The Weitz Co., LLC v. Lloyd’s of London, presents a rather unique twist on the application of a notice of loss provision. No. 08-2835, 2009 WL 2366293 (8th Cir. Aug. 4, 2009). Lloyd’s insured CC Aventura, Inc. under an all-risks property insurance policy that provided builders risk coverage for a condominium project in Florida. Aventura engaged Weitz as the general contractor on the project. Aventura agreed to purchase and maintain insurance coverage for Weitz’s work at the project site. Weitz, however, was not a named insured in the policies.
In June 2002, the project site was damaged by severe rains. Weitz took immediate steps to repair the water damage, but Weitz did not inform Aventura of the loss until November 2002. On December 10, 2002, Weitz requested that Aventura submit a claim to Lloyd’s for water damage, which Aventura forwarded to the claims adjuster on December 23, 2002.
On February 28, 2003, Lloyd’s denied coverage, citing improper construction and failure to protect the property. Lloyd’s did not initially assert that the notice of loss had been untimely, but Lloyd’s did reserve its rights and defenses under the policy. In March 2003, Aventura notified Lloyd’s that it no longer wished to pursue the claim. Aventura, however, did not inform Weitz of its decision. This decision shifted to Weitz the entire loss of $3,430,893.74 under the terms of the construction contract with Aventura. Aventura, however, was also relieved of its obligation to pay a $250,000 deductible under the terms of the policy.
Weitz sued Lloyd’s for breach of contract and for bad faith. Lloyd’s did not dispute that Weitz was a third-party beneficiary of the insurance policy. Rather, Lloyd’s argued that Weitz’s claim was barred under the policy’s Notice of Loss provision, which required that the insured provide Lloyd’s with notice of loss or damage “as soon as practicable after it became known to the insured’s Risk Management Department.” Weitz contended that Aventura had provided Lloyd’s with notice as soon as the loss had become known to Aventura’s Risk Management Department. Lloyd’s countered that “adopting Weitz’s interpretation would produce an absurd result in which a third-party beneficiary could delay giving notice for years as long as the [Aventura] Risk Management Department remained unaware.” 2009 WL 2366293, at *4.
The court adopted a pragmatic approach, rejecting Lloyd’s argument:
We decline the Insurers’ invitation to ignore the policy’s plain language in order to avoid what they perceive to be an ‘absurd result.’ If the Insurers believe their own language was absurd, then they should have drafted different language.
2009 WL 2366293, at *4 n. 3 (emphasis added). Rather, “under the Policy’s plain language, timeliness and notice of loss is measured from when [Aventura’s] Risk Management Department became aware of the loss, not when Weitz or other [Aventura] personnel discovered the damage.” 2009 WL 2366293, at *5. On this conclusion, the court concluded that Aventura had provided Lloyd’s notice of loss on the same day that its Risk Management Department received notice from Weitz. Aventura had thus complied with the notice of loss provision. Id.
Given that Lloyd’s position was not altogether counterintuitive, it is striking that the court further held that Weitz also had a tenable claim for bad faith under Iowa law. 2009 WL 2366293, at *6. But again adopting a rather pragmatic approach, the court remarked that Lloyd’s “exclusive reliance on Hyatt’s representations is quite troubling in light of Hyatt’s financial incentives in this case.” Id. The court thus found material that “Hyatt had at least a $250,000 motive to recommend that coverage be denied.” Id.
