It’s not easy for an insurer who issues an occurrence policy to win on a defense of prejudice to the insurer’s interests, but that is what happened in Clarendon National Insurance Co. v. FFE Transportation Services, Inc., 2006 WL 997718 (5th Circuit April 17, 2006).
The insureds were a frozen food company and a related trucking company. One of their vehicles was involved in an accident, resulting in several claims against the companies. Most of the claims were settled for $219,000, but the remaining claim went to trial. The companies rejected a $700,000 settlement offer, and were hit with a $1.1 million jury verdict. Three months after the verdict, the companies gave its first notice to the insurer, Clarendon. The apparent reason notice wasn’t given before is that the insureds had a $1 million self-insured retention — in effect, a deductible. The insurer paid $220,000 in post-judgment negotiations to help settle the claim for $1 million, then sought reimbursement from the insureds. The U.S. Fifth Circuit Court of Appeals, applying Texas law, found actual prejudice to the insurer and gave Clarendon its money back, because the case could have settled for $700,000 at no cost to the insurer.