Geer v. Eby, 309 Kan. 182

Jan 3, 2014 collision: Geer (State Farm insured) v. Eby (Key insured). Key learned of the accident the day it occurred and took Eby’s statement.
State Farm paid Geer’s property-damage claim and sought subrogation ($24,620.32); Key repeatedly offered its $10,000 policy limit conditioned on a release of Eby; State Farm refused.
Geer sued Eby Nov 5, 2014; Eby never notified Key of the suit, did not answer, and a default judgment for $27,284.04 was entered after a March 2015 hearing.
Key first learned of the lawsuit and the default judgment on Sept 30, 2015, when State Farm’s counsel sent Key a copy of the journal entry of judgment.
Parties stipulated to facts and policy language; Key moved for summary judgment asserting Eby breached the policy duty to forward suit papers and that Key was prejudiced by lack of notice; district court denied the motion and ordered garnishment in favor of Geer; Court of Appeals affirmed.
The Kansas Supreme Court granted review and reversed, holding Key proved breach and prejudice as a matter of law and vacating the garnishment order.

Issue	Geer’s Argument	Key’s Argument	Held
Whether an insurer must show prejudice from insured’s failure to notify of suit	Notice not required to defeat recovery because Key had notice of accident and repeatedly offered limits; prejudice not shown	Insurer must show actual prejudice from lack of notice of suit to avoid liability under policy	Insurer must show prejudice; prejudice required for notice-of-suit breach to excuse coverage (insurer bears burden)
Whether Key was prejudiced as a matter of law by Eby’s failure to forward suit papers	No—Key investigated loss, knew suit was likely, and repeatedly offered policy limits so it suffered no prejudice	Yes—lack of notice deprived Key of duty/opportunity to defend or settle without exposing itself to excess liability; default judgment prevented testing liability	Held for Key: prejudiced as a matter of law because default prevented defense/settlement and exposed Key to excess risk; garnishment reversed
Whether the district court properly relied on policy cancellation provisions sua sponte	Cancellation argument shows Key didn’t act to cancel so denial of coverage improper	Cancellation provisions were inapposite; Key disclaimed coverage based on breach, not cancellation	Court rejected district court’s cancellation analysis as irrelevant; Key’s disclaimer (for breach + prejudice) is controlling

AT & SF Ry. Co. v. Stonewall Ins. Co., 275 Kan. 698 (discusses prejudice requirement for late notice and treats notice-of-occurrence and notice-of-suit similarly)
Watson v. Jones, 227 Kan. 862 (insurer bears burden to prove affirmative policy defenses in garnishment)
Rector v. Husted, 214 Kan. 230 (insurer’s duty in settlement decisions; possible liability for breach of settlement duty)
Bollinger v. Nuss, 202 Kan. 326 (discusses insurer/insured conflict when settling near policy limits)
Weinzirl v. Wells Grp., Inc., 234 Kan. 1016 (definition and effect of condition precedent in contract enforcement)