Court Rules Mail Room Clerk’s Clerical Error No Excuse for Late Reporting
Johnson & Bryan Inc. (J&B), brokered a property insurance policy for clients Ellen and Joseph Brooks with Hanover Insurance. When the Brooks’ property was vandalized, J&B submitted a claim to Hanover on their behalf. Hanover denied the claim, stating the Brooks’ failed to comply with the initial policy by not installing a fence around their property. The Brooks’ blamed J&B for this oversight and asserted negligence in a demand letter.
However, J&B never received that letter, which instructed the brokerage to “tender this demand letter to your errors and omissions carrier.” The Brooks’ letter also stated J&B had 20 days to respond, or the claimants would file a lawsuit against J&B.
A J&B mail room clerk, thinking the letter only pertained to the Hanover case, forwarded it to the insurer. Sure enough, 20 days later, the Brooks’ filed suit. J&B notified its insurer, Republic-Franklin Insurance Company. When Republic reviewed the Hanover folder and discovered the letter, it denied the claim.
J&B had to hire its own attorney to defend against the underlying Brooks’ lawsuit, which later settled for $80,000.
However, still feeling like they’d received the short end, J&B took Republic to court with a civil action suit alleging claims for breach of contract, negligence and bad faith, and for attorneys’ fees and litigation expenses that stemmed from the underlying suit.
Republic said it denied J&B’s claim on the grounds that the broker failed to notify the insurer in a timely manner after receiving the demand letter from the Brooks’. J&B argued that, due to clerical error, they had not seen the letter until Republic discovered it.
A district court granted Republic’s motion to dismiss, stating J&B failed to comply with its policy’s notice provision. It saw J&B’s “excuse” for delay as unreasonable under state law.
In the Court of Appeals, the court ruled: “[State] courts determined that when a delay in notice is due to the insured’s own negligence, the delay is unreasonable as a matter of law … the insured failed to demonstrate sufficiently a justification for failing to comply with the policy’s notice requirements. In the light of these decisions, we agree with the district court.”
Scorecard: Despite the clerical error, Johnson & Bryan Inc., will not receive defense costs or attorney reimbursement from its insurer, Republic-Franklin Insurance Company.
Takeaway: Dutiful employees know the value in reading company documents carefully. Training is key to make sure documents get into the right hands, especially if the company faces legal action.