Notice to an Insurance Company After Hecla Mining
| Publication year | 1991 |
| Pages | 2053 |
| Citation | Vol. 10 No. 1991 Pg. 2053 |
1991, October, Pg. 2053. Notice to an Insurance Company After Hecla Mining
The recent decision by the Colorado Supreme Court in Hecla Mining Co. v. New Hampshire Ins. Co.(fn1) is significant to Colorado practitioners in three respects. First, the court strongly reaffirmed the position that an insurance company is not excused from its duty to defend a policyholder if the underlying complaint alleges any facts that might fall within the insurance policy coverage. Second, the court also held that in order to avoid coverage and, hence, the duty to defend, the insurance company must establish that the exclusions claimed apply in the particular case and are not subject to any reasonable pro-coverage interpretation.
Finally, and perhaps of greatest significance to environmental practitioners, the court held that the phrase "sudden and accidental" as used in the pollution exclusion of standard form comprehensive general liability insurance policies was ambiguous. The Supreme Court construed the words "sudden and accidental" to mean "unexpected and unintended." It held that the trial court was correct in ruling that the insurance companies had a duty to defend.
This article discusses the ramifications that Colorado policyholders can expect in the area of notice to an insurance company because of the pro-policy-holder result in Hecla Mining.
In the authors' opinion, the result of the Hecla decision, combined with the enormous expense of defending environmental cases, will result in more insurance companies claiming "late notice" when insurance coverage for environmental liability is at stake in Colorado. Today, insurance companies frequently deny insurance coverage on the grounds that the policyholder has failed to give notice of the occurrence or notice of the claim.
Formerly, there was a long-standing "custom of the trade" for policyholders and their risk managers to hold back on giving notice. Notice was required only when there was a real, live, immediate problem. Risk managers followed the custom, brokers encouraged it and underwriters probably loved it. It is doubtful whether there is a lawyer alive who has never advised clients to "wait and see."
However, the custom has vanished because times have changed. The issue of late notice has become vinegar in the mouth of the policyholder. Nowhere is this change more dramatically illustrated than in the relationship between insurance companies and their own reinsurers, as discussed in the following section.
The old custom of the trade allowing a policyholder considerable latitude in giving notice has died an agonizing death. The dramatic nature of the demise of late notice is illustrated in a recent reinsurance case. Reinsurance is insurance purchased by insurance companies. Insurance companies "lay off' part of their risk by purchasing reinsurance. The insurance company that is laying off is the "ceding company," and the insurance company that takes the risk is the "reinsurer."
Recently, one federal court noted the change in the insurance industry regarding the giving of notice in the reinsurance context. The court observed:
Starting in 1988, the industry custom changed as ceding companies generally started to provide reinsurers at all layers with notice of all reported environmental claims, rather than waiting until underlying layers had been
eroded to the point that the reinsured policies were expected to be reached.(fn2)
The court also examined expert testimony and evidence of insurance and reinsurance custom and practice regarding notice requirements:
Indeed, as this litigation amply demonstrates, custom and practice has changed significantly since 1974 when the Certificate was issued, primarily due to the overwhelming pressures of asbestos litigation. The relationship between ceding companies and reinsurers has become more arm's length than it was in the past, and increased insistence by reinsurers on close compliance with contractual notice requirements is a natural concomitant of this separation.(fn3)
Ceding companies and their reinsurers are all members of the same industry. Thus, it is reasonable to conclude that if reinsurers are denying coverage to ceding companies on the grounds of late notice, the Colorado policyholders--- who are not members of the fraternity---will fare even worse.
Recent cases involving disputes between insurance companies and reinsurance companies demonstrate that reinsurance companies are raising a host of alleged defenses to their coverage obligations, including the defense of late notice. For example, in International Insurance Co. v. Certain Underwriters at Lloyd's London,(fn4) the International Insurance Company ("IIC") insured SmithKline Beckman ("SKB") under an environmental impairment liability policy. A $19 million claim was settled by IIC under the SKB policy. This policy was 98 percent reinsured with the defendant reinsurance companies at Lloyd's. IIC presented the claim for...
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