Managing the Co-Insurer Relationship: Preserving Contribution Claims

What happens, however, if the responding insurer already has information regarding the identity or possible identity of the co-insurers, but the insured fails or refuses to place them on notice of the claim? An insured already receiving a full defense may have little incentive to chase down other insurers. The issue is important because late notice or no notice of the claim to the other insurers has the potential to vitiate the responding insurer's contribution claim against other responsible, but non-responding insurers. Based on the limited case law addressing this issue, notice by one insurer to another insurer is equivalent to notice from the insured. See Crum & Forster Org. v. Morgan, 596 N.Y.S. 2nd 472 (N.Y. App. Div. 1993); State of New York v. Blank, 27 F.3d 783 (2nd Cir. 1994); Truck Insurance Exchange v. Unigard Ins. Co., 94 Cal. Rptr. 2nd 516 (Cal. Ct. App. 2000); but see Casualty Indemnity Exchange Ins. Co. v. Liberty National Ins. Co., 902 F.Supp. 1235 (D. Mont. 1995) (holding that only notice from insured triggers insurer's duty to defend or provide contribution). Thus, the apparent solution to the situation where the insured fails to notify all co-insurers of a claim is for the responding insurer to promptly place all co-insurers on notice of the claim and advise them that it plans to seek contribution. The insured should be copied on those notice letters.

In Crum & Forster v. Morgan, the defendant, Morgan, was injured while riding as a passenger in an automobile owned and operated by an uninsured motorist. At the time of the accident, Morgan owned a vehicle insured by Eveready Insurance Company ('Eveready'). Morgan was also covered under a policy issued to his father by North River Insurance Company ('North River'). Morgan reported the accident to Eveready and made a claim for uninsured benefits. After promptly conducting an investigation, Eveready learned of the father's coverage with North River. Eveready contacted North River and requested that it contribute toward the payment of the claim. North River declined to contribute and sought to avoid the arbitration of Morgan's uninsured motorist claim on the basis that, among other things, Morgan had not provided North River with timely notice of the claim. The court held that because Eveready gave notice to North River as soon as it learned of the potential coverage, notice was reasonable under the circumstances. The court further held that there was no prejudice to North River because the interests of the two carriers with respect to Morgan's claim were identical. Thus, although the duty to provide notice rests primarily with the insured, an insurer that plans to benefit from the presence of another insurer should act promptly to ensure that notice is provided to the other insurer.