Citing a 15-month delay in refusing to provide material financial records, a federal appeals court ruled in favor of insurers including a Crum & Forster Co. unit Tuesday in a dispute with a seafood processor, in a split opinion.
Seattle-based Icicle Seafoods Inc. sought “loss of hire” coverage from various U.S. and London insurers, including C&F unit United States Fire Insurance Co., alleging in part that its factory processing vehicles could not process fish in the Alaska fishery because of motor damage , according to the judgment of the 9th US Circuit Court of Appeals in San Francisco i United States Fire Insurance Co.; et al. v. Icicle Seafoods Inc.; et al.
The U.S. District Court in Seattle granted summary judgment in favor of the insurer and was affirmed by the 9th Circuit in its 2-1ruling.
“Icicle expressly and unequivocally refused to provide material financial data for at least 15 months,” the majority opinion said.
The insurers “were injured as a matter of law by this 15-month delay, which culminated in a demand letter from Icicle threatening administrative action and a bad faith claim against the insurer if Icicle’s claim was not paid in full without seeing documents later produced in the subsequent trial before us,” it said.
Insurers then faced a “Hobson’s choice” to either pay a baseless claim “or expose themselves to liability in bad faith,” the court said, citing a previous ruling.
“On this record, Icicle breached its implied duty to cooperate, and the insurers were prejudiced as a matter of law,” it said, ruling in the insurer’s favor.
The dissent said the majority’s opinion is “troubling. If followed, this could open the floodgates to denials of coverage based on little more than what are better characterized as discovery disputes about insurer adjustment claims.”
It stated that “the penalty for discovery disputes should not be denial of coverage; appropriate penalties for dilatory discovery are available, including limitation of compensable damages for a claim.
“The penalty here is all the more severe because the insurance companies recognized a potential covered loss of nearly $1 million based on the information provided.”