An Alaskan construction company chartered a barge and returned it with damage to its hull. When the contractor’s insurance company denied coverage for the damage, they sued their insurance agent.
The contractor signed a contract in 2014 with an engineering company to charter the freight barge. The contract contained insurance requirements for the contractor to meet. The contractor retained an independent insurance agency to obtain the required coverage. The agency obtained a quote and the contractor purchased the policy.
The contractor returned the ship at the end of the charter. An inspection revealed damage to the hull; the owner informed the contractor of this in August 2014. The contractor notified the agency the following day. For reasons the published court opinion did not describe, the agency did not notify the insurance carrier until February 2015.
Six months later, the carrier denied coverage citing two grounds:
- Lack of evidence that an insured peril caused the full damage.
- Late notice of the claim.
The barge’s owner sued the contractor in January 2016 for breach of contract, seeking damages for the hull damage and loss of use of the ship. The contractor made a claim for liability coverage with the carrier. Again, the carrier denied coverage on the ground that the policy did not cover the damage. They also said that the policy did not cover “[l]iabilities arising from a charter party dispute over alleged damages to an insured vessel.” The insured asked the carrier in April to reconsider; they affirmed their decision in June. The contractor then emailed the agency and asked that it be an “ally, not a bystander” in the dispute.
The agency hired an insurance consultant to determine whether the loss should be covered. The consultant reported that the damage was caused by “a peril of the sea” and should be covered, and that the carrier should defend the insured against the lawsuit. The carrier remained unmoved and denied coverage again in August. The consultant then revised the report, again concluding that the property damage should be covered but that no defense against the suit was owed.
In 2019, the contractor and the barge owner reached a settlement for $300,000. In November, the contractor sued both agency and carrier for bad faith and negligence, with an added claim of breach of contract against the carrier. In August 2021, the carrier and agency asked the court for “summary judgment” (a ruling based on the law when the facts are undisputed,) arguing that the lawsuit was filed after the time permitted by the state statute of limitations expired.
The trial court found a question of fact as to whether the agency made assurances to the insured about the coverage. However, after a hearing, it concluded that those assurances did not delay the insured’s filing of the lawsuit. Consequently, it held that the time limit for filing the suit ran out. It ruled in the agency’s favor and the contractor appealed.
In November 2024, the Alaska Supreme Court ruled in the agency’s favor. The judges found no evidence that the insured relied on any assurances from the agency when deciding to take legal action. They also held that the agency’s delay in notifying the carrier of the claim did not cause a delay in filing the lawsuit. The carrier denied coverage in August 2015. The law gave the contractor two years to file a claim of negligence and three years to file one for breach of contract. The contractor did not file the suit until four years after the first denial.
It is unknown why the agency waited six months to submit the claim. Perhaps the insured originally asked them not to, hoping to resolve the dispute with the barge owner quietly. If so, this is a good illustration as to why agencies should submit claims promptly even if doing so is against the insured’s wishes. Based on the consultant’s conclusion, it is arguable that the agency sold an appropriate policy for the insured.
Despite the reporting delay, the agency won this suit because its insured mishandled it. The agency was fortunate in its legal opponent. Other agencies might not be so lucky and should address all claims with urgency.
