State Through the Div. of Admin. v. Nat'l Union Fire Ins. Co. of La.

56 So.3d 1236

STATE of Louisiana Through the DIVISION OF ADMINISTRATION, OFFICE OF RISK MANAGEMENT

v.NATIONAL UNION FIRE INSURANCE COMPANY OF LOUISIANA and Aon Risk Services of Louisiana, Inc.

No. 2010 CA 0689.

Court of Appeal of Louisiana, First Circuit.

Feb. 11, 2011.Rehearing Denied March 28, 2011.

Robert I. Siegel, Krystena L. Harper, New Orleans, Louisiana, for Defendant/Appellant, National Union Fire Insurance Company of Louisiana, Inc.John P. Murrill, Baton Rouge, Louisiana, for Plaintiff/Appellee, State of Louisiana, Division of Administration, Office of Risk Management.Gus A. Fritchie, III, New Orleans, Louisiana, for Defendant/Appellee, Aon Risk Services of Louisiana, Inc.Before CARTER, C.J., GAIDRY and WELCH, JJ.GAIDRY, J.

[1 Cir. 2] An excess insurer of the State of Louisiana appeals a partial summary judgment, finding it liable to indemnify the State as insured for liability within the excess coverage and rejecting a contractual defense of late notice. For the following reasons, we affirm the judgment in part and reverse it in part.

FACTS AND PROCEDURAL HISTORY

On January 9, 1989, the Louisiana Division of Administration's Office of Risk Management (ORM), the agency charged with the management of the State's insurance and self-insurance, issued an “Invitation for Bids” for “following form” excess insurance coverage for the State and its various agencies. The policy period for the various excess coverages was to be from July 1, 1989, to July 1, 1990, with annual options to renew until July 1, 1992. Among the coverages for which bids were sought was “following form excess road and bridge hazard liability” coverage, in excess of the State's $5,000,000.00 per occurrence primary self-insurance, covering claims against the Louisiana Department of Transportation and Development (DOTD).

Alexander and Alexander, Inc. (later merged into Aon Risk Services of Louisiana, Inc., and hereinafter referred to as “Aon”) was an independent insurance agency and brokerage firm that submitted a multi-coverage bid proposal in response to the Invitation for Bids.¹ The proposal included two layers of excess liability coverage for comprehensive general liability and other risks, including road and bridge hazard liability coverage. The first layer of $20,000,000.00 per occurrence was to be provided by National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National [1 Cir. 3] Union). The Invitation for Bids required that each bid proposal be signed by authorized representatives of both the bidding agent or broker and each insurer providing coverage, and Aon's proposal bore the signature of National Union's regional manager as the “[a]uthorized [i]nsurance [c]ompany representative.”

Aon's bid was accepted by the State on May 26, 1989, and National Union subsequently issued the excess policy. ORM exercised the option to renew the excess policy for the successive policy periods. The policy period at issue was from July 1, 1991, to July 1, 1992.

On September 18, 1991, Michael Williams was involved in a single-vehicle accident on a westbound overpass of Interstate Highway 10 in Lake Charles, Louisiana. Traffic ahead of the overpass was stalled due to a prior accident, but the congestion was not visible to approaching motorists until they reached the crest of the overpass. Mr. Williams evidently moved his truck from the right lane to the left upon observing the stalled traffic ahead. The truck then struck the overpass guardrail adjacent to the left lane, vaulting over the guardrail and falling to the street below. Mr. Williams suffered severe and disabling injuries, including a closed head injury with brain damage that rendered him functionally quadriplegic, confined to bed or a wheelchair, and unable to swallow and eat independently, requiring 24–hour supervision and care.

Due to the catastrophic nature of his injuries, Mr. Williams was interdicted, and on July 13, 1992, his stepfather and curator, Harry Odom, filed suit for damages, together with the mother of Mr. Williams's two minor children. The defendants named in the original petition were the City of Lake Charles, its police department, and their respective liability insurers identified by pseudonyms. The plaintiffs alleged that the City of Lake [1 Cir. 4] Charles and its police department were negligent by their failure to properly warn approaching motorists of the congestion caused by the prior accident, to monitor and reroute traffic to prevent further congestion and accidents, and to properly train the city police officers to handle such a situation. By an amended petition filed on February 8, 1993, DOTD was joined as a defendant. The plaintiffs alleged that DOTD was liable based upon the defective design and construction of the overpass guardrail.²

Sometime in 1998, the City of Lake Charles and its police department settled with the plaintiffs and were dismissed, leaving DOTD as the sole remaining defendant. On August 19, 1998, Andrew Hall, a claims adjuster for ORM, wrote to Aon for the purpose of notifying it “of a possible excess claim” under the excess policy, and enclosed copies of the plaintiffs' pleadings. The letter contained a brief account of the accident facts and described Mr. Williams's injuries as “serious bodily injuries which has [ sic ] rendered him a paraplegic.” Mr. Hall advised Aon that ORM felt that DOTD had “minimal exposure” and did not anticipate an award at trial exceeding the State's self-insured retention. There is no evidence that any representative of ORM, DOTD, or the State notified either Aon or National Union of the claim made on behalf of Mr. Williams and his children prior to that time.

On January 5, 2000, Mr. Hall wrote again to Aon to provide a “status update.” He advised that the trial of the case was set to begin on January 18, 2000; that the plaintiffs made a settlement offer of $9,000,000.00; that ORM still felt DOTD had “minimal exposure”; and that ORM responded with a settlement offer of $400,000.00 “due to the extent of the medicals.” It is undisputed that Aon failed to convey the claim information received from [1 Cir. 5] ORM to National Union on either occasion, and that National Union's first actual notice of the claim was not received until after trial and judgment.

After a four-day bench trial, the trial court rendered judgment on January 24, 2000, in favor of the plaintiffs, finding DOTD 60% at fault and the City of Lake Charles 40% at fault and awarding total damages of $9,414,275.63. Mr. Odom, as Mr. Williams's curator, appealed, as did DOTD.³ On June 1, 2000, Aon mailed a letter to National Union, advising that a judgment had been rendered against DOTD in the amount of $5,600,000.00 and that DOTD was appealing that judgment.

On January 31, 2001, the Third Circuit Court of Appeal reversed and amended the judgment in part to decrease the fault of the City of Lake Charles to 35% and to assess 5% contributory fault to Mr. Williams. The appellate court further amended the judgment to increase the award of future medical expenses from $2,230,207.23 to $4,201,632.21, thereby increasing the total amount of damages found to $11,385,700.61 (and the principal amount of the final judgment after reduction for Mr. Williams's contributory fault to $10,816,415.58), and to include legal interest on the total award. Odom v. City of Lake Charles, 00–01050, pp. 20–21 (La.App. 3rd Cir.1/31/01), 790 So.2d 51, 63–4, writ denied, 01–1198 (La.6/22/01), 794 So.2d 787.

On August 18, 2001, after the Odom judgment became final and definitive, Mr. Hall of ORM wrote to National Union, enclosing copies of the trial court judgment and appellate decisions and presenting a claim for payment of the sum of $2,930,723.96 under its excess policy. A second [1 Cir. 6] demand letter requesting payment of that amount was sent on December 3, 2001.⁴

By letter dated April 23, 2002, a representative of National Union advised Mr. Hall that National Union declined coverage under its excess policy on the grounds that “the State failed to give [it] timely and adequate notice” of the Odom claim, thereby causing National Union “to suffer significant prejudice.” On December 27, 2002, the State, through ORM, filed this action against National Union and Aon for the sum of $2,930,723.96, representing that amount of its respective share of the Odom judgment in excess of its self-insured retention, plus additional interest on that sum from August 18, 2001 (the date of Mr. Hall's demand letter for the stated amount) and statutory penalties and attorney fees.

National Union answered the State's petition, denying liability and alleging that the State failed to provide timely notice of the Odom claim, thereby denying National Union the right to defend the claim and to minimize its exposure to liability. It further affirmatively alleged that the State failed to competently defend the claim and to mitigate its damages. Aon also answered the petition, denying liability and raising the same defenses.

On June 5, 2006, Aon filed a motion for summary judgment, seeking its dismissal as defendant on the grounds that the State's claim against it was perempted under La. R.S. 9:5606. The trial court granted the motion, dismissing the State's cause of action against Aon. The State appealed, and this court reversed, holding that a genuine issue existed as to whether each [1 Cir. 7] of Aon's omissions to convey the State's two notices of the Odom claim to National Union caused prejudice to National Union and the extent of any such prejudice, so as to give rise to immediately apparent damages to the State. State ex rel. Div. of Admin., Office of Risk Mgmt. v. Nat'l Union Fire Ins. Co. of La., 07–1134, pp. 11–12 (La.App. 1st Cir.2/8/08), 984 So.2d 91, 96–7, writ denied, 08–0548 (La.4/25/08), 978 So.2d 370.

On August 19, 2009, National Union filed a motion for summary judgment, seeking its dismissal on the basis of its coverage defense of late and inadequate...