Country Mutual Insurance Company v. Livorsi Marine, Inc.

Facts

Gaffrig (D), and Livorsi (D), each carry commercial general liability insurance policies with P. In December 1999, Livorsi (D) brought a lawsuit against Gaffrig (D) alleging various trademark violations related to the use of the 'Gaffrig Precision Instruments' name. In response, Gaffrig (D) filed a lawsuit with similar allegations against Livorsi (D). The suits, which sought both damages and injunctive relief, were consolidated. The language of both Ds' insurance policies gives P the duty to defend and indemnify its insureds in any lawsuit seeking damages based on an advertising injury. As a condition of coverage, Ds were to notify P of any lawsuit: 'If a claim is made or 'suit' is brought against any insured, you must: (1) Immediately record the specifics of the claim or 'suit' and the date received; and (2) Notify us as soon as practicable. You must see to it that we receive written notice of the claim or 'suit' as soon as practicable.' Ds filed their lawsuits on December 1, 1999, but neither party informed P of the consolidated suit until August 2001. P then filed a complaint for declaratory judgment seeking a judgment that it had no obligation to defend or indemnify either Ds in connection with the trademark lawsuit. P argued that the claims raised in the lawsuit did not fit the policy's definition of 'advertising injury' and that both Ds breached the notice condition of their policies by failing to inform Pl of the lawsuits for more than 20 months. As the parties stipulated, Country Mutual did not receive actual notice of the lawsuit until August 2001. Ds argued that P was not prejudiced by the delay in notifying their insurer of the lawsuit. Ds argued that because P insured both parties, it had a conflict that would have prevented P from investigating the claim or defending either party in the lawsuit over the Gaffrig Precision Instruments trademark. Ds argued that P would have had to pay for independent counsel for both parties regardless of when it received notice, and so the timing of the notice did not prejudice P. P argued that the proper inquiry was not whether the insurer was prejudiced, but whether the insureds had given P reasonable notice of the lawsuit. Under other appellate cases, prejudice to the insurer is one of several factors in assessing the reasonableness of notice. P argued that the delay encountered without an excuse was unreasonable as a matter of law. The court determined that Ds failed to give P the notice to which it was entitled. It held, that in the present case, there has been literally no evidence of any justification or excuse offered by either of the defendants for a delay of more than 21 months in the giving of notice to P. An unambiguous term of a contract may not be enforced unless the aggrieved party demonstrates some direct harm, there can be only one consequence flowing from the facts of this case. P got the verdict. Ds appealed. The underlying trademark suit was resolved. The federal court granted Gaffrig's (D) request for an injunction against Livorsi's (D) use of the disputed trademarks. The court did not award monetary damages to either party. In the absence of damages, P's duty to indemnify is no longer an issue in this case. The appellate court determined that Ds conceded that the notice they gave P was unreasonably and inexcusably late. The court also determined that P conceded that, because of the conflict of interest, it could not prove it was prejudiced by the late notice. It framed the issue in the following terms: 'Given the circumstances presented to us, did Country Mutual have to prove prejudice?' It determined that when notice of an occurrence is the issue, courts consider prejudice to the insurer as one of several factors in the evaluation of whether the insurer received reasonable notice. The court found that P did not have to prove prejudice in order to deny coverage. Ds appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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