The Law

Court Rules Mail Room Clerk’s Clerical Error No Excuse for Late Reporting

A rogue letter left Johnson & Bryan Inc. $80,000 short after a J&B mail room clerk misplaced an important claims letter.
By: | September 28, 2018

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.

Autumn Heisler is the digital producer at Risk & Insurance®. She can be reached at [email protected]

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