Insurer off the hook for coverage of Walmart suit

An insurance company did not have to cover the cost of a racketeering lawsuit involving the construction of shopping centers containing Walmart stores, in part because the policyholder failed to notify the insurer about the complaint “as soon as practicable,” a Massachusetts Superior Court judge has ruled.

The plaintiff policyholder, Saint Consulting Group, argued that defendant Hartford Insurance Co. should pay for its defense in the racketeering suit because Saint Consulting promptly told two independent brokers about the suit, which was the functional equivalent under a policy agreement of informing the insurance company itself.

But Judge Paul D. Wilson disagreed and granted Hartford’s motion to dismiss.

“[T]he language of the policy was specific in requiring that notice be sent to Hartford’s claims department in New York,” the judge wrote. “This court is obliged to ‘construe the entire [policy] without rendering any of its language superfluous.’”

Wilson also found that the type of allegations lodged against Saint Consulting in the Walmart suit, which was filed in U.S. District Court in Illinois, was not covered under the policy.

The 10-page decision is The Saint Consulting Group, Inc. v. Eastern Insurance Group, LLC, et al.

‘Can’t wait’

Karen B. Mariscal, who defended Hartford Insurance, said that even if her client had been told about the claim sooner, Saint Consulting would not have been covered because a policy exclusion existed in the contract for liability related to Saint Consulting’s professional services.

But the existence of that exclusion did not change the fact that Hartford Insurance did not learn about the Illinois claim until co-defendant Eastern Insurance Group notified a Hartford representative about the suit seven months later, Mariscal said.

While the Boston lawyer disputed Saint Consulting’s contention that Eastern Insurance sufficiently provided Hartford Insurance with notice, she said Saint clearly did not comport with its obligations under the policy.

“When the insured notifies its insurance company, the law requires that they have to notify all of them at the same time,” she said. “You can’t notify some, and then wait seven months later to notify others and consider it to be ‘as soon as practicable.’”

Mariscal, who practices at White & Williams, also disputed Saint’s contention that Eastern Insurance Group and one of its employees were acting as agents of Hartford Insurance.

“[Hartford] used Eastern as its placing broker to place policies, but it wasn’t ever considering that notice to Eastern would be notice to Hartford,” she said. “It was clear under a reading of the policy that you couldn’t give notice to your broker and think you were done.”

In fact, the policy expressly required Saint Consulting to send notice directly to Hartford Insurance’s claims department in New York, Mariscal said. Because that term was not followed, the law did not allow for a finding of notice.

“When you have a duty to defend policy, you’re paying the defense costs, so you need to know right away how you’re going to spend your money, whether you should settle, and who the defense lawyers are going to be,” she said. “If a notice provision like this wasn’t enforced by the court, it would make it impossible to enforce many other policy agreements. And that would put insurance companies in a very difficult position.”

But Saint Consulting’s lawyer, Robert D. Cohan of Boston, countered that Hartford failed to comply with the same provision by improperly sending out its own notice to Eastern Insurance Group.

“There was a term in the policy that required Hartford to send notices to Saint but Hartford didn’t do it,” he said. “Consequently, Saint found out very late in the game that Hartford didn’t have sufficient notice because Hartford sent that advice to the agent instead of Saint.”

Cohan noted that the information provided to Hartford Insurance put the company on sufficient notice and that there is “well-established [case] law” that notice to the agent is notice to the principal.

Regardless, because Hartford was not prejudiced by the delay, late notice should not bar recovery, said Cohan, a partner at Cohan, Rasnick, Myerson & Plaut. He noted that Hartford Insurance suffered no harm because the Illinois suit was dismissed on grounds that Saint Consulting’s activity was lawful petitioning activity.

Cohan said Wilson’s ruling does not negatively impact Saint Consulting’s pending negligence suit against Eastern Insurance Group and its employee, Robert Danahy.

That suit alleges the co-defendants failed to get Saint Consulting the insurance they were hired to purchase, he said.

“Saint relied on Eastern and Danahy to purchase insurance for Saint’s core business activities, but the insurance Saint bought on their recommendation was flat-out wrong,” Cohan said. “When it became apparent that the insurance they claimed covered Saint did not, in fact, provide coverage, Saint sued them.”

He said Eastern Insurance and Danahy also violated their fiduciary duty to Saint Consulting when they assured Saint that they would give proper notice to Hartford about the Illinois action but then failed to do so.

“They should have told Saint to send notice to the correct address in New York, but they didn’t,” Cohan said.

J. Nathan Cole of Heifetz Rose in Needham, Mass., represents defendant Eastern Insurance Group. He could not be reached for comment prior to deadline.

Now you know

Saint Consulting, which provides advocacy services for clients involved in zoning and land use disputes, obtained a liability insurance policy in April 2010 through Eastern Insurance Group and Danahy, who the judge found were acting on behalf of Hartford Insurance as its agents. Although the policy included liability coverage and defense costs associated with certain claims, services provided by Saint Consulting to customers were excluded.

The policy stated that notice of a claim “must be given to the insurer as soon as practicable after a notice manager becomes aware of such claim.” It also required that notice be sent to the Hartford claims department in New York.

At some point prior to June 2010, grocery store SuperValu hired Saint Consulting to provide assistance in opposing property developments in Illinois involving Walmart.

On June 23, 2010, Saint Consulting was sued in federal court in Illinois in a complaint that accused the company of engaging in a racketeering enterprise with SuperValu to illegally obstruct the Walmart project.

The following week, Saint notified Eastern Insurance and Danahy of the suit by forwarding them copies of the complaint. Eastern Insurance and Danahy passed the documents along to Saint Consulting’s comprehensive general liability insurer, which was not Hartford.

Seven months later, Eastern Insurance and Danahy told Hartford Insurance about the Illinois suit in a document described as an “accord form.”

Hartford Insurance refused coverage on grounds that Saint Consulting had failed to comply with the policy’s notice provision and because the professional services exclusion applied.

Producing fairness

In dismissing the suit, Wilson wrote that it would be improper for him to conclude that the notice sent to Eastern Insurance and Danahy was sufficient.

Such a finding, he said, would render the policy provision requiring notice be sent to Hartford’s claims department in New York “superfluous.”

The judge also rejected Saint Consulting’s argument that the notice failure was not a material breach and that the Hartford was not prejudiced by it.

Wilson cited two Supreme Judicial Court cases that held that notice provisions are designed to produce fairness in the setting of insurance rates by minimizing the time between the occurrence of the underlying event and payment.

“Saint could have practicably sent notice to Hartford sooner, as illustrated by Danahy and Eastern Insurance sending notice to Saint’s other insurer seven months earlier in July 2010,” he wrote. “For this reason, Saint failed to comply with the notice requirement of the policy, and Hartford is not required to provide coverage.”

The judge also held that the policy exclusion for liability connected to Saint Consulting’s professional services was an additional ground for him to hold that Hartford did not have to cover the claim.

“All lawsuits are predicated on allegations of unlawful activity which, according to Saint’s definition, could never be professional services,” he wrote. “This construction of the professional services exclusion would narrow it to the point of insignificance. I cannot interpret the policy in such a manner.”