Backwards Is As Backwards Does

In a ruling preferring form over substance, a Texas federal court has rejected the argument that an additional insured is held to a less stringent standard in providing notice of a claim to the insurer because the insured also provided notice of the same claim. 

           In Home Depot U.S.A. v. Ohio Casualty Ins. Co.,  the retail store was sued for negligence and fraud after one of its window installation contractors installed a house’s windows backwards and upside down.  Home Depot reported the claim and tendered its defense to its insurer.  Assuming that it was entitled to coverage by its insurer, Home Depot failed to provide notice of this claim to the contractor’s insurer at this time. 

       Home Depot’s insurer denied the claim because it resulted from the contractor’s acts.  Home Depot then reported the claim and tendered its defense to the contractor’s insurer, who denied coverage claiming that it was prejudiced as a result of the late notice.  Home Depot had argued that the contractor’s insurer was on notice of the claim because it was defending the contractor in this lawsuit. 

       The court inexplicably held that Home Depot was a sophisticated corporate entity who should have familiarized itself with the policy, including the notice provision, that it required the contractor to obtain and name Home Depot as an additional insured.  The court held that a potential insured should notify any and all potential insurers about a loss, even if they think they are covered by a different insured. Good advice. But left unsaid was how the court considered the insurer was in any way prejudiced by the late notice given that its insured had provided timely notice of the claim.

      The lesson to be learned here, of course, is that a party should give notice in such circumstances to every carrier who might be on the risk. Also that courts sometimes put the windows in backwards, too.

Melissa Birnbaum