Insurer relieved of duty, despite failing to demonstrate "actual prejudice"
Huntington Bank purchased from First American Title Insurance Co. a title insurance policy to cover its loan on a mortgaged piece of property. When construction liens appeared on the record and threatened higher priority than the mortgage, Huntington participated in a lawsuit defending the priority of its claim. It didn't immediately notify First American of the lawsuit or claim, and during the pendency of the lawsuit, it stipulated to the attachment and priority of the construction liens. These stipulations did not end the lawsuit.
First American then sought dismissal of the claim against it, based on Huntington's "settlement" of the underlying claim without First American's consent. It also argued that the bank had failed to provide it with prompt notice of the litigation, since the notice was delayed for 16 months. The trial judge granted summary disposition in favor of the insurance company and Huntington appealed to the Court of Appeals.
The Court noted that when an insurance policy requires "prompt notice" the insurer is obligated to establish actual prejudice it suffered by delay in notice. The Appellate majority then held that since Huntington had stipulated to the entry of two orders involving attachment and priority, it had prejudiced the insurer's position as a matter of law, regardless of whether the insurer had any reasonable grounds to dispute these issues.Judge Hoekstra filed a cogent dissent pointing out that agreeing to the entry of the two disputed orders did not "resolve" the pending claim, and therefore didn't violate the "settlement" clause. Furthermore, Judge Hoekstra pointed out that First American did not even attempt to document actual prejudice resulting from the stipulated orders. Therefore, it had not met its undisputed burden and should not prevail on a question of late notice.