Evanston Insurance v. Stonewall Surplus Lines Insurance

United States Court of Appeals,

Eleventh Circuit.

Nos. 95-9542, 96-8215.

EVANSTON INSURANCE COMPANY, an Illinois Corporation, Plaintiff-
Appellant,

v.

STONEWALL SURPLUS LINES INSURANCE COMPANY, an Alabama
Corporation; Schneider National Carriers, Inc., a Nevada
Corporation; Stonewall Insurance and Truck Insurance Exchange,
Defendants-Appellees.

EVANSTON INSURANCE COMPANY, an Illinois Corporation, Plaintiff-
Appellee,

v.

STONEWALL SURPLUS LINES INSURANCE COMPANY, an Alabama
Corporation; Stonewall Insurance; Truck Insurance Exchange,
Defendants-Appellees,

Schneider National Carriers, Inc., a Nevada Corporation,
Defendant-Appellant.

May 6, 1997.

Appeals from the United States District Court for the Northern
District of Georgia. (No. 1:94-CV-101-CAM), Charles A. Moye, Jr.,
Judge.

Before BIRCH, Circuit Judge, and HILL and FARRIS*, Senior Circuit
Judges.

HILL, Senior Circuit Judge:

A tractor trailer and private automobile collision resulted in

one death and one serious and permanent injury. After the claims

for these losses were settled, an excess carrier, Evanston

Insurance Co., sued the insured, Schneider National Carriers, Inc.,

the primary carrier, Truck Insurance Exchange, and two other excess

carriers, Stonewall Insurance Co. and Stonewall Surplus Lines

*
Honorable Jerome Farris, Senior U.S. Circuit Judge for the
Ninth Circuit, sitting by designation.
Insurance Co., over coverage. The insured sought but was denied

permission to cross-claim against Stonewall Insurance Co..

Cross-motions for summary judgment were filed. The district court

granted summary judgment for the insurer-defendants against

Evanston Insurance Co., and denied the insured's motion for summary

judgment against Evanston Insurance Co. Evanston Insurance Co.

appeals the grant of summary judgment against it. The district

court entered an order under 28 U.S.C. § 1292(b) granting Schneider

National Carriers, Inc. permission to file an interlocutory appeal.

The cases were heard together. For the following reasons, we

affirm the grant of summary judgment to Truck Insurance Exchange,

Stonewall Insurance Co. and Stonewall Surplus Lines Insurance Co.,

but reverse the district court and direct that summary judgment be

granted in favor of Schneider National Carriers, Inc..

I. BACKGROUND

This case arises out of an accident which took place on a

two-lane road in Fulton County, Georgia at approximately 6:00 a.m.

on January 24, 1986. A semi-trailer truck, operated by Schneider

National Carriers, Inc., (Schneider) a national trucking company

based in Green Bay, Wisconsin, was involved in a collision with a

vehicle driven by Laverne Zachery in which her two daughters

Allyson Zachery (age five) and Kayla Zachery (age four) were

passengers.

The driver of the truck, Albert Blow, was attempting to

negotiate a lefthand U turn in the middle of the road when the left

dolly leg of the trailer got hung up on the pavement. At that
 1
point, the trailer was perpendicular to the road. As Blow was

attempting to get the dolly leg free, Laverne Zachery struck the

trailer, just in front of the rear wheels, killing her instantly

and causing permanent head and eye injury to Allyson Zachery.

On the day of the accident, Schneider gave notice to its

insurers, Truck Insurance Exchange (Truck) ($300,000 coverage),

Stonewall Surplus Lines Insurance Company (Stonewall Surplus)

(excess liability in the amount of $700,000) and Stonewall

Insurance Company (Stonewall) ($4 million excess coverage). No

notice was given to Schneider's other excess carriers, Evanston

Insurance Company (Evanston) ($2.5 million excess), or

Weaver/London Market Insurers, National Union Fire Insurance

Company and Fireman's Fund (totalling approximately $100 million of

further excess liability coverage). There were no written

agreements between or among Truck, Stonewall, Evanston and the

other excess insurance companies. Marsh, McLennan & Company served

as broker for Schneider in securing the insurance policies with

Truck, Stonewall and Evanston.

Truck was obligated to provide a defense, including counsel.

Schneider advised Truck that it wanted its defense to be handled by

attorney Robert Corry of Dennis, Corry, Porter & Thornton (Dennis

& Corry) and Truck agreed. R. Clay Porter worked with Robert

Corry. Thereafter, Corry and Porter were Schneider's attorneys.

They reported directly to Schneider, as well as to Truck. They

1
Blow was charged with making an illegal U turn and with
vehicular homicide. After giving a statement following the
accident, Blow disappeared. Both before and during the first
trial, Blow was not available to explain what happened that
morning, or to testify.
were in regular, direct communication with Schneider. They owed no

divided or other allegiance to Stonewall. It is undisputed that

they fulfilled their professional obligation to Schneider. Also,

pursuant to Schneider's direct employment, an investigation into

the accident and the Zachery claims was undertaken by Custard

Insurance Adjusters (Custard). Custard reported the results of its

investigation to Corry and Porter, Schneider's attorneys, as well

as Truck and Stonewall.

Shortly after the accident, Roderick Zachery, husband of

Laverne Zachery and father of Allyson Zachery, retained attorney

Carl Reynolds to represent him in his claims against Schneider

arising out of the accident.

On or about March 25, 1986, Truck set a reserve at its policy

limit of $300,000, and, thereafter, although it received

information regarding the Zachery litigation, it assumed no role in

the assessment of the case.

On October 17, 1986, E.A. Anderson who handled the Zachery

claims for Stonewall wrote to Truck requesting, among other things,

information regarding Corry and Porter's evaluation of liability,

available damages information, and the amount Truck had reserved.

On November 13, 1986, Corry reported to Truck his initial

evaluation of the case, which put defense chances in the 10-25%

range and reported a recent $800,000 verdict in similar case tried

in Fulton County. Anderson, as evaluator of the claims for

Stonewall, increased the reserve for the Zachery claims by

Stonewall Surplus' $700,000 excess, over the $300,000 underlying

Truck limit, for a total of $1 million. None of Stonewall
Insurance's $4 million excess was set aside at this point.

In August of 1987, Stonewall engaged the services of attorney

J. Robert Persons of Lord, Bissell & Brook to advise Stonewall

regarding the Zachery claims and monitor the anticipated Zachery

litigation. Persons had previously worked with Anderson of

Stonewall on other cases. In addition, Persons had previously

handled several matters with Evanston. In fact, Persons' firm is

listed as the agent for service of process upon Evanston on

Evanston's policy with Schneider. Persons received from Porter a

package of materials comprising reports and other investigative

materials generated by Custard and by Dennis & Corry regarding the

Zachery claims.

On August 20, 1987, Roderick Zachery sued Schneider in Fulton

Superior Court for injuries to Allyson Zachery. The suit was

removed to the United States District Court for the Northern

District of Georgia.

On August 24, 1987, Stonewall requested Truck make available

its $300,000 policy limit for use in settlement negotiations, and

Truck did so. Stonewall also set a reserve for the Zachery claims

on its policy of $1 million over the existing $1 million provided

by the Truck and Stonewall Surplus policies, for a total of $2

million reserved.

In September of 1987, Corry valued the Zachery wrongful death

claim at $150,000 to $550,000. Persons agreed with this estimate.

In November of 1987, plaintiffs served Schneider with a set of

interrogatories in the Zachery personal injury suit. Answers were

drafted by Corry and Porter based upon information in their files
and sent to Schneider to be amended or corrected, if necessary, and

executed. Truck and Stonewall were listed as insurers, but not

Evanston or any higher level insurers. Schneider, for some reason

not apparent on the record, did not amend or correct this item, but

executed the answers and they were served. From this point on,

Corry and Porter were required to assume that Schneider itself

would be liable for any judgment over $5,000,000.

On January 3, 1988, Roderick Zachery filed suit for the

alleged wrongful death of Laverne Zachery. The suit was filed in

Fulton Superior Court, but removed to the same district court as

the personal injury suit and consolidated with it. Both suits

named Blow, Schneider and Truck as defendants.2

On March 23, 1989, Persons reported to Stonewall that he

evaluated the death case at $500,000-$600,000, and that Allyson

Zachery's personal injury case had a value "in excess of

$1,000,000." Corry and Porter concurred.

On April 14, 1989, Corry sent a structured settlement proposal

to plaintiffs on behalf of Schneider with the authorization of

Truck and Stonewall. The proposal had a present cash value of

approximately $1,265,111, and projected total benefits of $7.3

million for Allyson Zachery and $1.1 million for Roderick Zachery

on the wrongful death claim. No response nor demand was made by

plaintiff's counsel until September 1990, nearly one and a half

years later, despite numerous requests from defendants.

2
Truck was a named defendant in these cases pursuant to
O.C.G.A. § 46-7-12 which allows injured persons to maintain a
direct action against the indemnity insurance carrier for a motor
common carrier for claims up to the policy limit of the coverage.
 In January of 1990, plaintiffs filed an amendment to their

pretrial submission specifying $7 to $11 million as compensatory

and $3 million as punitive damages. Stonewall still evaluated the

case at between $1 and $2 million.

In March of 1990, plaintiffs furnished defendants a report

from their economic expert that indicated an economic value on

Laverne Zachery's life in the range of $514,00 to $699,000, and

past and future damages to Allyson Zachery in the range of $1.626

to $2.661 million.

In May of 1990, Stonewall was evaluating the pending cases in

the area of a total of $2 million. In September, one week prior to

the scheduled trial of the combined Zachery claims, plaintiffs made

their first settlement demand: $2.25 million for the wrongful

death claim, and $6 million for Allyson Zachery's personal injury

claims, for a total of $8,250,000. Persons responded for Stonewall

that the demand did not "demonstrate a reasonable or realistic

interest in settlement" and that it does "not appear intended to

suggest a reasonable alternative to trial."

On September 21, 1990, Porter sent a facsimile to Schneider

stating, "I presume that all excess insurers have been notified.

If not, please notify them." In a subsequent telephone

conversation, plaintiffs' attorney requested that Porter

double-check on excess coverage. Porter called Stonewall and was

told that the coverage "goes up into the $100 million range."

Porter asked if the excess carriers had been notified and was told

that Marsh, the broker, would have done so. After the call,

Stonewall called Marsh to confirm that notice had been given to the
excess carriers. There is no dispute that Evanston had not yet

received notice of the claims.

On September 24, 1990, the first day of trial, Persons

requested from Stonewall and was given authority to offer $1.5

million in a structured settlement. The trial of the Zachery cases

began. The next day, Persons wrote directly to Schneider that

"[e]xcess layers above Stonewall Insurance should have notice of

this claim already. If they do not have such notice, they should

be advised immediately that the case is proceeding to trial." The

same day, Marsh, on behalf on Schneider, sent written notice of the

Zachery claims to Evanston by facsimile. The notice communicated

the $8.25 million demand. The faxed notice was immediately

followed by telephone calls from Marsh to the various excess

insurers.

On September 27, 1990, Persons reported to Stonewall that

Corry believed both cases might have a combined value in excess of

$3 million, although Persons believed the value was closer to $2

million. Stonewall executives looked to Anderson for evaluation

and negotiation. After reviewing the case, they gave Anderson full

authority to use any or all of the $5 million coverage limits, and,

simultaneously set the reserve for the litigation at that amount.

Upon submission of the case to the jury, Corry and Porter, the

lawyers who had conducted the defense throughout, both evaluated

the cases at less than $3.5 million.

After the jury charge, plaintiffs' lawyer indicated to

Persons, Corry and Porter his willingness to discuss settlement in

the range of a $6 million total settlement. In response, Persons
increased defendants' offer to $2.5 million, with projected total

benefits exceeding $12 million. Later, Reynolds told Persons that

he would recommend settling both cases for $5 million.

On the morning of October 2, 1990, the jury returned a verdict

totaling $23.2 million, including awards of $10 million in the

death case, $8.2 million in their personal injury case and $5

million in punitive damages.

After the verdict, Evanston took the position that it did not

owe Schneider coverage for the Zachery claims and suits because

Schneider had not given it timely notice. On May 10, 1991,

Evanston filed a declaratory judgment action against Schneider,

claiming that Evanston's policy did not cover the Zachery cases. 3

Evanston had not disputed its coverage prior to the verdict.

On July 9, 1991, the district court, in a written order, found

that the wrongful death award was "plainly excessive, shocking, and

well outside the range within which a reasonable jury could

properly operate;" and that "the award in Allyson Zachery's case

shocks the conscience and is outside the range within which a

3
Faced with the prospect of maintaining that Stonewall and
Schneider should have recognized the vast potential of the
Zachery claims and given earlier notice to it, while
simultaneously negotiating settlement with plaintiff which
required some downplaying of those claims, Evanston agreed to
dismiss its declaratory judgment action against Schneider without
prejudice and the parties' agreed to reserve their rights with
respect to each other.

The parties disagree on the effect this agreement had
on Evanston's subsequent tender of its policy limits to
Schneider in the settlement negotiations after the first
verdict. We do not decide the validity or scope of the
reservation of rights because we hold that Schneider did not
breach the policy requirement for timely notice and
Evanston, therefore, owed Schneider the coverage.
reasonable jury could properly operate." The court set aside both

verdicts as to damages, and granted a new trial as to damages on

the wrongful death, personal injury, and punitive damages claims.4

On April 3, 1992, some nine months after the verdicts had been

set aside, the insurers presented Zachery with a structured

settlement offer worth $3.5 million. On June 10, 1992, Stonewall

tendered to Evanston the Stonewall policy limits of $5 million to

be used in further settlement negotiations.

On October 21, 1992, the second trial began. On October 21 or

22, Evanston tendered its policy limits of $2.5 million to

Schneider for use in ongoing settlement negotiations. On October

22, 1992, Reynolds agreed on behalf of plaintiffs to accept $7.5

million in settlement, and the cases were settled.

In January of 1994, Evanston filed suit against Schneider,

Truck and Stonewall. The thrust of Evanston's complaint is that

each defendant had a duty to provide notice to Evanston of the

Zachery claims, but failed to do so. In addition, Evanston claims

that Stonewall negligently, and/or in bad faith, failed to settle

the Zachery claims within Stonewall's policy limits. Evanston

seeks to recover the $2.5 million that it paid to Zachery.

Schneider moved for permission to file a cross-claim against

Stonewall for indemnity should Schneider be found liable.

All the parties filed motions for summary judgment. The

district court denied Schneider's motion for summary judgment

4
The district court also admitted error in the jury
instruction on the measure of damages for the wrongful death
claim; that a new trial on punitive damages was warranted due to
the newly discovered evidence, and that a new trial as to damages
was warranted due to improper argument of plaintiffs' counsel.
against Evanston, and granted summary judgments in favor of Truck,

Stonewall and Stonewall Surplus. Schneider's motion for permission

to file a cross-claim against Stonewall was also denied. Pursuant

to Fed.R.Civ.P. 54(b), the district court found there was no just

reason for delay and directed the clerk to enter final judgments

for Truck, Stonewall Insurance and Stonewall Surplus against

Evanston. Evanston appeals these judgments. Schneider moved for

and received permission to take an interlocutory appeal from the

denial of its motion for summary judgment. We review the grant, or

denial, of summary judgment de novo. TRM, Inc. v. United States,

52 F.3d 941 (11th Cir.1995); Fitzpatrick v. City of Atlanta, 2

F.3d 1112, 1117 (11th Cir.1993).

II. DISCUSSION

A. Truck's and Stonewall's Summary Judgment Motions

1. Evanston's Rights Against Truck and Stonewall

Truck and Stonewall moved for summary judgment on the grounds

that they neither owed nor breached any duty to Evanston. There is

no dispute that Truck and Stonewall have no direct contractual

relationship with Evanston. Truck's and Stonewall's contracts are

with their insured, Schneider. Therefore, Truck and Stonewall

contend that Evanston's rights, if any, against them are derived

from their contracts with Schneider; any duties they owe Evanston

are a function of its position as subrogee of Schneider.

Furthermore, Truck and Stonewall claim the right under the

principles of equitable subrogation to assert against Evanston all

the defenses they could assert against Schneider.

In a diversity case, we apply state law as we would expect
that state's highest appellate court to apply it. Flintkote Co. v.

Dravo Corp., 678 F.2d 942, 945 (11th Cir.1982). Although some

state courts have suggested there may be a direct duty of care from

one excess insurer to a higher level excess insurer, see e.g.,

Hartford Accident & Indemnity Co. v. Michigan Mutual Ins. Co., 93

A.D.2d 337, 462 N.Y.S.2d 175, 178-79 (1983), aff'd, 61 N.Y.2d 569,

475 N.Y.S.2d 267, 463 N.E.2d 608 (1984); Estate of Penn v.

Amalgamated General Agencies, 148 N.J.Super. 419, 372 A.2d 1124,

1127 (1977), the law of Georgia (the place of the accident) and

Wisconsin (Schneider's domicile and, perhaps, the place of

contracting) is to the contrary.5

Under both Georgia and Wisconsin law, any duties Truck and

Stonewall owed Evanston were derivative of their contractual

relationship with Schneider. Home Ins. Co. v. North River Ins.

Co., 192 Ga.App. 551, 385 S.E.2d 736 (1989); Kranzush v. Badger

State Mut. Cas. Co., 103 Wis.2d 56, 307 N.W.2d 256 (1981). See

also Great American Ins. Co. v. International Ins. Co., 753 F.Supp.

357 (M.D.Ga.1990).6 In Home Ins., the Court of Appeals of Georgia

affirmed an excess insurer's right to bring suit against a primary

insurer when based upon the doctrine of equitable subrogation. The

court adopted the reasoning of the trial court which:

5
We need not decide which state's law is applicable since
they are the same.
6
We reject Evanston's contention that Great American is to
the contrary. The district court in that case misquoted an
earlier Georgia opinion to suggest there might be direct duties
between excess carriers, and then went on to adopt the holding of
Home Insurance that rights as between excess insurers are based
upon their relationship to the insured and the doctrine of
equitable subrogation.
 concluded that when an insurance company defends its insured
pursuant to a policy of liability insurance against a claim
which seeks damages in excess of the policy's limits and a
judgment is returned in excess of those limits an insurance
company which issued a policy of excess or umbrella coverage
to that insured is equitably subrogated to any rights the
insured might have against its primary carrier for negligent
failure to settle. Thus, the trial court found plaintiff to
be subrogated to the rights of its insured....

Id. 385 S.E.2d at 739-40.

The Supreme Court of Wisconsin in Kranzush stated:

[O]ur cases indicate that the insurer's duties of diligent
investigation, notice of excess liability potential, and
communication of settlement offers run to the insured, and the
cause of action upon their breach belongs to the insured. In
every one of our excess liability bad faith cases the
plaintiff is either the insured or the assignee of the
insured's claim.

307 N.W.2d at 260-61. See also Teigen v. Jelco, Inc., 124 Wis.2d

1, 367 N.W.2d 806, 811 (1985) ("[W]e refuse[ ] to extend the

obligation of good faith beyond the relationship between the

insurer and its insured.")

The Seventh Circuit Court of Appeals in addressing this issue

has observed:

There are hints (no more) of such a duty in a handful of cases
from New York and New Jersey, but the overwhelming majority of
American cases describe the duty that a primary insurer owes
an excess insurer as one derivative from the primary insurer's
duty to the insured. The principal contemporary support for
the idea of a direct duty comes from decisions from district
judges in the Northern District of Illinois in diversity cases
such as this. We are not clear why these judges expect that
the Supreme Court of Illinois would buck the national trend.

Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175,

1178 (7th Cir.1994).

The Seventh Circuit went on to conclude:

Should courts strain to create novel tort duties on
behalf of insurance companies? Do insurance companies need
the protection of tort law against their own insureds and
other insurance companies? We need not answer these
 questions. It is enough that the arguments in favor of the
direct duty are not so compelling....

Id. at 1180-81 (citations omitted). We find no support in the law

of Georgia or Wisconsin for a contrary result.

In the absence of any direct contractual or privity

relationship between these excess insurers, or any Georgia or

Wisconsin law holding otherwise, we hold that Evanston's rights in

the present suit against Truck and Stonewall are derived through

the duties owed by Truck and Stonewall to their own insured

Schneider, and Evanston's position as subrogee of Schneider.

2. Evanston's Claims Against Stonewall and Truck

Evanston claims that Stonewall and Truck breached their

duties to it by failing to give timely notice of Evanston's

liability exposure as required by the terms of Evanston's excess

liability policy which it issued to Schneider. Evanston also

claims that Stonewall negligently or in bad faith refused to settle

the Zachery claims within Stonewall's policy limits. As subrogee

of Schneider, however, Evanston stands in its shoes, subject to all

defenses available to Stonewall and Truck against Schneider.

Through counsel, Corry and Porter,7 Schneider was present at

and knew as much about the Zachery cases as did Stonewall and

Truck. Stonewall and Truck derived their knowledge of the cases,

in large part, from Schneider's lawyers, Corry and Porter. Even

Corry and Porter did not know of Evanston's existence as excess

carrier until shortly before trial.

7
Although paid by Stonewall, Schneider selected Corry and
Porter. No party has argued that they did not act in accordance
with this obligation.
 The record reveals that Corry and Porter were fully aware of

and never complained of Persons' handling of the settlement

negotiations prior to the first verdict. It is clear that at that

time they did not believe the cases were worth the $5 million

coverage afforded by Stonewall and Truck. Schneider's own risk

manager evaluated the case at no greater than $2.5 million.

On October 1, 1990, Porter informed Schneider that plaintiffs'

counsel was willing to recommend a settlement for $5 million.

There is nothing in the record to indicate, assuming the offer to
8
settle for $5 million was bona fide, that Stonewall's failure

immediately to accept the offer arose from failure to give

Schneider's interest and the interests of its subrogee the same

consideration given Stonewall's own. Nor is there any suggestion

that Schneider urged Persons to secure authority from Stonewall to

extend a $5 million dollar settlement offer, even though the record

shows that Schneider knew of Stonewall's $5 million reserve. On

the contrary, the record is clear that Schneider, Persons, Corry,

and Porter all agreed that the verdict would not reach or exceed $5

million. No one urged a positive response to the $5 million

settlement suggestion.

Based upon these undisputed facts, Schneider itself could not

successfully assert claims of lack of notice or failure to settle

against Stonewall or Truck. Evanston, whose rights in this suit

are derivative of Schneider's, stands in its shoes as against

Stonewall and Truck. Therefore, the district court properly

8
There is some question whether this was a settlement offer
or only an invitation to the defense to make an offer of $5
million.
granted Stonewall's and Truck's motions for summary judgment

against Evanston.

B. Schneider's Summary Judgment Motion

Evanston's claim against Schneider is that Schneider failed

to give it timely and adequate notification of the accident, the

Zachery claims, and of the suits. The liability policy issued to

Schneider by Evanston provides, among other things:

[Schneider] shall immediately give to [Evanston] written
notice directed to Shand, Morahan & Company, Inc., 1 American
Plaza, Evanston, Illinois 60201 of an occurrence, claim or
suit which is reasonably likely to involve [Evanston] under
this policy. (emphasis added)

Schneider claims that it fully complied with this provision.

In fact, Schneider contends that, when it gave notice on or about

September 26, 1990, it did so as a courtesy; it was not required

to do so at that time because both its own attorneys, Stonewall's

attorney Persons, and Stonewall's evaluator, Anderson, all

appraised the Zachery cases at less than $5 million, the point at

which Evanston's coverage would become "involved."

The district court held that material facts remain in dispute

regarding this issue. The court ruled that it could not say, as a

matter of law, that it was not "reasonably likely" that an amount

in excess of $5 million was "involved" before September 25, 1990,

such that Schneider should have given notice to Evanston prior to

that time.

We disagree. Whether notice is timely is ordinarily a

question of fact for the jury to determine. Maryland Cas. Co. v.

Sammons, 99 F.2d 323 (5th Cir.1938). However, where the facts as

asserted by the insured are such that, if established, there could
be no recovery, or where the undisputed facts are such that would

preclude the insured's recovery, then the question becomes one of

law for determination of the court and a proper matter for

disposition by summary judgment. State Farm Mut. Auto. Ins. Co. v.

Coleman, 441 F.2d 329, 332 (5th Cir.1971); Cotton States Mut. Ins.

Co. v. International Surplus Lines Ins. Co., 652 F.Supp. 851, 853

(N.D.Ga.1986). Such is the case here.

The parties have spent considerable time debating whether

"reasonably" is an objective or subjective measure of "likely." We

hold that under either standard, prior to the first verdict,

Schneider was never required to conclude that it was "reasonably

likely" that Evanston's coverage would become "involved" in the

Zachery claims against Schneider.

Under this policy, when notice is required is, necessarily,

a question of judgment. It could not be otherwise. Notice is

required whenever excess coverage involvement is "reasonably

likely." This phrase, although susceptible of different meanings,

clearly contemplates that the insured is not required to give

notice every time there is a claim against it. Nor does the policy

require notice upon the mere possibility that the excess will be

involved. If this were intended, the policy would simply require

notice of all claims against the insured. In interpreting an

excess policy which required notice whenever "an occurrence is

likely to involve indemnity," the Court of Appeals of Georgia held

that the word "likely" means "probable" not merely possible.

Lumbermens Mut. Cas. Co. v. Plantation Pipeline Co., 214 Ga.App.

23, 447 S.E.2d 89, 91 (1994).
 Notice is required only when it is "reasonably likely" that

the claim will be found to have a value in excess of the primary

insurance limits. "Reasonable" to whom? The insured's appraisal

will have to control unless, as a matter of law, it is

unreasonable.

The fact is that excess carriers are not interested in

receiving notice of every claim against their insureds. The excess

insurer does not undertake to defend the insured. Consequently,

the excess insurer is not interested in every accident, but only in

those serious enough to involve it. Excess policies, therefore,

usually require an assured to give notice of claims that appear

"likely to involve" the excess.

Under the notice provision of the excess policy "the exercise

of some judgment on the part of the assured in evaluating the case

is contemplated." Herbert C. Brook, 21Ins. Counsel J. 131 (April,

1954). This standard requires the insured to base its judgment

regarding the amount of the claim against it upon sound reasons.

Mere guesswork will not be enough; ignorance is no defense. An

insured cannot be heard to say it did not know when it did not

inquire. The insured must use due diligence and take appropriate

steps to make an informed judgment regarding the nature and amount

of the claim. See Bituminous Cas. Corp. v. J.B. Forrest & Sons,

Inc., 132 Ga.App. 714, 209 S.E.2d 6 (1974) (requirement for notice

met so long as notice is given "with reasonable diligence and

within a reasonable length of time in view of attending

circumstances of each particular case").

Nevertheless, it is equally clear that, as judgment is
involved, reporting perfection will not be attained. Nor does the

policy language protect Evanston against a judgment that was not

"reasonably likely" but which, nonetheless, materializes. As the

drafter of the contract, Evanston must shoulder this risk.

Liverpool & London & Globe Ins. Co. v. Kearney, 180 U.S. 132, 21

S.Ct. 326, 45 L.Ed. 460 (1901) ("The general rule ... is ... that

where a policy of insurance is so framed as to leave room for two

constructions, the words used should be interpreted most strongly

against the insurer.")

In this case, Schneider reported the accident to its primary

insurer on the day of the accident. Schneider also employed

Custard Insurance Adjusters to develop the facts of the accident.

Custard reported its results to Schneider. Schneider had competent

counsel who, by all accounts, performed competently. Stonewall had

competent counsel who, by all accounts, performed competently. No

one involved with the Zachery claims valued them at more than $5

million prior to the first verdict—not Corry and Porter, not

Persons or Anderson, not even plaintiff's own expert. After over

two and one-half years of litigation, and six months prior to the

first trial, plaintiffs furnished Schneider with a report from

their economic expert that indicated a maximum economic value for

both cases of $3.4 million.9 At the close of the first trial, both

9
It is true that plaintiffs' counsel filed an amendment to
his pre-trial order, in the nature of an ad damnum, praying for
damages of approximately $7 to $11 million, compensatory damages,
and $3 million, punitive. This demand, however, was not
consistent with the evaluations of those associated with the case
at that time. An insured is not required to conclude that a
claim is "reasonably likely" to produce a loss equal to
plaintiff's demand. Requiring notice whenever the demand exceeds
primary coverages could be, but was not, made a part of the
Corry and Persons, the lawyers in the best position to evaluate the

cases, valued the cases at less than $3.5 million.

On October 2, 1990, the jury returned combined verdicts

totaling $23.2 million. Although it had been notified of the

claims on September 25, 1990, it was only after this verdict that

Evanston sought to repudiate its coverage under the excess policy

for failure of timely notice.

Evanston urges the testimony of several experts who,

after-the-fact, offer their opinions that the Zachery cases were

"clearly" worth more than the $5 million trigger for its excess

coverage. Furthermore, one of Evanston's experts testified that

"good insurance practices" would have dictated that Schneider

notify Evanston long before it did.10

The issue of breach of contract, vel non, however, does not

concern good insurance practices. It does not even concern

whether, in fact, the Zachery cases were evaluated incorrectly by

everyone, since the jury ultimately rendered a verdict far in

excess of that amount.

To borrow a phrase, this issue concerns "what Schneider knew,

contract.
10
The only other evidence cited by Evanston in support of
its view that Schneider should have valued the cases at more than
$5 million are (1) a letter written by Porter stating that a
"jury verdict in the second trial could easily exceed ten million
dollars," and (2) Stonewall's setting its reserves at $5 million
shortly before the first verdict. Porter's letter, however, was
written after the first verdict, and after actual notice had been
given to Evanston. The undisputed testimony regarding
Stonewall's $5 million reserve was that it was a matter of trial
management strategy and that use of the authorized settlement
funds would depend on the evaluations of the case by Persons and
Anderson which continued to be substantially less than $5
million.
and when it knew it." Schneider's actions can be properly

evaluated only in this context. We do not ask whether Schneider's

evaluation of the case was "correct" or "mistaken" but whether, at

the time, it was based upon reason. We do not even ask whether it

would have been reasonable to give notice, as Evanston's experts

now suggest. Rather we must determine whether it was reasonable

for Schneider not to notify Evanston.

Under the circumstances prior to the first verdict, did

Schneider exercise due diligence in gathering information regarding

the claims, make an informed judgment and come to a reasonable

evaluation of less that $5 million? If so, then it fulfilled its

contractual duty to Evanston. Whether it turned out later that

Schneider's evaluation was incorrect is irrelevant under the

contract. The contract only requires that Schneider exercise good

judgment, and notify Evanston of all claims "reasonably likely" to

involve its coverage. The contract does not, indeed could not,

require that Schneider be right 100% of the time.

Furthermore, even if "good insurance practices" would have

dictated that Schneider notify Evanston earlier, the contract did

not. If, under a contract the doing of either one of two or more

acts would be reasonable, the doing of either will discharge the

contractual duty.

Under Evanston's contract, both the giving of notice and the

failure to give earlier notice may have been authorized in this

case. Presumably the giving of notice could never breach the

contract, even though it may not be good insurance practice to give

it in every case. Nevertheless, with no reason to believe, prior
to the first verdict, that its liability would reach, much less

exceed, $5 million, Schneider's failure to give earlier notice to

Evanston did not breach the contract either.

The Court of Appeals of Georgia has held no notice reasonable

as a matter of law in a similar case. Lumbermens Cas. Co., 447

S.E.2d at 91. In that case, the insured sought to recover the

costs of an oil spill clean-up under an excess policy which

provided coverage only after liability exceeded $3 million. The

excess carrier denied coverage based upon the insured's failure to

timely notify it of the claim.

The court noted that in an excess policy "the notice

obligation is triggered by the insured's assessment of the

likelihood of the monetary amount of the property damage for which

it may be liable exceeding the "ceiling' of the primary policy."

Since the insured's costs of clean-up totalled less than $25,000

after nine years of recovery operations, the court concluded that

"[g]iven these facts, and considering that [the excess carrier] has

pointed to no other facts showing that [the insured] should have

known that its liability would exceed $3,000,000 and that the

limits of the [primary] policy would even be reached, much less

exceeded, no basis existed for finding that the [excess carrier's]

policy would become "involved.' " Id. The insured's evaluation of

the claim as not requiring notice was reasonable as a matter of

law. Id.

In this case, the insured's evaluation of the claim was based

upon advice from competent attorneys representing both itself and

other excess insurers. No one suggested that the Zachery claims
would exceed $5,000,000. Therefore, Schneider's failure to give

earlier notice to Evanston was reasonable as a matter of law. The

trial court incorrectly denied summary judgment to Schneider on

this issue.

III. CONCLUSION

The district court correctly determined the legal rights and

duties as between Evanston and the other insurers. Accordingly, we

affirm the grant of summary judgment to Truck, Stonewall Surplus

and Stonewall Insurance. The district court erred in denying

summary judgment to Schneider and we reverse that denial and grant

summary judgment to Schneider against Evanston. Accordingly, the

judgments as to Truck, Stonewall Surplus and Stonewall Insurance

are AFFIRMED, and the denial of summary judgment to Schneider is

REVERSED and the case is REMANDED for the entry of summary judgment

for Schneider.