Virginia rejects attempt to limit pollution exclusions to “traditional” environmental pollution
In PBM Nutritionals, LLC v. Lexington Ins. Co., No. 110669 (Va. Apr. 20, 2012), the Virginia Supreme Court affirmed the Circuit Court's judgment that pollution exclusions barred coverage for a multi-million dollar loss resulting from a manufacturing incident that contaminated a number of lots of infant formula, which all had to be destroyed as a result. In so doing, the Court rejected the arguments that the pollution exclusions are ambiguous because they are overly broad and could exclude nearly any loss, and that the Circuit Court erred in failing to limit the scope of the pollution exclusion endorsements to traditional environmental losses in order to avoid the problem of illusory coverage.
Instead, the Court agreed with the insurers and the Circuit Court that the plain text of the endorsements should be applied. After citing to City of Chesapeake v. States Self-Insurers Risk Retention Group, 271 Va. 574, 628 S.E.2d 539 (2006), the Court reasoned that none of the pollution exclusions referenced any terms such as "environment", environmental", "industrial," or any other limiting language suggesting that the exclusions are limited to "traditional" rather than "indoor" pollution. There was no language suggesting that the discharges or dispersals of pollutants or contaminants must be into the environment or atmosphere. The Court concluded that according to their plain language, the pollution exclusions are not restricted to traditional environmental pollution, and held that the Circuit Court did not err in refusing to limit the insurers' pollution exclusion endorsements to traditional environmental contamination losses.
In PBM Nutritionals, the contamination occurred when superheated water caused water filters to disintegrate into their constituent components of cellulose, melamine, and other materials, which infiltrated the water from which the lots of infant formula were manufactured. Quality control testing discovered the contamination, and all batches manufactured during that period had to be destroyed.
This decision confirms that Virginia will not follow other jurisdictions which have limited pollution exclusions to traditional, environmental pollution.
Posted by David B. Stratton on 04/23/2012 at 02:59 PM
4th Circuit affirms summary judgment based on business enterprise exclusion in LPL policy
In Minnesota Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, No. 10-2404 (4th Cir. March 29, 2012)(unpublished), the Court affirmed the District Court's award of summary judgment to the insurer, holding that the insurer does not have a duty to defend the insured law firm because the complaint falls entirely within the insurance policy's Business Enterprise Exclusion.
In the underlying suit, the defendant attorneys were alleged to have advised their clients to transfer the ownership of certain patents for wireless email technology to a shell company, NTP, in which the clients held no interest, in order to protect the patents from creditors. Later, NTP filed a patent infringement action against RIM, alleging that RIM's Blackberry system infringed on the wireless email technology patents.
RIM settled the suit for $612.5 million and received a perpetual license. When the defendant attorneys refused to share the settlement with the plaintiffs, the plaintiffs sued for breach of fiduciary duty, breach of contract, unjust enrichment, and promissory estoppel.
The Business Enterprise Exclusion stated that the policy did not provide coverage to:
any CLAIM arising out of PROFESSIONAL SERVICES rendered by any
INSURED in connection with any business enterprise:
(a) owned in whole or part;
(b) controlled directly or indirectly; or
(c) managed, by any INSURED, and where the claimed DAMAGES resulted from
conflicts of interest with the interest of any client or former client or with the
interest of any person claiming an interest in the same or related business
The Fourth Circuit found that each element of this exclusion was met within the four corners of the Complaint. There was no dispute that the case arose out of professional services that the insureds provided to the plaintiffs. Those services included counseling as to changing the ownership of certain patents in order to avoid their creditors. The Court also found that the professional services were rendered "in connection with" a business enterprise, and that the insureds owned, controlled or managed the business enterprises that were involved. Finally, the Court found that the asserted damages surely resulted from conflicts of interest, because the defendant attorneys allegedly obtained complete ownership and control of their clients' assets and exploited those assets for personal benefit, violating professional ethics rules governing conflicts of interest. See Va. R. Prof. Conduct 1.8(a), (b), and (j).
Business Entreprise Exclusions are discussed in more detail here.
Posted by David B. Stratton on 04/08/2012 at 02:41 PM
Pollution exclusion update: Fourth Circuit certifies Chinese drywall case to Virginia Supreme Court
To update a previous post dealing with the application of the pollution exclusion in a Chinese drywall case, in Travco Ins. Co. v. Ward, No. 10-1710 (4th Cir. March 1, 2012), an insured had appealed from an order granting summary judgment to his homeowner's insurer in a Chinese drywall case. The District Court found that the insured had suffered a loss within the policy's coverage, but concluded that coverage was excluded by four provisions: the latent defect exclusion; the faulty material exclusion; the corrosion exclusion; and the pollution exclusion.
The Fourth Circuit in Travco recently certified the coverage issues to the Supreme Court of Virginia, including the following: for purposes of interpreting an "all risk" homeowners insurance policy, is any damage resulting from the Chinese drywall unambiguously excluded from coverage under the policy because it is loss caused by: . . . ('pollutants,', where pollutant is defined as 'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste'?
On appeal, the insured's argument on the pollution exclusion is that it is ambiguous in the context of product liability claims, because the exclusion was intended to limit or exclude coverage for past environmental contamination. The insured relies on Unisun Ins. Co. v Schulwolf, 53 Va. Cir. 220 (Va. Cir. 2000), in which the Circuit Court declined to apply a pollution exclusion to lead-based paint.
A very similar issue was certified in Nationwide Mut. Ins. co. v. Overlook, but the Supreme Court of Virginia declined to accept the certified question of law, . See Builders Mut. Ins. Co. v. Parallel Design & Dev. LLC, 785 F. Supp. 2d 535, 545 n. 5 (E.D. Va. 2011).
Posted by David B. Stratton on 04/07/2012 at 09:31 PM
Private causes of action against CRESPA surety bond
In First American Title Insurance Company v. Western Surety Company, No. 111394 (March 2, 2012), the Virginia Supreme Court addressed three questions of law certified by the United States Court of Appeals for the Fourth Circuit. The Court held: (1) that the Virginia Consumer Real Estate Settlement Protection Act ("CRESPA") does not provide for a private cause of action against a surety and surety bond executed pursuant to CRESPA; (2) that Virginia law nonetheless permits a common law breach of contract cause of action against a CRESPA surety and surety bond; and (3) that a title insurance company has standing as subrogee of its insured to maintain a cause of action against a CRESPA surety and surety bond.
The case arose out of a real estate transaction involving an owner who sought to refinance his existing mortgage through SunTrust Mortgage, Inc. First American Title Insurance Company ("FATIC") provided title insurance for the refinancing through its title agent, First Alliance Title Company ("First Alliance"). Pursuant to CRESPA requirements, First Alliance obtained a $100,000 surety bond from defendant Western Surety Company ("Western"). At settlement, funds which were designated to pay off the original mortgages on the property were diverted. The original mortgages were not paid, and the original deeds of trust were not released. As a result, SunTrust's deeds securing the refinance indebtedness were behind the original deeds in priority.
The property owner subsequently defaulted, and the original mortgagor foreclosed, resulting in a loss of $734,296.09 to SunTrust. FATIC paid SunTrust the full amount of the loss pursuant to the title insurance policy, and made a formal demand upon Western for the full $100,000 of the CRESPA surety bond. Western refused to pay, asserting that FATIC could not bring a private cause of action against a statutory CRESPA surety bond. FATIC brought this action against Western on its own behalf, and also as a subrogee of SunTrust, asserting that it became subrogated to SunTrust's right after paying in full SunTrust's claim under the title insurance policy.
The parties disputed that FATIC could bring a common law claim against the CRESPA surety bond, and also that FATIC had standing to assert the cause of action. At trial, the District Court found in favor of FATIC, and entered judgment in its favor for the full $100,000 amount of the CRESPA bond. On appeal, the Fourth Circuit certified the three questions of law to the Supreme Court of Virginia.
The Court first held that CRESPA does not provide for a private cause of action. CRESPA expressly authorizes only licensing authorities to fine or otherwise penalize a settlement agent that violates its provisions. Accordingly, the Court found that CRESPA does not recognize a private cause of action against a surety or surety bond executed pursuant to its provisions.
Next, the Court found that under certain circumstances, Virginia common law does allow for a cause of action to be maintained against a CRESPA surety or surety bond. The Court noted that the express language of a statute must expressly state that the statute abrogates a common law cause of action. CRESPA contains no such express language. The general rule in Virginia that any bond required of a surety is at least as good as a common law voluntary contractual obligation. Accordingly, the Court held that while CRESPA does not expressly authorize a private cause of action against surety bonds, Virginia common law does permit the assertion of a common law breach of contract claim.
Finally, the Court found that title insurance companies may have standing as subrogees of their insureds to maintain a common law cause of action against a CRESPA surety bond. CRESPA's surety bond requirement exists to protect parties with an interest in real estate transactions. Title insurers are not parties to real estate transactions and thus are not among the parties CRESPA surety bonds are intended to protect. Because a title insurer is not a protected party under CRESPA, it does not have standing in its own right to maintain a cause of action. However, the Court nonetheless concluded that a title insurer has standing, not in its own right but as a subrogee of its insured, to maintain a cause of action against a CRESPA surety bond.
Therefore, under its ruling in First American Title, the Supreme Court recognized that certain entities may bring a common law cause of action for breach of contract against a CRESPA surety bond. Additionally, the Court recognized that certain parties may have standing to bring such actions, not in their own right, but as subrogees of their insureds.
Posted by Robert D. Brant on 04/05/2012 at 04:49 PM
Virginia Insurance Coverage: Supreme Court interprets auto policy’s workers compensation exclusion
In Christy v. Mercury Casualty Company, No. 102138 (March 2, 2012), the Supreme Court of Virginia held that an exclusion in an automobile insurance policy barred the insured from receiving any payment for medical expenses where a portion of medical expenses had already been paid by workers' compensation benefits.
The plaintiff police officer was a passenger in a car driven by a Washington County sheriff's deputy. The car was struck from behind, and the plaintiff sustained a number of injuries. The parties did not dispute that the accident arose out of and occurred during the course of the plaintiff’s employment with the town. Among other injuries, the plaintiff’s physician opined that he experienced a tear of the labrum in his left shoulder as a result of the accident, that required surgery.
At the time of the accident, the plaintiff was covered by three different insurance policies. The Town of Abington obtained its workers’ compensation coverage through the Virginia Municipal League Insurance Programs ("VMLI"). The plaintiff received his primary health insurance coverage through a physician-hospital organization ("PHO"). Additionally, the plaintiff was insured under an automobile liability policy issued by Mercury Casualty Company. The Mercury policy included coverage for medical expenses incurred as a result of injuries arising out of the use of a motor vehicle. In relevant part, the policy provided that it did not apply "to bodily injury sustained by any person to the extent that benefits therefor are in whole or in part payable under any [workers'] compensation law."
The workers’ compensation insurance carrier, VMLI, paid a portion of the plaintiff's total medical expenses. However, VMLI denied claims for the plaintiff’s surgery to repair his labrum, asserting that the injury was a pre-existing condition and therefore not compensable under the workers’ compensation policy. The balance of the plaintiff's medical expenses was either paid or resolved by the plaintiff and the PHO.
The plaintiff subsequently submitted a claim to Mercury demanding payment under the medical expense coverage of his policy. Mercury denied the claim, asserting that the exclusion provision barred coverage due to the fact that some of the plaintiff’s medical expenses were, in part, payable under workers’ compensation law.
On appeal, the plaintiff argued that the exclusion applied only “to the extent” that some portion of his medical expenses were paid by workers' compensation benefits. The plaintiff argued that the exclusion acted only to offset any amount actually paid by the workers' compensation carrier, without regard to whether he successfully pursued a claim for all medical expenses. In doing so, the plaintiff argued that the policy language operates to prevent a "double recovery" by not allowing the insured to receive full payment for medical expenses from both a workers' compensation provider as well as an automobile insurance provider.
Defendant Mercury argued its interpretation of the exclusion, asserting that it excluded all coverage if any portion of plaintiff’s medical expenses were subject to workers’ compensation.
The Court ultimately found in favor of defendant Mercury Casualty, holding that the policy exclusion limited the scope of coverage for medical expenses, rather than the amount of coverage in the form of a set-off against workers’ compensation benefits. The court noted the fact that VMLI did pay a portion of plaintiff’s medical expenses pursuant to its workers' compensation policy. The court also noted that there was no dispute over whether the accident arose out of and in the course of the plaintiff's employment. Accordingly, the Court held that the clear and unambiguous language of the exclusion permitted defendant Mercury Casualty to deny coverage where the expenses were payable under workers’ compensation law. Thus, the exclusion permitted Mercury Casualty to deny coverage for any expenses which would have been subject to workers' compensation coverage by VMLI without regard to whether all of those expenses were actually paid by VMLI.
Tolling the statute of limitations for change-in-condition applications under Virginia Act
In Ford Motor Company v. Gordon, 281 Va. 543, 708 S.E. 2d 846 (2011), the Court considered the proper interpretation of Va. Code sec. 65.2-708(A) and 65.2-708(C), which govern the tolling of the statute of limitations for filing a change-in-condition application for workers' compensation benefits. The Court held that the Code sec. 65.2-708(A) statute of limitations runs anew under each successive award of compensation for a particular compensable injury and is triggered on the last day for which compensation was paid. The Court also held that Code sec. 65.2-708(C), by providing for wages meeting certain prescribed conditions to be treated as compensation under sec. 65.2-708(A), applies to each such award.
The effect of these statutes is best understood by their application to the facts of the Gordon case. The claimant sustained a compensable injury in Ford's plant in Norfolk, Virginia on January 9, 2000. Based on this injury, the Commission entered a series of awards of compensation to Gordon for various periods of TTD and PD. The last of these awards was entered on January 13, 2003, which was an open-ended award for TTD. Gordon received his last payment under this award on February 23, 2003. Thereafter, between periods of TTD, he worked in light duty positions for Ford. He worked light duty from October 23, 2000 to January 3, 2001; from April 1, 2002 through June 30, 2002, and from April 20, 2003 through September 11, 2006, earning wages equal to or higher than his pre-injury average weekly wage. On September 11, 2006, he was temporarily laid off from his position at Ford because the plant was shut down for production reasons, and he filed a change-in-condition application on September 25, 2006, seeking TTD benefits based on lost wages caused by this change in condition.
The Court's holding meant that because Gordon worked in a light-duty capacity for Ford from April 2003 through September 11, 2006, and was paid wages equal to or greater than his pre-injury wage, under Code sec. 65.2-708(C), the wages that Ford paid to Gordon during the first 24 months must be considered "compensation" for purposes of tolling the statute of limitations under Code sec. 65.2-708(A). Accordingly, since the application for benefits was made within 24 months after the last day for which compensation was paid, the application was timely.
Subsequent to the Gordon decision, the Virginia Court of Appeals has applied Gordon in Prince William County School Board and VML Insurance Programs v. Rahim, No. 1737-10-2 (Va. App. July 12, 2011). There, the Court held that in a case where the Commission had entered a "medical-only" award, under Code secs. 65.2-708(A) and 708(C), the claimant had 24 months from the last day compensation was paid either pursuant to an award or pursuant to the requirements of subsection C within which to file a change-in-condition application. In so ruling, the Court distinguished Mayberry v. Alcoa Bldg Prod., 18 Va. App. 18, 441 S.E.2d 349 (1994), and limited that decision to its facts, on the grounds that in Mayberry, there had been no formal award entered by the commission, and voluntary payment of medical expenses by the insurer is not the payment of compensation which tolls the running of the statute of limitations.
Posted by David B. Stratton on 01/16/2012 at 08:49 PM
Virginia Workers Compensation: Court affirms successful res judicata defense
In Brock v. Voith Siemen Hydro Power Generation et al., No. 0428-11-3 (Va. App. Nov. 1, 2011), the Court affirmed a decision by the Virginia Workers Compensation Commission that the claimant was barred by res judicata from litigating injuries he alleged in his initial claim but did not raise at his evidentiary hearing.
As a result of a work injury, Brock filed a workers' compensation claim seeking benefits for injuries to his shoulder, back, and hips. He later amended his claim to allege additional injuries to his head and leg. A deputy commissioner scheduled a hearing and advised Brock's counsel that all issues will be considered at the upcoming hearing. Brock's counsel requested a continuance, and the hearing was continued for more than three months.
At the hearing, Brock and the employer stipulated that he had injured his left shoulder. Brock, who was represented by counsel, produced no evidence of his other injuries. Significantly, Brock also did not request additional time to obtain evidence, did not ask the deputy commissioner to hold the record open to later consider the other injuries, did not seek to withdraw any part of his claim, and did not ask the deputy commissioner to defer for later determination issues which were unripe for adjudication.
The deputy commissioner entered an award for benefits for the stipulated injury to the left shoulder, and dismissed the claim. Neither party appealed the order to the full commission.
Months later, Brock, proceeding pro se, filed a claim seeking benefits for injuries to his back, head, shoulder, leg, and hip arising out of the same workplace accident. At a hearing for these claims, the employer argued that these claims had been abandoned and argued that they could not be properly considered. The deputy commissioner held that Brock had abandoned the claim for injuries beyond the stipulated left shoulder injury, but declined to apply res judicata, instead finding that the abandonment was in effect a non-suit.
The employer appealed to the full Commission, arguing in part that the doctrine of res judicata barred the claims for the other alleged injuries. The Commission agreed that res judicata barred Brock's allegedly new claim for injuries. Brock then appealed the Commission's decision.
The Court of Appeals affirmed the Commission, noting in pertinent part that claims precluded by res judicata include those "made or tendered by the pleadings" as well as those "incident to or essentially connected with the subject matter of the litigation, whether the same, as a matter of fact, were or were not considered." The Court noted that these res judicata principles apply to workers' compensation cases.
The Court observed that on appeal, Brock "simply asserts the right to litigate the case on an injury-by-injury basis at separate hearings with each resulting in separate award orders." The Court rejected that argument, stating, "Like the commission, we are unaware of any 'conceivable public policy which would be furthered by such piecemeal adjudication of claims.'"
This case illustrates the importance of claimant's counsel taking formal steps at a workers' compensation hearing to preserve claims which may not be ready for adjudication.
For employers, insurers, and their defense counsel, this case underscores that in any file where the employee is alleging additional injuries arising out of an accident which has already resulted in an award, it is important to fully understand what issues were raised in the prior proceeding, what issues were decided, and what issues were preserved for later adjudication.
Posted by David B. Stratton on 01/16/2012 at 03:41 PM
Presumption that death on the job was work-related held not to apply in Virginia comp appeal
In Puller v. Fairfax County School Board, No. 0886-11-4 (Va. App. 2011), the Court affirmed the Commission's denial of workers' compensation benefits to a widow whose husband died of a heart attack while performing his job as a mail delivery truck driver.
The decedent, who worked for the School Board, was found dead in the cargo area of his mail truck, with numerous burns on his body from the metal floor of the truck. Following an autopsy, the state medical examiner reported that the cause of death was hypertensive and aatheroscleratic cardiovascular disease, and that the skin changes were postmortem, due to contact with a hot surface.
The police investigation found that the floor of the mail truck's cargo area could reach the temperature of 120 degrees. The police concluded that the decedent died of a heart attack while backing his van, then fell to the floor of the van where he sustained the burns.
The widow filed a claim for workers' compensation benefits, on the theory that working in the July heat caused the heart attack which killed the decedent. She supported her claim with opinions from a cardiologist and an internist that the cardiac arrest was caused by the extraordinary heat in the vehicle.
The employer offered the opinion of a cardiologist that the ambient temperatures on that day were fairly average, and that the cardiac arrest was the product of risk factors including hypertension, diabetes, hypercholesterolemia, and cigarette smoking. The cardiologist concluded that the decedent's death was not work related, and resulted from natural causes and that the burns were as a result of post-mortem heat exposure. The employer also offered the decedent's medical records, which indicated that he had been transported to a hospital for chest pains, one month before his death.
The deputy commissioner denied the claim for benefits, and that ruling was affirmed by the Commission.
On appeal, the Court considered whether the claimant, under these circumstances, was entitled to a presumption that the decedent's death was work related. There is a presumption that a death at the workplace is work related, but it applies only to cases where the employee is found dead at his place of work or nearby, and even then, only when no plausible inference suggests that the accident might be noncompensable. That is, the only rational inference to be drawn must be that death arose out of an in the course of employment. No presumption can be said to arise where an employee suffers from pre-existing heart disease and subsequently dies of cardiac arrest while at work.
Here, since it was undisputed that the decedent had a pre-existing heart condition and that he died of cardiac arrest while at work, the Commission correctly ruled that no presumption applied. The Court also concluded that there was sufficient evidence supporting the Commission's decision as to the cause of death.
This case illustrates the importance of careful review of the decedent's medical records in any workers' compensation claim arising from a death on the job.
Posted by David B. Stratton on 01/13/2012 at 11:29 PM
Virginia Workers Compensation award reversed because employer had insufficient number of employees
In Ragland v. Muguruza, No. 0524-11-4 (Va. App. 2011), the Court reversed the Virginia Workers Compensation Commission's award of benefits, on the grounds that there was insufficient evidence that Ragland, the employer, had three or more employees "regularly in service" at the time of the accident, and thus, the claimant was not entitled to benefits under Code sec. 65.2-101.
If an employer has fewer than three employees "regularly in service", it is not subject to the Act and has no obligation to provide its employees with workers' compensation benefits.
Ragland was the superintendent at an apartment building in Alexandria, Virginia. The owner paid him to clean and manage the property. On behalf of the owner, Ragland got bids from contractors to replace the building's windows, but then replaced about half the windows himself, with unpaid help from the owner and his sons. At that point, Ragland brought in a contractor to work on the window replacement project. The contractor brought two of his brothers, one of which was the claimant. On their second day of work, the claimant was injured while operating a table saw, and never returned. A few days later, the contractor stopped working for Ragland. Ragland did not replace the three brothers, however, the third brother later returned to help complete the window project.
The deputy commissioner awarded benefits to the claimant for his injury, finding that Ragland had three or more regular employees. The full commission affirmed, finding that Ragland was an employer who had three employees, as well as himself, performing work at the time of claimant's accident.
The Court of Appeals stated that the test is not whether Ragland was an employer who had three employees performing work "at the time of the accident", rather, the proper test was whether Ragland had three employees "regularly in service."
To determine whether an employee is "regularly in service", the Court examines the employer's "established mode of performing the work." The term "regularly" implies a practice, or a constant or periodic custom. Therefore, the Court looks for regularly recurring periods of employting the requisite number of persons over some reasonable period of time. In order for the employer to be subject to the Act, the recurring periods of employing the requisite number of employees should be the rule and not the exception.
In this case, for a window replacement project that took months to complete, Ragland had three workers for, at most, one and a half days. That did not constitute regularly-recurring periods. Ragland had never had three employees before the brothers worked for him for a day and a half, and did nto have three employees afterwards.
Thus, the Court held that Ragland did not have "three or more employees regularly in service" at the time the claimant was injured, and Ragland was not subject to the Virginia Act. The Court therefore reversed the Commission.
[Ed. Note: Inquiries about Virginia workers compensation defense issues or claims may be directed to John H. Carstens, Esq., in our Fairfax, Virginia office.]
Posted by David B. Stratton on 01/09/2012 at 06:26 PM
Insurer’s Late Notice Defense in Virginia: Dabney v. Augusta Mutual Ins. Co.
In Dabney v. Augusta Mutual Insurance Co., 282 Va. 78, 710 S.E.2d 726 (2011), the Virginia Supreme Court held that the question whether the insured gave the insurer notice of the claim "as soon as is practicable" was a question for the jury, notwithstanding the insured's 254-day delay in providing notice. The Court reversed the trial court's award of summary judgment to the insurer, because the trial court only focused on the length of the delay, and failed to consider the facts and circumstances surrounding the delay.
The Virginia Supreme Court reasoned that the timeliness of the notice of the claim must be considered in light of all the facts and circumstances presented in the case. There were extenuating circumstances here: The insured was unaware of the claim before her death; and the address for notice in the insurance policy had been changed, unbeknownst to the executor of the insured's estate, resulting in the initial written of notice letter being sent to the wrong address, and yet the letter was never returned to sender or acknowledged.
Given the extenuating circumstances, whether the notice was timely under the policy was a question of fact upon which reasonable minds could disagree, and the trial court erred in ruling that the notice was untimely as a matter of law.
Elsewhere in the decision, the Virginia Supreme Court held that the trial court correctly held that the plaintiff was limited to the alleged date of notice plead in the amended complaint. The Court emphasized that the law in Virginia is well established that a court cannot enter judgment based on facts that are not alleged in the parties' pleadings. The issues in a case are made by the pleadings, and not by the testimony of witnesses or other evidence.
However, the Court noted that the plaintiff's counsel did not argue to the circuit court that, pursuant to Code sec. 8.01-377, its pleading could have been amended to conform to the evidence presented at trial. Because the Virginia Supreme Court remanded the case for trial, this raised the possibility that plaintiff's counsel still could amend the pleading to allege alternative dates of notice.
The alternative dates of notice were a key underlying issue at trial, because of the operation of Virginia Code sec. 38.2-2226, which states in pertinent part that:
Whenever any insurer on a policy of liability insurance discovers a breach of the terms or conditions of the insurance contract by the insured, the insurer shall notify the claimant or the claimant's counsel of the breach. Notification shall be given within forty-five days after discovery by the insurer of the breach or of the claim, whichever is later. . . . Failure to give the notice within forty-five days will result in a waiver of the defense based on such breach to the extent of the claim by operation of law.
Thus, if the plaintiff could show that the insurer had received notice of the claim earlier than 45 days from the time that the insurer gave the claimant notice of the late notice defense, the defense would be waived as a matter of law under this statute. Virginia courts have been strict in applying such waiver. See, e.g., Aetna Casualty & Surety Co. v. Compass & Anchor Club, Inc., 33 Va. Cir. 235 (Feb. 24, 1994). See also Morrell v. Nationwide Mut. Fire Inc. Co., 188 F.3d 218 (4th Cir. 1999).
For those reasons, whether or not the trial court would, on remand, allow an amendment of the pleadings to conform to the evidence presented at trial, could mean the difference between victory or defeat for the parties.
All insurers doing business in Virginia and their counsel should keep the notification requirements of Va. Code sec. 38.2-2226 in mind in any claim involving a late notice defense or any other claim involving alleged breach of the conditions of the insurance policy as a defense.
Posted by David B. Stratton on 11/30/2011 at 10:32 PM
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