants–Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

842 F.3d 606

Century Surety Company, Plaintiff–Appellant

v.Jim Hipner LLC; Robert Lopez; Huey Brock; Jose Chavez; Abraham Reyes, Defendants–Appellees

No. 15-2120

United States Court of Appeals, Eighth Circuit.

Submitted: September 20, 2016

Filed: November 23, 2016

Counsel who represented the appellant was Jeffrey Charles Gerish, of Bloomfield Hills, MI and Bradford S. Moyer of Kalamazoo, MI.

Counsel who represented the appellee was Duane A Lillehaug, of Fargo, ND, Colleen Pratt, of Long Beach, CA, and Michael D. Ainbinder of Long Beach, CA.

Before SMITH, BYE, and BENTON, Circuit Judges.¹

PER CURIAM.

Century Surety Company ("Century") appeals from a final judgment of the district court² determining that Jim Hipner, LLC³ ("Hipner") does have coverage under an umbrella policy entered into between Century and Hipner. After finding the notice provision in the policy ambiguous, the district court concluded that the governing law, the law of Wyoming, would consider Hipner's delayed notice of claim not to be untimely. Century appealed, seeking reversal of the district court's determinations that the notice provision is ambiguous and that Hipner gave timely notice. Because Wyoming law, however, had not definitively addressed whether an insurer must be prejudiced before being entitled to deny coverage when the insured has failed to give notice "as soon as practicable," we certified the question to the Supreme Court of Wyoming. See Wyo. Stat. Ann. § 1–13–106.

On certification, the Supreme Court of Wyoming adopted the notice-prejudice rule, holding that "prejudice to the insurer [is required] before coverage may be denied based upon a violation of a notice provision contained in the policy." Century Sur. Co. v. Jim Hipner, LLC , 377 P.3d 784, 791 (Wyo. 2016). Additionally, the court held that "an insurance clause is [not] enforceable where it excludes coverage unless the insured notifies the insurer ‘as soon as practicable ... whether [the insurer] [is] prejudiced or not.’ " Id . at 792 (ellipses in original) (second and third alterations in original). After supplemental briefing to this court, we now affirm the district court.

I. Background

In 2010, Hipner, a trucking company, purchased a $2 million umbrella policy ("Century Policy") from Century. In paragraph 3, the Century Policy contains the following notice provision:

b. If you notify any "underlying insurer" of an "occurrence" or an offense involving "bodily injury" or "personal and advertising injury[,"] you must see to it that we are also notified in writing as soon as practicable.

Later, in the same paragraph, the Century Policy contains an exclusion provision that states:

Failure to notify us, as required per paragraphs 3. a. and 3. b. above, of an "occurrence" or offense as soon as practicable will result in exclusion of coverage whether we are prejudiced or not.

On March 31, 2011, one of Hipner's drivers created a road obstruction that caused a multi-vehicle collision ("the accident") in North Dakota. According to the North Dakota Motor Vehicle Crash Report, a passenger in a car that was rear-ended by another vehicle suffered injuries deemed minor at the time. The Motor Vehicle Crash Report indicates that the other persons involved in the accident had "non-incapacitating" injuries at the time of the accident. Jim Hipner ("Jim"), a co-owner of Hipner, learned of the accident the same day that it occurred.

Jim testified that, upon his arrival to the scene of the accident, the state patrol officer told him that "there were no serious injuries." Jim also testified that the officer told him that one of the passengers had "some numbness or tingling," but that "it was nothing to worry about" and that this "happens quite often in these cases." According to the medical records, one person, Huey Brock, arrived at Trinity Hospital on March 31 unable to move his arms or legs.

On the day of the accident, Jim called and reported the accident to representatives at Willis of Wyoming and Great West Casualty Company ("Great West"), his company's primary insurers. But, no one at Hipner notified Century. In his deposition, Jim stated that he thought that notifying Willis of Wyoming satisfied his obligations to notify all of the insurance companies. On March 31, Great West set up a claim and began investigating the accident.

Brock's injuries rendered him quadriplegic. Jim testified that he did not know that Brock sustained significant injuries from the accident until May 2011. On September 20, 2011, Century received notice of the accident indirectly when Willis of Wyoming sent Century the policy renewal for Hipner. The next day, Century created an umbrella claim relating to the accident. On December 13, 2011, Great West sent its claim file, including the investigation materials, to Century. Century did not perform its own investigation of the accident because "[t]he duty to investigate the accident fell upon Great West Casualty. Century Surety relied upon Great West Casualty to perform a competent investigation." Nevertheless, Century later found fault with Great West's investigation, claiming that it was not thorough enough. After reviewing the materials that Great West sent to Century, Century concluded that Great West did not do a timely and thorough investigation of the claim. According to Century, Great West "did not do ... the type of investigation that an insurance company should do when [it] receive[s] a claim involving injuries involving a quadriplegic." Century subsequently asked Great West to investigate further. Specifically, it asked Great West to retain an accident reconstructionist, but Great West declined that request and indicated that it would not hire an accident reconstructionist unless litigation resulted. Century admitted that nothing prevented it from obtaining an accident reconstructionist or investigating further.

In November 2012, Century received Brock's settlement demand but declined to participate in the settlement "based upon lack of coverage for Jim Hipner LLC under the Century Policy coupled with serious questions regarding liability and damages."

Century then filed the instant action in federal court seeking a declaratory judgment that Century does not have an obligation to defend or indemnify Hipner in connection with any claims arising out of or relating to the accident. Both Hipner and Brock filed motions for summary judgment, or in the alternative, a motion for partial summary judgment, requesting Century's claims for declaratory relief be denied. Century, in response, filed a cross-motion for summary judgment seeking a declaration that it has no obligation to defend or to indemnify Hipner in connection with the accident. Specifically, Century argued that it was not liable under Wyoming law because Hipner failed to provide written notice "as soon as practicable" as required by the Century Policy.

The district court determined that although the Century Policy clearly and unambiguously requires written notice of a claim, the "as soon as practicable" requirement is ambiguous. Citing to Pacheco v. Continental Casualty Co. , 476 P.2d 166 (Wyo. 1970), the district court concluded that Wyoming courts have found similar language ambiguous. After a "balancing of the beneficiary's right to have the policy liberally construed in his favor with the legitimate interest of the insurer in being protected from stale claims," id . at 169, the district court found that Century received timely notice under the Century Policy as a matter of Wyoming law.⁴ The district court explained that "Century Surety's choice to rely on Great West's investigation and not to independently investigate the accident, posed the substantial obstacle to Century Surety ascertaining the facts surrounding the accident rather than Hipner LLC's failure to notify Century Surety for approximately three to four months."

II. Discussion

On appeal, Century argues that the policy language at issue is unambiguous and that, applying Wyoming's notice-prejudice rule, it suffered prejudice from the delay in receiving notice of the accident as a matter of law.

"The construction and interpretation of the terms of [an insurance] policy are questions of law for the court, where there is no ambiguity in the language of the policy when applied to the undisputed facts, and it is error to leave its construction to the jury...." Tadday v. Nat'l Aviation Underwriters , 660 P.2d 1148, 1155 (Wyo. 1983) (Thomas, J., concurring) (footnotes omitted) (quoting 46 C.J.S. Insurance § 1368 (1946) ). Furthermore, "whether the notice-prejudice rule applies in this context is a question of law." In re Centrix Fin., LLC , No. 09–CV–01542–PAB–CBS, 2015 WL 3499853, at *4 (D. Colo. June 2, 2015).

As a threshold matter, the Supreme Court of Wyoming held in Century Surety that Century's exclusion provision "exclud[ing] coverage unless the insured notifies the insurer ‘as soon as practicable ... whether [the insurer] [is] prejudiced or not’ " is unenforceable. 377 P.3d at 792 (ellipses in original) (second and third alterations in original). As a result, we must apply Wyoming's "two-step approach to an insurer's claim of late notice." Id . at 791.

First, we must determine whether Hipner's

notice was untimely, in violation of the notice requirement contained in the insurance policy. The question of the timeliness of the insured's delay in providing notice will depend upon a number of factors, including, but not limited to, the language of the notice requirement in the policy, the timing of the notice, the insured's knowledge of the underlying facts and ability to provide notice, the sophistication of the parties, the type of insurance at issue, and the reasonableness of any delay.

Id . (citing

Northbrook Prop. & Cas. Ins. Co. v. Applied Sys., Inc. , 313 Ill.App.3d 457, 246 Ill.Dec. 264, 729 N.E.2d 915, 922 (2000) ). Second, if we conclude that Hipner's notice was untimely, we must then determine "whether the insurer was prejudiced by that delay. If the...