Insurance – Notice-Prejudice Rule – Duty to Indemnify

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Corporation’s untimely notice was not a material breach of the insurance contract, and therefore the insurer should not be relieved of its duty to indemnify the corporation.

We affirmed the court of appeals as modified.

This case involved a coverage dispute between an insurer and a South Carolina corporation that has been defunct since the early 1990s. Covil Corporation, through its appointed receiver, sued Penn National Mutual Insurance Company alleging Penn National breached their contract for insurance by failing to contribute to a settlement in an asbestos case against Covil and other defendants. In the underlying case, David Rollins alleged Covil and others negligently exposed him to asbestos, which caused his mesothelioma. Penn National insured Covil during part of the time Rollins alleged Covil caused his exposure. The circuit court granted summary judgment in favor of Covil, concluding Penn National was required to “indemnify Covil against the settlement of the Rollins action.” The circuit court rejected Penn National’s argument that the lack of timely notice of the lawsuit defeated coverage; summary judgment was premature because Penn National did not have a full and fair opportunity to complete discovery; and two policy exclusions barred coverage. The court of appeals affirmed.

Among other things, Penn National argued it is not obligated to indemnify Covil because Covil failed to comply with a provision in the policy requiring that it provide to Penn National immediate notice of a lawsuit filed against it. Although Rollins filed his complaint on April 5, 2019, and served the summons and complaint on Covil on April 25, Covil did not provide Penn National notice of the lawsuit until January 27, 2020. Therefore, Penn National argued, Covil breached the notice provision by not providing timely notice of the Rollins lawsuit. Covil argued, however, that Penn National must show it was prejudiced by the delay to defeat coverage. Penn National responded that this “notice-prejudice rule” is inapplicable in this case because it applies only where the rights of innocent third parties are implicated. It argued such rights are not implicated here because the plaintiff in the Rollins lawsuit was fully compensated by Covil. On this point, we agreed with Penn National.

Under the notice-prejudice rule, “Where the rights of innocent parties are jeopardized by a failure of the insured to comply with the notice requirements of an insurance policy, the insurer must show substantial prejudice to the insurer’s rights” in order to defeat coverage. Because Rollins, the only potential innocent third party in this case, has been fully compensated, the “notice-prejudice rule” does not apply.

Covil argued this Court should expand the notice-prejudice rule to apply to all violations of notice provisions, regardless of whether innocent third-party rights are implicated, on the basis of public policy. We disagreed. This Court has consistently held, “Insurance companies and insureds are generally free to contract for exclusions or limitations on coverage.” Therefore, our courts will enforce the terms of all insurance policies, even if they appear to be unfair or to work injustice, unless the provision being challenged violates a specific statute or is found unenforceable under a well-established provision of law.

Relying on more general principles of contract law, however, Covil alternatively argued its untimely notice was not a material breach of the insurance contract, and thus Penn National should not be relieved of its duty to indemnify Covil. On this point, we agreed with Covil.

Finally, Penn National argued the court of appeals erred in holding summary judgment was not premature. We disagreed. In the Covil lawsuit, Penn National could have conducted discovery on whether Covil’s failure to provide timely notice was a material breach and whether the policy exclusions apply. On those points, Penn National has not identified—either to the circuit court or on appeal—any significant inquiry it was denied the opportunity to make. Thus, Penn National has not demonstrated a likelihood that further discovery in the Covil action will uncover additional, relevant evidence. Like the court of appeals, we saw no basis for a finding the circuit court’s summary judgment ruling was premature.

Affirmed as modified.

Covil Corporation v. Pennsylvania National Mutual Casualty Insurance Company (Lawyers’ Weekly No. 010-038-24, 17 pp.) (John C. Few, J.) Appealed from Richland County Circuit Court (Jean Hoefer Toal, J.) David L. Brown, David Grant Harris, II, and Brady Allen Yntema, of Goldberg Segalla LLP, of Greensboro, NC, for petitioner; William Bradley Nes, of Washington, D.C.; Jonathan M. Robinson, Shanon N. Peake, and G. Murrell Smith, Jr., of Smith Robinson Holler DuBose Morgan, LLC, of Sumter, all for respondent. South Carolina Supreme Court