A lawsuit alleging false imprisonment was settled by the primary general liability insurer of a large firm that operated retail stores nationwide. A $1 million settlement was negotiated by the insurer after a $2.25 million verdict was returned against the insured retailer. The insurer sought reimbursement from the insured's excess liability insurer for amounts paid in excess of an aggregate limit of insurance.

The record showed that the primary insurer apparently called attention to the existence of an aggregate limit after it agreed to settle the case. It said that a $1 million aggregate limit was omitted, when the policy was prepared, as a result of a clerical error and that the parties had agreed to that provision. The policy was written with a "per occurrence" limit of $1 million, the amount for which the claim was settled. The primary insurer sought reimbursement from the excess insurer of sums it had paid above the aggregate limit and to defend open claims it said were pending against the insured. At the same time, it "corrected" its policy to include the $1 million aggregate.

The excess insurer brought an action for declaratory judgment to the effect that it had no liability to the primary insurer. There was agreement by the parties that the insured did not notify the excess insurer of the false imprisonment action against it until the $2.25 million verdict. It asserted that this was a clear breach of the following condition of its policy: "....If claim is made or suit is brought against the Insured, the Insured shall immediately forward to the Corporation (the Insurer) every demand, notice, summons or other process received by him or his representative."

The record showed that the claimants in the false imprisonment case had demanded $125,000 and that the primary insurer had offered $25,000 just before the trial. During the trial, the claimants lowered their demand to $90,000 and the primary insurer offered $75,000. The U.S. District Court found it unquestionable, in the face of these facts, that the excess insurer was prejudiced by the lack of notice. It "deserved an opportunity to evaluate the claim and protect its interests, a right it explicitly reserved in its contract with (the Insured)."

Judgment was entered for the excess insurer declaring that it was not liable to the primary insurer for the amounts claimed in excess of the limits of the primary insurer's policy.

(SAFETY MUTUAL CASUALTY CORP., Plaintiff v. LIBERTY MUTUAL INS. CO., Defendant. U.S. District Court, District of Massachusetts. Civil Action No. 89-2636-Z. September 4, 1991. CCH 1991-92 Fire and Casualty Cases, Paragraph 3379.)