Notice to Broker Constituted Sufficient Notice to Insurer
Fifth Circuit: A professional liability insurer issued two consecutive annual professional liability policies to its insured, providing general and professional liability coverage for claims made against the insured during the respective policy periods. The Policies also included a “Discovery Clause,” which provided coverage for claims made against the insured after the end date of the policy period if the insured provided written notice to the insurer during the policy period. The Discovery Clause at “Item 11” provided an email address, physical address, and fax number where notice could be sent.
In January 2017, the insured sold its customer five million pounds of ceramic proppant used in hydraulic fracturing for oil and gas production. In February 2017, during the first Policy’s coverage period, the customer notified the insured that the proppant was contaminated and had damaged some of the customer’s equipment. On March 1, 2017, the insured notified its insurance agent in writing of the potential claim, who shortly thereafter notified an insurance brokerage that had a Producer Agreement with the insurer granting the broker authority to complete various insurance brokerage tasks on the insurer’s behalf. The broker did not forward the notice to the insurer, despite the Producer Agreement’s requirement for it to “immediately notify [the insurer] of all claims, suits, and notices.”
In April 2017, during the second Policy’s coverage period, the customer demanded that the insured pay approximately $1.5m in alleged damages caused by the contaminated proppant. The insured gave the demand letter to its insurance agent, who forwarded it to the broker, who in turn forwarded it to the insurer, who received the demand letter on April 7, 2017. The insurer filed suit against its insured seeking a declaratory judgment that it had no duty to defend or indemnify the insured for damage caused by the contaminated proppant. After cross-motions for summary judgment, the district court granted summary judgment for the insured. The insurer appealed to the Fifth Circuit regarding whether its insured provided sufficient notice to trigger coverage under the first Policy.
Applying Texas law, the Fifth Circuit concluded that although the insured did not provide written notice in accordance with Item 11, the insured was not required to do so because the Policy stated that the insured “may provide written notice” in accordance with Item 11.
The Court then considered whether the insured’s notice to the broker through the insured’s insurance agent constituted sufficient notice. This required determining whether the broker was properly considered an agent who could receive notice on behalf of the insurer. Under Texas law, there are limited circumstances in which an insurance agent may be deemed to have acted as an agent of both the insured and the insurer, including when an agent has authority to perform various functions on the insurer’s behalf. Because the broker was the insurer’s agent under the Producer Agreement that expressly required the broker to “immediately notify [the insurer] of all claims, suits, and notices,” the broker was deemed to be the insurer’s agent for notice purposes.
Accordingly, the Court concluded that the insured’s notice to the broker constituted sufficient notice to the insurer. The Court affirmed the district court’s grant of summary judgment in favor of the insured.
Evanston Insurance Company v. OPF Enterprises, L.L.C. ___ Fed.Appx. ____ (5th Cir. 2020), 2020 WL 5159861 (decided August 31, 2020, not yet released for publication in permanent law reports).