Most late notice cases, under occurrence-based policies, involve a situation where the insured gave notice of a claim, but it was, as the insurer sees it, late. The court first decides if it was in fact late (probably deciding if notice was given “as soon as practicable” or something along those lines). If it was late, and it is often determined that it was, the next inquiry is whether the insurer was prejudiced by the late notice.  While insurers win some of these cases, courts also frequently conclude that the insurer was not prejudiced by the late notice.

In State Auto. Mutual Ins. Co. v. Lot’Sa Liquors Ltd., No. 21C2831 (N.D. Ill. May 31, 2023), the Illinois federal court addressed late notice’s cousin.  Can an insurer disclaim coverage because the insured did not give notice?    

At issue in Lot’Sa Liquors was the availability of coverage for Lotsa, a gas station, for a shooting that took place in its parking lot.  The shooting took place in March 2019.  Lotsa’s owner, Premsagar Mulkanoor, was notified of the shooting the next day.  A Lotsa employee had called the police.  No Lotsa employee investigated the incident and the police did not return to Lotsa after the night of the shooting.  The police did not contact Mulkanoor or interview any Lotsa employees.

Two years later, Adonis Hill, the victim of the shooting, sued Lotsa.  After Mulkanoor received the suit, it was reported to State Auto, which undertook Lotsa’s defense under a reservation of rights. 

State Auto filed an action seeking a determination that it owed no defense to Lotsa because it did not comply with the policy obligation to provide notice “as soon as practicable of an ‘occurrence’ … which may result in a claim.” 

[This is a standard commercial general liability notice provision in addition to the requirement that notice of a claim or “suit” must be provided as soon as practicable.]

State Auto maintained that both notice provisions needed to be satisfied -- and the requirement to give notice as soon as practicable of an “occurrence” which may result in a claim had not been.  Lotsa only gave notice when the suit was filed two years after the shooting.

To address the issue, the court stated: “When determining whether an insured has provided reasonable notice, the Court considers the following five factors: (1) the specific language of the notice provision; (2) the insured’s sophistication regarding insurance and commerce; (3) the insured’s awareness of the event that might trigger coverage; (4) the insured’s diligence in investigating potential coverage; and (5) prejudice to the insurer.”

The court went through each factor and concluded that they weighted against State Auto.  Lotsa’s delay in not providing notice of the shooting, until it received notice of the underlying suit, was reasonable. 

I won’t address every factor, but the crux of the court’s decision was that Lotsa scored high on factors two and three (and it also didn’t lose on the other factors).

Second Factor: “While courts generally assume that an insured is sophisticated enough to understand his automobile insurance policy, a commercial general liability policy—like the one at issue in this case—is more complex. . . . Here, despite owning gas stations for over twenty years, Mulkanoor, who obtained a high school education in India and did not attend college, does not appear to have had significant experience in managing such insurance policies. Mulkanoor testified that he purchased insurance as directed by his agent and had never previously filed a claim. And although Mulkanoor did not read the State Auto policy, he also testified that he would not have understood it had he read it. That said, even if he might not have understood it, Mulkanoor’s failure to even read the policy could reasonably be viewed unfavorably to him as burying his head in the proverbial sand.  But because the Court must view the facts in the light most favorable to Lotsa on summary judgment, this factor weighs in favor of finding Lotsa to be an unsophisticated insured.”

Third Factor: “[T]he insured’s awareness of the event that might trigger coverage, also favors Lotsa. As Mulkanoor testified, he did not understand that a lawsuit against Lotsa would likely follow a shooting that occurred in Lotsa’s parking lot, particularly where neither the police nor anyone on behalf of Hill followed up after the shooting, and no Lotsa employee had any involvement in the shooting. Under these circumstances, a reasonable person in Lotsa’s position would not have appreciated that a lawsuit against Lotsa may follow.”