The Eleventh Circuit recently held in G.M. Sign, Inc. v. St. Paul Fire and Marine Ins. Co., that, by denying coverage for a lawsuit filed against its insured, St. Paul waived the policy’s notice requirements, thus obviating the need for the policyholder to provide notice of a second similar lawsuit arising out of the same acts and asserting the same claims. The policyholder, MFG.com, was sued in a class action filed in November 2008 by GM Sign, Inc., which alleged that MFG.com had sent numerous unsolicited faxes in violation of the Telephone Consumer Protection Act (TCPA), among other things. After St. Paul denied coverage, MFG.com and GM Sign stipulated to the dismissal of the first lawsuit without prejudice in July 2009. The next day, GM Sign filed a new class action complaint against MFG.com alleging the same claims on behalf of the same class of plaintiffs as the first suit. MFG.com did not tender the second suit to St. Paul. As part of the $22.5 million settlement of the second suit, GM Sign took an assignment of MFG.com’s right to payment from St. Paul and filed suit to recover insurance proceeds and for bad faith. St. Paul responded, contending that MFG.com breached the policy’s notice provision by failing to provide notice of the second lawsuit.
The US District Court for the Northern District of Georgia granted summary judgment in favor of St. Paul, holding that MFG.com’s failure to provide St. Paul with notice of the second complaint was a breach of the policy and failure to satisfy a condition precedent to coverage. The Eleventh Circuit vacated the District Court’s order, holding that, under Georgia law, “an insurer’s denial of coverage under a policy waives the notice requirements under that policy.” The Court reasoned that MFG.com was not required to provide St. Paul with notice of the second suit because St. Paul already had denied coverage for the first suit, whose claims were identical to those in the second suit. In holding that St. Paul waived its right to notice, the Eleventh Circuit also rejected St. Paul’s purported reservation in its denial letter of “the right to rely on any other policy provision or defense that may be subsequently found to limit or preclude coverage.”
The decision is an important reminder to policyholders that an insurer’s outright denial of coverage may obviate the policyholder’s need for any further compliance with policy terms and conditions. As this rule will vary based on the specific language of each policy and the law under which the policy is to be construed, policyholders should consult with experienced coverage counsel who can help assess the impact that a carrier’s denial of coverage may have on their claim.