A federal judge in DC recently ruled that an insurance company could be liable for a television station for more than $ 25 million in an underlying malpractice where the insurer failed to send a timely message to preserve its rights under the policy in violation of a Virginia statute.
Atlanta Channel, Inc. (ACI) filed a lawsuit against its attorney, Henry Solomon, for failing to file a defective application with the Federal Communications Commission in 1999. At the time of the alleged error, National Casualty Insurance Co. insured Solomon under a professional liability insurance. Solomon did not warn National Casualty of the potential claim until 2012-12 years after he submitted the defective application for ACI's special broadcasting license. When National Casualty was notified of the claim, it agreed to defend Solomon under a reservation of rights. In its first reservation of rights, National Casualty announced that Solomon had breached its communications obligations under the terms of the contract. Accidents filed an explanatory court action to determine that it had no obligation to defend or injure Solomon because he did not notify in a timely manner. ACI and Solomon argued that National Casualty was still liable to pay a judgment because it did not meet its own notification requirements under a Virginia statute, and demanded that National Casualty notify its reservation of rights to complainant (ACI) within 45 days after these letters were sent to Solomon.
Although all parties agreed that Virginia law governs the dispute, National Casualty argued that Virginia message status was procedural, not substantive and therefore should not be applied. to a federal court in DC that sits in diversity under the doctrine Erie . ACI and Solomon objected that the charter was valid and that ACI was not given the right to the letter of rights in a timely manner, but National Casualty waived all defenses they had had based on Salomon's alleged premature announcement.
The Court agreed with ACI and Solomon, who held that the Virginia Charter was substantial and that all judgments in favor of ACI against Solomon could be enforced against National Accidents, despite Solomon's violation of the policy. Virginia law imposes strict statutory requirements on insurance companies. This includes the obligation under Virginia Code Sections 38.2-2226 to notify applicants or their attorney of a reservation of rights within 45 days of the letter being sent to the policyholder. In the case of Solomon it was undisputed that ACI did not receive National Casualty's booking of rights within the 45-day window required by the Charter.
Repeating "the broad command of Erie " that a multi-member court should apply state substantive law and federal procedural law, the court found that the Virginia Charter applied to National Casualty's handling of Salomon's claims. To say otherwise, the court reasoned, would encourage forum shopping and create inequality in the administration of law, the "twin cases" that were discouraged during Erie . Since National Casualty failed to give proper notice to ACI according to Virginia & # 39 ;s substantive notice status, the court held that all judgments against Solomon could be enforced against the insurer.
The ACI dispute is interesting for several reasons. First, the Court emphasized that the National Casualty "did not engage at all" in claiming that it was bound by Virginia law, whether material or procedural, because of its agreement in the policy that all provisions that violate Virginia statutes will to change. to comply with such statutes. Equally surprising was the insurer's argument that a Virginia charter "aimed at addressing the potential injustice caused by the insurer's failure to file a defense complaint" was procedural and not material. While refusing to impose sanctions and acknowledging the somewhat "enigmatic" crossing of laws governing a federal court in DC that sat in plural was called upon to determine the nature of another state's law, the court quickly dismissed National Casualty & # 39 ;s "procedural" argument, referring to both DC and Virginia law which shows that the law was in all circumstances of a material nature.
More generally, the case shows that policyholders usually defend against premature defense (like Solomon in the event of a national accident), but insurers may also have their own notify obligations under state law that may excuse policyholders from strict compliance with insurance terms. Because many insurance policies require somewhat subjective deadlines, such as "as soon as practicable", the insurer's disclosure requirements may even be more stringent than the policyholder's, as was the case in Solomon where Virginia law required a demanding 45- last day. These issues are fact-specific and enable a thorough understanding of both the relevant policy language (including provisions such as National Casualty that the policy "complies" with applicable law) and choice of law analysis to determine that state law regulates coverage. dispute.