Rent-A-Roofer v. Farm Bureau Prop. & Cas. Ins. Co.
291 Neb. 786
Neb.2015Background
- Rent-A-Roofer held a commercial general liability policy with Farm Bureau. Two lawsuits alleged defective roofing: an earlier State action (Farm Bureau denied coverage) and a later NRC action (Rent-A-Roofer did not notify Farm Bureau).
- Farm Bureau had informed Rent-A-Roofer in the State action that the policy’s "your work" exclusion precluded coverage; Rent-A-Roofer therefore retained its own counsel for the NRC suit.
- Rent-A-Roofer mediated and entered a binding settlement with NRC on August 17, 2011, and only notified Farm Bureau of the NRC claim on September 12, 2011.
- The policy contained a notice provision ("notify as soon as practicable") and a voluntary payments provision (insured must not voluntarily make payment or settle without insurer’s consent).
- Farm Bureau denied coverage based on Rent-A-Roofer’s failure to provide timely notice and its settlement without consent; Rent-A-Roofer sued for breach of contract and bad faith.
- The district court granted summary judgment for Farm Bureau, holding that where settlement occurs before the insurer is notified (breaching both notice and voluntary-payment provisions), prejudice to the insurer is established as a matter of law; the Supreme Court of Nebraska affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an insurer must prove prejudice to avoid coverage for breach of a voluntary-payment provision | Rent-A-Roofer: insurer must show prejudice before denying coverage for breach of voluntary-payment clause | Farm Bureau: policy breach relieved insurer of liability; prejudice requirement either unnecessary or satisfied here | Court: Prejudice requirement applies to voluntary-payment breaches; like notice, insurer must show prejudice, though prejudice may be established as a matter of law in certain circumstances |
| Whether prejudice existed where insured settled before notifying insurer | Rent-A-Roofer: prior denial on a different claim waived duty to notify; insurer could still be liable for defense costs | Farm Bureau: settlement without notice prevented any meaningful participation, so insurer was prejudiced and not liable for defense costs | Court: Prejudice established as a matter of law because insurer had no opportunity to investigate, defend, or participate in settlement; insurer not liable for defense costs |
| Whether prior denial on a different claim waived Rent-A-Roofer’s duty to notify for NRC claim | Rent-A-Roofer: earlier denial of a separate claim justified not notifying Farm Bureau about NRC claim | Farm Bureau: prior denial related to a different occurrence/parties and did not waive notice for NRC claim | Court: No waiver — prior denial was for a different occurrence and did not excuse notice for the distinct NRC claim |
| Whether Farm Bureau must pay pre-notice defense costs after insured retained counsel and settled | Rent-A-Roofer: seeks recovery of defense costs incurred pre-notification | Farm Bureau: not liable because settlement and defense concluded before notice, causing prejudice | Court: Farm Bureau not liable for defense costs; insurer had no opportunity to engage and was prejudiced as a matter of law |
Key Cases Cited
- Herman Bros. v. Great West Cas. Co., 255 Neb. 88 (Neb. 1998) (failure to notify until after settlement can be prejudicial as a matter of law when insurer had no opportunity to protect its interests)
- Dutton-Lainson Co. v. Continental Ins. Co., 271 Neb. 810 (Neb. 2006) (insurer must show prejudice to avoid liability for untimely notice)
- Gerrard Realty Corp. v. American States Ins. Co., 89 Wis. 2d 130 (Wis. 1979) (insurer not given notice until after trial—prejudice established where insurer had no opportunity to investigate or defend)