National Union Fire Insurance Co. of Pittsburgh v. Fund for Animals, Inc.
153 A.3d 123
| Md. | 2017Background
- The Fund for Animals, Inc. (FFA) was an additional insured under National Union’s claims-made liability policy (2007 policy). Feld (defendant in an ESA suit) later sued FFA in a RICO action arising from alleged misconduct in the ESA litigation.
- Feld filed the RICO complaint in 2007; FFA did not notify National Union during the 2007 policy period. The RICO action was stayed pending resolution of the ESA case.
- In December 2009 the district court entered adverse factual findings against FFA in the ESA case (finding, e.g., payments to a witness and discovery concealment); those findings later were affirmed on appeal.
- National Union received notice of the RICO claim in early 2010, disclaimed coverage for lack of timely notice, and FFA sued National Union for breach (Coverage Case).
- At trial National Union argued it was actually prejudiced by late notice because it lost the opportunity to monitor, intervene, or influence the ESA proceedings (which produced facts harmful to FFA) and thus could not protect its interests in the RICO case.
- The trial court entered judgment for National Union; the Court of Special Appeals reversed. The Maryland Court of Appeals affirmed the appellate court: insurer must prove (by preponderance) that delayed notice caused actual prejudice in investigating, defending, or settling the claim, and National Union failed to meet that burden here.
Issues
| Issue | Plaintiff's Argument (FFA) | Defendant's Argument (National Union) | Held |
|---|---|---|---|
| Standard for disclaiming coverage under Md. Ins. Art. § 19-110 | §19-110 permits disclaimer only if insurer proves actual prejudice caused by late notice | Insurer argued court of appeals set too strict a standard; late notice suffices when insurer’s ability to protect itself was harmed | Insurer must prove by preponderance that delay resulted in actual prejudice to its ability to investigate, defend, or settle (statute and precedent require causal link) |
| Whether National Union suffered actual prejudice from late notice | No: harm alleged was speculative; insurer had no right to intervene in ESA case and was notified before RICO mediation/trial | Yes: late notice prevented monitoring/intervention that might have avoided adverse ESA findings or reduced RICO exposure | No actual prejudice proven: inability to participate in ESA litigation was not caused by late notice (insurer never had the right to control the ESA case) |
| Effect of ESA factual findings (collateral estoppel) | Findings could be used against FFA in RICO and might harm insurer’s exposure; but this prejudice is not tied to late notice | Those findings would preclude FFA from contesting key facts in RICO and thus prejudiced insurer | Adverse ESA findings might hurt FFA in RICO, but National Union did not show those prejudicial effects resulted from FFA’s delayed notice to it |
| Waiver/pleading of collateral estoppel and appellate instruction on remand | FFA argued National Union waived collateral estoppel by not pleading it; Court of Special Appeals instructed remand procedures | National Union said collateral estoppel was used only to prove prejudice (not as an affirmative defense) and appellate directive exceeded authority | Collateral estoppel could have applied but waiver argument fails because insurer used doctrine to demonstrate prejudice; appellate court did not abuse discretion directing the trial court to permit/enter belated judgment for FFA because insurer could not meet §19-110 burden |
Key Cases Cited
- Bennett v. Spear, 520 U.S. 154 (U.S. 1997) (standing/injury-in-fact standard in Article III suits)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S. 1992) (Article III standing elements)
- ASPCA v. Ringling Bros. & Barnum & Bailey Circus, 317 F.3d 334 (D.C. Cir. 2003) (appeal sustaining standing for ESA plaintiff)
- ASPCA v. Feld Entertainment, Inc., 659 F.3d 13 (D.C. Cir. 2011) (affirming district court findings in ESA case)
- Sherwood Brands, Inc. v. Great American Ins. Co., 418 Md. 300 (Md. 2011) (§ 19-110 applies; notice provisions are covenants and insurer must show prejudice)
- Allstate Ins. Co. v. State Farm Mut. Auto. Ins. Co., 363 Md. 106 (Md. 2001) (actual prejudice found where insured’s noncooperation precluded insurer from presenting a credible defense)
- Prince George’s Cnty. v. Local Gov’t Ins. Trust, 388 Md. 162 (Md. 2005) (late notice after trial prejudiced insurer as a matter of law where insurer’s rights to participate were nullified)
- Washington v. Federal Kemper Ins. Co., 60 Md. App. 288 (Md. Ct. Spec. App. 1984) (insurer prejudiced where notice came after trial/verdict)
- Home Indemnity Co. v. Walker, 260 Md. 684 (Md. 1971) (no actual prejudice where insurer received notice too late to act but could still participate post-notice)