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Nebraska A dvance Sheets
291 Nebraska R eports
RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
R ent-A-Roofer, Inc., appellant and cross-appellee, v.
Farm Bureau Property & Casualty Insurance
Company, appellee and cross-appellant.
___ N.W.2d ___
Filed September 11, 2015. No. S-14-895.
1. Summary Judgment. Summary judgment is proper when the pleadings
and evidence admitted at the hearing disclose no genuine issue regard-
ing any material fact, or the ultimate inferences that may be drawn from
those facts, and that the moving party is entitled to judgment as a matter
of law.
2. Summary Judgment: Appeal and Error. In reviewing a summary
judgment, an appellate court views the evidence in the light most
favorable to the party against whom the judgment was granted and
gives that party the benefit of all reasonable inferences deducible from
the evidence.
3. Judgments: Appeal and Error. As to questions of law, an appellate
court has an obligation to reach a conclusion independent from the trial
court’s conclusion.
4. Insurance: Liability: Notice: Proof. In order to escape liability or the
duty to defend on account of an insured’s unreasonable and unexcused
delay in giving notice of claim, a liability insurer is required to show
that it was prejudiced.
5. Insurance: Liability: Notice. An insurer’s relief from the duty to
defend, just the same as its overall liability to its insured, is dependent
on whether the insurance company’s defense suffered prejudice from the
insured’s failure to notify.
6. Insurance: Notice: Time. Prejudice is determined by examining
whether the insurer received notice in time to meaningfully protect
its interests.
7. ____: ____: ____. The mere passage of time generally does not establish
prejudice to the insurer.
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RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
8. Insurance: Contracts: Notice: Claims. The purpose of a notice pro-
vision is to alert the insurer of a possible claim to give it the oppor-
tunity to make an investigation in order to enable it to process any
future claim.
9. ____: ____: ____: ____. When the failure to give notice is shown to
prejudice the insurer’s opportunity to make an investigation or enable it
to process a claim, that failure to give notice is prejudicial and a mate-
rial breach of the insurance contract.
10. Insurance: Contracts: Proof. Prejudice must be shown when an
insurer seeks to avoid the policy for breach of a voluntary payments
provision.
11. Insurance: Contracts: Proof: Compromise and Settlement. In the
context of voluntary payment provisions, prejudice may be shown as a
matter of law where the insured’s settlement deprived the insurer of the
opportunity to protect its interests in litigation or participate in the litiga-
tion and settlement discussions.
12. Insurance: Liability: Notice: Waiver. Where an insurer has already
denied liability for a claim, it is neither necessary nor proper for the
insured to notify the insurer again, and the insured’s duty to notify may
be waived through such denial.
13. Insurance: Liability: Waiver. An insurer’s denial of a claim must be
express or unequivocal, or in an instance where the facts or circum-
stances warrant the inference that liability was denied.
14. Insurance: Claims: Notice. Where two claims against an insured are
so different as to involve different parties, different complaints, and
different occurrences, the insured must give notice to its insurer of
both claims.
Appeal from the District Court for Lancaster County:
Stephanie F. Stacy, Judge. Affirmed.
Cynthia R. Lamm, of Law Office of Cynthia R. Lamm, and
Jacob Tewes, Senior Certified Law Student, for appellant.
Gary J. Nedved, of Keating, O’Gara, Nedved & Peter, P.C.,
L.L.O., for appellee.
Heavican, C.J., Wright, Connolly, McCormack, Miller-
Lerman, and Cassel, JJ.
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Nebraska A dvance Sheets
291 Nebraska R eports
RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
McCormack, J.
NATURE OF CASE
The appellant, Rent-A-Roofer, Inc., doing business as A-J
Roofing & Waterproofing, settled a lawsuit without notifying
its insurer—the appellee, Farm Bureau Property & Casualty
Insurance Company (Farm Bureau)—of the lawsuit. After
settlement, Rent-A-Roofer attempted to claim damages from
Farm Bureau. Farm Bureau declined coverage because Rent-
A-Roofer failed to meet the notice and voluntary payments
provisions of its insurance policy. The district court found that,
where the insured failed to meet both the notice and voluntary
payments provisions, prejudice had been established as a mat-
ter of law and allowed Farm Bureau to avoid liability under the
policy. Rent-A-Roofer appeals, claiming it is entitled to costs
of defense for the suit.
BACKGROUND
At all relevant times, Rent-A-Roofer held a commercial
general liability insurance policy with Farm Bureau.
In September 2007, the State of Nebraska filed a lawsuit
in the district court for Lancaster County for damages aris-
ing from Rent-A-Roofer’s alleged failure to install a roof in
a good and workmanlike manner. The date of the State’s loss
was during the policy year of 2004 to 2005. Rent-A-Roofer
disputed the faultiness of its workmanship and submitted the
defense of the matter to Farm Bureau.
Farm Bureau decided that the complaint sought damages
only for faulty workmanship and determined that the policy
excluded such faulty workmanship under the “‘your work’”
exclusion. Farm Bureau informed Rent-A-Roofer that the prop-
erty damage did not arise out of a covered “‘occurrence,’”
so Farm Bureau would not indemnify or defend its insured.
Thereafter, Rent-A-Roofer hired its own counsel to defend the
suit and reached a settlement in exchange for a release and
dismissal of the suit.
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Nebraska A dvance Sheets
291 Nebraska R eports
RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
In August 2010, the National Research Corporation (NRC)
filed a lawsuit against Rent-A-Roofer and six other defendants
in the district court for Lancaster County. Similar to the case
brought by the State, NRC also alleged that Rent-A-Roofer
and the other defendants had failed to construct and renovate
its property in a workmanlike manner, among other claims.
Rent-A-Roofer did not notify Farm Bureau of the NRC claim
at that time because, “based upon the company’s experience in
the case brought by the State, [Rent-A-Roofer] did not believe
there was coverage for the claim.”1
Instead of notifying Farm Bureau of the claim against
it, Rent-A-Roofer hired and paid for its own legal counsel.
Rent-A-Roofer proceeded with its hired counsel to media-
tion, where, on August 17, 2011, Rent-A-Roofer reached
a settlement with NRC. On September 12, Rent-A-Roofer
notified Farm Bureau of its involvement in litigation with
NRC and made a demand under Rent-A-Roofer’s policy with
Farm Bureau.
The insurance policy held by Rent-A-Roofer contained a
notice provision which stated: “2. Duties In The Event Of
Occurrence, Offense, Claim Or Suit[:] a. You must see to it
that we are notified as soon as practicable of an ‘occurrence’
or an offense which may result in a claim.” The policy further
contained a voluntary payments provision stating:
c. You and any other involved insured must:
(1) Immediately send us copies of any demands,
notices, summonses or legal papers received in connec-
tion with the claim or “suit”;
(2) Authorize us to obtain records and other
information;
(3) Cooperate with us in the investigation or settlement
of the claim or defense against the “suit[.]”
....
d. No insured will, except at that insured’s own cost,
voluntarily make a payment, assume any obligation,
1
Brief for appellant at 7.
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RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
or incur any expense, other than for first aid, without
our consent.
Farm Bureau refused Rent-A-Roofer’s claim on the grounds
that Rent-A-Roofer breached the policy’s notice provision
and the voluntary payments provision. In June 2012, Rent-
A-Roofer filed suit against Farm Bureau, alleging breach of
contract and bad faith stemming from Farm Bureau’s denial
of coverage.
Farm Bureau moved for summary judgment, arguing that
the undisputed evidence showed coverage was properly denied
under the policy and that Farm Bureau was entitled to judg-
ment as a matter of law. Specifically, Farm Bureau argued that
it properly declined coverage because Rent-A-Roofer failed to
give Farm Bureau notice of the NRC claim as required under
the policy and because Rent-A-Roofer voluntarily consented to
a settlement with NRC without Farm Bureau’s knowledge or
consent as also required under the policy.
As a “threshold matter,” the district court addressed whether,
in actions where an insurer asserts voluntary payment as a
basis for denying coverage under the policy, the insurer must
also prove it had been prejudiced by the insured’s breach of
those policy conditions. In Nebraska, as a matter of law, an
insurer must show prejudice before declining coverage due
to failure to meet a notice provision.2 However, we have not
yet determined whether an insurer must show prejudice before
declining coverage due to a failure to meet a voluntary consent
provision. The district court concluded that for an insurer to
deny coverage based on breach of a voluntary settlement con-
dition, the insurer is required to show prejudice in connection
with its claim.
The district court then went on to hold, however, that in
cases where both the notice provision and the voluntary con-
sent provisions are breached by the insurer’s not being given
2
See Herman Bros. v. Great West Cas. Co., 255 Neb. 88, 582 N.W.2d 328
(1998).
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291 Nebraska R eports
RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
an opportunity to take part in a final settlement or agreement
to pay, there is prejudice as a matter of law. Specifically,
when Rent-A-Roofer entered into an agreement to pay without
bringing the suit or settlement to the attention of the insurer,
Farm Bureau was prejudiced as a matter of law. The court
further stated, “[t]his court need not engage in guess or specu-
lation or conjecture as to what [Farm Bureau] would have
done if given proper notice, as it is the abrogation of [Farm
Bureau’s] contractual rights and loss of a meaningful oppor-
tunity to protect its interests that constitute prejudice under
Nebraska law.”
ASSIGNMENTS OF ERROR
Rent-A-Roofer assigns as error the court’s grant of sum-
mary judgment to Farm Bureau, after the finding that Farm
Bureau was prejudiced as a matter of law by Rent-A-Roofer’s
failure to give notice of the lawsuit until after Rent-A-Roofer’s
settlement. Rent-A-Roofer also assigns as error the court’s
failure to specifically address whether Farm Bureau was obli-
gated to pay the costs of Rent-A-Roofer’s defense.
STANDARD OF REVIEW
[1] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue
regarding any material fact, or the ultimate inferences that may
be drawn from those facts, and that the moving party is entitled
to judgment as a matter of law.3
[2] In reviewing a summary judgment, an appellate court
views the evidence in the light most favorable to the party
against whom the judgment was granted and gives that
party the benefit of all reasonable inferences deducible from
the evidence.4
3
Marcovitz v. Rogers, 276 Neb. 199, 752 N.W.2d 605 (2008).
4
Shada v. Farmers Ins. Exch., 286 Neb. 444, 840 N.W.2d 856 (2013);
Durre v. Wilkinson Development, 285 Neb. 880, 830 N.W.2d 72 (2013).
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RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
[3] As to questions of law, an appellate court has an obli-
gation to reach a conclusion independent from the trial
court’s conclusion.5
ANALYSIS
The district court found that in actions where an insurer
asserts untimely notice and voluntary payment as a basis
for denying coverage under the policy, the insurer must also
prove it has been prejudiced by the insured’s breach of those
policy conditions in order to avoid liability. The district court
then continued to find that Farm Bureau was prejudiced as a
matter of law when Rent-A-Roofer did not report the claim
to Farm Bureau until after it reached a settlement agreement
with NRC, because Farm Bureau was unable to take any
action whatsoever to protect its interests or the interests of
the insured.
At the trial court level, and in its brief on appeal, Rent-A-
Roofer sought complete recovery of costs of the suit, includ-
ing indemnity and defense costs from Farm Bureau. However,
at oral argument, Rent-A-Roofer changed its argument and
prayer for relief to ask only for the costs of defending the suit
against NRC. We must now determine whether an insurer’s
duty to defend is relieved when the insured fails to notify the
insurer of a claim until after it has reached a binding settle-
ment agreement with the claimant, in breach of both the notice
and voluntary payments provisions of its insurance policy. We
conclude that, as a matter of law, an insurer is not liable for
defense costs where defense of the claim concluded before the
insured brought the suit to the attention of the insurer and after
the parties entered into the final settlement agreement, because
this complete lack of an opportunity to engage in the defense
is prejudicial to the insurer.
Rent-A-Roofer’s commercial general liability policy with
Farm Bureau contained the following provisions:
5
Herman Bros. v. Great West Cas. Co., supra note 2.
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Nebraska A dvance Sheets
291 Nebraska R eports
RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
2. Duties In The Event Of Occurrence, Offense,
Claim Or Suit
a. You must see to it that we are notified as soon as
practicable of an “occurrence” or an offense which may
result in a claim. . . .
....
d. No insured will, except at that insured’s own cost,
voluntarily make a payment, assume any obligation,
or incur any expense, other than for first aid, without
our consent.
R equirement of Prejudice
[4,5] With regard to notice provisions in insurance con-
tracts, we have stated that “[i]n order to escape liability or the
duty to defend on account of an insured’s unreasonable and
unexcused delay in giving notice of claim, a liability insurer is
required to show that it was prejudiced.”6 Of particular impor-
tance to Rent-A-Roofer’s claim for defense costs, an insurer’s
relief from the duty to defend, just the same as its overall
liability to its insured, is dependent on whether the insurance
company’s defense suffered prejudice from the insured’s fail-
ure to notify.7
[6-9] Prejudice is determined by examining whether the
insurer received notice in time to meaningfully protect its
interests.8 The mere passage of time generally does not estab-
lish prejudice to the insurer.9 The purpose of a notice provi-
sion is “to alert the insurer of a possible claim to give it the
6
Dutton-Lainson Co. v. Continental Ins. Co., 271 Neb. 810, 828, 716
N.W.2d 87, 102 (2006) (emphasis supplied). See, also, Herman Bros. v.
Great West Cas. Co., supra note 2.
7
See, Dutton-Lainson Co. v. Continental Ins. Co., supra note 6; Herman
Bros. v. Great West Cas. Co., supra note 2; Stephen A. Klein, Insurance
Recovery of Prenotice Defense Costs, 34 Tort & Ins. L.J. 1103 (1999).
8
Dutton-Lainson Co. v. Continental Ins. Co., supra note 6.
9
Herman Bros. v. Great West Cas. Co., supra note 2.
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RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
opportunity to make an investigation in order to enable it to
process any future claim.”10 Therefore, when the failure to give
notice is shown to prejudice the insurer’s opportunity to make
an investigation or enable it to process a claim, that failure to
give notice is prejudicial and a material breach of the insur-
ance contract.
We have not yet addressed whether the breach of a volun-
tary payments provision amounts to a material breach of an
insurance contract, allowing the insurer to avoid liability, or
whether the additional element of prejudice must be proved
before the insurer can prove a material breach and avoid liabil-
ity. Courts around the country differ in their approach to vol-
untary payments provisions. Some states find that an insured’s
failure to comply with a voluntary payments provision means
that the insurer is not liable to the insured under the policy,
and do not require the insurer to be prejudiced as a result of
the settlement.11 Other states still require the insurer to show
prejudice resulting from the breach of the voluntary payments
provision, but presume prejudice as a matter of law where
the insurer did not have an opportunity to participate in the
defense or the settlement process.12
10
Id. at 95, 582 N.W.2d at 333.
11
See 1 Allan D. Windt, Insurance Claims & Disputes: Representation of
Insurance Companies and Insureds § 3:09 (3d ed. 1995 & Cum. Supp.
1998). See, e.g., Fisher v. USAA Cas. Ins. Co., 973 F.2d 1103 (3d Cir.
1992); Central Bank v. St. Paul Fire & Marine Ins., 929 F.2d 431 (8th Cir.
1991); Dietz Intern. Public Adjusters v. Evanston Ins., 796 F. Supp. 2d
1197 (C.D. Cal. 2011); Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904
N.E.2d 1267 (Ind. 2009); Phillips Way v. American, 143 Md. App. 515,
795 A.2d 216 (2002); Tenneco Inc. v. Amerisure Mut. Ins. Co., 281 Mich.
App. 429, 761 N.W.2d 846 (2008).
12
See, e.g., Perini/Tompkins Joint Venture v. Ace American Ins., 738 F.3d 95
(4th Cir. 2013); Motiva Enterprises v. St. Paul Fire and Marine, 445 F.3d
381 (5th Cir. 2006); Harrisburg Area Com. College v. Pacific Emp. Ins.,
682 F. Supp. 805 (M.D. Pa. 1988); Augat, Inc. v. Liberty Mutual Ins. Co.,
410 Mass. 117, 571 N.E.2d 357 (1991); Roberts Oil v. Transamerica Ins.,
113 N.M. 745, 833 P.2d 222 (1992).
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RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
[10] The purpose of a voluntary payments provision is
similar to notice, consent-to-settlement, and cooperation
provisions in a contract—the purpose is to ensure that an
insurer has an opportunity to protect its interests.13 The vol-
untary payments provision allows the insurance company an
“opportunity to protect itself and its insured by investigat-
ing any incident that may lead to a claim under the policy,
and by participating in any resulting litigation or settlement
discussions.”14 Given the similarity in purpose between notice
provisions and voluntary payments provisions, we find that
it is proper to maintain the prejudice requirement when an
insurer seeks to avoid the policy for breach of a voluntary
payments provision.
Determination of Prejudice
We now turn to the issue of whether prejudice has been
proved where the claim was not tendered to the insurer until
after the defense is completed and the insured has entered
into a binding settlement agreement.
In Herman Bros. v. Great West Cas. Co.,15 an insured asked
its liability insurer to recover costs of defending and settling
an action filed by the National Labor Relations Board. The
labor board filed a formal complaint, hearings were held, and
the parties engaged in negotiations resulting in a settlement
between the insured and the labor board. At that point, the
insured met with the insurer to notify the insurer of the claim
against it. The claimant then sent the insurer written notice
of its claim, the complaint, and the proposed settlement. The
insurer denied coverage, and the insured filed suit to recover
the amount of the settlement plus attorney fees incurred.
There, we determined that the insurance company was “not
13
See, e.g., West Bend Mut. Ins. Co. v. Arbor Homes LLC, 703 F.3d 1092 (7th
Cir. 2013); Augat, Inc. v. Liberty Mutual Ins. Co., supra note 12.
14
West Bend Mut. Ins. Co. v. Arbor Homes LLC, supra note 13, 703 F.3d at
1095.
15
Herman Bros. v. Great West Cas. Co., supra note 2.
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RENT-A-ROOFER v. FARM BUREAU PROP. & CAS. INS. CO.
Cite as 291 Neb. 786
given an opportunity to meaningfully protect its interests, and
therefore, [the insurance company] was prejudiced as a matter
of law.”16
In Herman Bros., we cited the Wisconsin case of Gerrard
Realty Corp. v. American States Ins. Co.,17 in which the insurer
was not given knowledge of the claim or ensuing litigation
until 22 months after the suit commenced and after the trial
was completed, and the insurer had no opportunity to inves-
tigate or defend the claim, nor did it have any opportunity to
participate in decisions regarding the settlement of the claim.
The Wisconsin Supreme Court determined that the failure to
give notice until after defense of the case was completed was
prejudicial to the insurer as a matter of law.18
[11] We conclude that prejudice may be shown as a matter
of law where the insured’s settlement deprived the insurer of
the opportunity to protect its interests in litigation or partici-
pate in the litigation and settlement discussions. In this case,
at the time the insured entered into an enforceable settlement
agreement, it was too late for Farm Bureau to act to protect
its interests. There was nothing left for Farm Bureau to do but
issue a check. An insurer cannot fail in defending a suit that
it has no knowledge of. In this case, we conclude that this
complete denial of Farm Bureau’s opportunity to engage in
the defense, take part in the settlement discussions, or consent
to the settlement agreement was prejudicial as a matter of law
to Farm Bureau and find that Farm Bureau is not liable for
defense costs.
[12-14] As a final matter, Rent-A-Roofer argues that its
duty to notify Farm Bureau of the claim was waived when
Farm Bureau declined coverage over a prior, allegedly simi-
lar claim. However, the prior claim for which coverage was
16
Id. at 99, 582 N.W.2d at 335.
17
Gerrard Realty Corp. v. American States Ins. Co., 89 Wis. 2d 130, 277
N.W.2d 863 (1979).
18
Id.
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denied involved a different occurrence, different parties, and
different allegations, and in short, it had no relation whatso-
ever to the claim by NRC against Rent-A-Roofer. We have
held that where an insurer has already denied liability for a
claim, it is neither necessary nor proper for the insured to
notify the insurer again, and the insured’s duty to notify may
be waived through such denial.19 But, an insurer’s denial of the
claim must be “‘express or unequivocal,’” or in an instance
where “‘the facts and circumstances warrant the inference that
liability was . . . denied.’”20 Where the two claims against the
insured are so different as to involve different parties, different
complaints, and different occurrences, the insured must give
notice to its insurer of both claims. The insurer does not waive
notice by denying coverage over a prior, and wholly differ-
ent, claim.
CONCLUSION
The district court was correct in its finding that Farm
Bureau is not liable for settlement by NRC against Rent-A-
Roofer, and, by way of that finding, Farm Bureau is not liable
for Rent-A-Roofer’s defense costs. We affirm.
A ffirmed.
Stephan, J., not participating.
19
See, Dutton-Lainson Co. v. Continental Ins. Co., supra note 6; Thomas
Kilpatrick & Co. v. London Guarantee & Accident Co., 121 Neb. 354, 237
N.W. 162 (1931).
20
Dutton-Lainson Co. v. Continental Ins. Co., supra note 6, 271 Neb. at 829,
716 N.W.2d at 103. See, also, Otteman v. Interstate Fire & Cas. Co., Inc.,
172 Neb. 574, 111 N.W.2d 97 (1961).