E. Dillon & Company v. Travelers Casualty & Surety Company of America

Filing 20

OPINION granting Defendants 14 Motion for Summary Judgment. Signed by Judge James P. Jones on 6/12/2015. (lml)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
E DILLON & COMPANY,
Plaintiff,
v.
TRAVELERS CASUALTY & SURETY
COMPANY OF AMERICA,
Defendant.

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Case No. 1:14CV00070
OPINION AND ORDER
By: James P. Jones
United States District Judge

Robert V. Ward and Beth Osborne Skinner, Ward & Rasnic, P.C., Bristol,
Virginia, for Plaintiff; Charles M. Sims and Joseph M. Rainsbury, LeClairRyan, A
Professional Corporation, Richmond and Roanoke, Virginia, for Defendant.
In this dispute over an employer’s liability insurance coverage, the
defendant, Travelers Casualty and Surety Company of America (“Travelers”), has
filed a Motion for Summary Judgment. In its Complaint, the plaintiff, E Dillon &
Company (“E Dillon”), claims that Travelers wrongfully denied it coverage in
relation to an employment discrimination lawsuit brought by one of its former
employees. Travelers asserts it was not timely notified of the claim as required by
the insurance policy, and was thus not obligated to cover the claim. Jurisdiction of
this court exists pursuant to diversity of citizenship and amount in controversy. 28
U.S.C. § 1332.

I will grant summary judgment to Travelers, on the ground that the
undisputed facts show that the insured’s notice of the claim was untimely, and it
was therefore not entitled to coverage under the insurance policy. 1
I.
The pertinent facts are undisputed.2 E Dillon, a company headquartered in
Swords Creek, Virginia, produces and sells construction and mining materials. On
August 1, 2010, its then President and Chief Financial Officer, Otey Dudley, took
out a liability policy (the “Policy”) for the company with Travelers, with a policy
period ending August 1, 2011. According to Dudley, the Policy has since been
continuously renewed on an annual basis.
Under the Policy’s Insuring Agreement for Employment Practices Liability,
Travelers agreed to provide coverage for any “Employment Claim” first made
during the policy period for a “Wrongful Employment Practice.” (Certified Policy
26, ECF No. 15-2.) The Policy’s definition of “Employment Claim” includes “a
1

E Dillon did not file its Memorandum in Opposition to Defendant’s Motion for
Summary Judgment until nearly two weeks after the deadline under the court’s local rules
had passed, see W.D. Va. Civ. R. 11(c)(1), and without seeking leave of court. Travelers
has moved to strike the opposition as untimely. I will grant Travelers’ motion, although I
am still obligated to consider the Motion for Summary Judgment on its merits, regardless
of the failure to timely respond in opposition. See Custer v. Pan Am. Life Ins. Co., 12
F.3d 410, 416 (4th Cir. 1993). Accordingly, E Dillon has suffered no prejudice by the
late filing, particularly since it does not dispute the relevant facts.
2

In a deposition taken April 27, 2015, Otis Dudley, currently E Dillon’s Chief
Financial Officer, acknowledged on behalf of the company essentially all of the facts
asserted by Travelers in connection with its Motion for Summary Judgment.
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formal administrative or regulatory proceeding commenced by the filing of a
notice of charges . . . including . . . a proceeding before the Equal Employment
Opportunity Commission,” among other types of claims.
definition

of

“Wrongful

Employment

Practice”

(Id. at 27.)

includes

claims

The
of

“Discrimination” and “Retaliation.” (Id. at 30.)
In a section entitled “Insured’s Duties in the Event of a Claim,” the Policy
provides that if an “Executive Officer” becomes aware of a claim, he must give
written notice of the particulars of the claim — including the alleged facts, specific
dates, and identities of the persons involved — “as soon as practicable.” (Id. at
15.) The Policy states that such notice is “a condition precedent to any rights
under this Liability Policy.” (Id.) Further, the Policy requires that the insured give
“such information, assistance and cooperation as . . . may reasonably [be]
require[d].” (Id.) The Policy’s definition of “Executive Officer” includes an
“officer” of the company. (Id. at 35.) Dudley does not dispute that he is an
“Executive Officer” for purposes of liability coverage. (Dudley Dep. 12, ECF No.
15-1.)
On April 4, 2011, Dudley received notice that a former employee of E
Dillon, Vincent Sizemore, had filed a charge with the Equal Employment
Opportunity Commission for alleged employment discrimination in violation of
Title VII of the Civil Rights Act, 42 U.S.C. §§ 2000e, et seq., and the Americans
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with Disabilities Act, 42 U.S.C. §§ 12101, et seq. (Notice of Charge, ECF No. 153.) E Dillon hired counsel to defend the charge, and denied the allegations of
discrimination in a letter to the EEOC dated May 5, 2011. (Miller Letter, ECF No.
15-4.) By letter dated June 7, 2011, Sizemore’s counsel informed Dudley that
Sizemore had been declared permanently disabled by his treating physician, that he
would not be returning to work at E Dillon, and that he would be pursuing
remedies against the company for its alleged unlawful discrimination. (Figueiras
Letter 30, ECF No. 15-11.)
On April 27, 2012, the EEOC gave notice to E Dillon and Sizemore that it
was dismissing Sizemore’s EEOC charge, and providing issuance of the right to
sue. (Dismissal & Notice of Rights, ECF No. 15-6.) The EEOC later reversed its
position, however, and issued a finding on September 27, 2012, that “there is
reasonable cause to believe that a violation of the Americans with Disabilities Act
of 1990, as amended, has occurred.” (EEOC Determination 3, ECF No. 15-8.)
At the EEOC’s invitation, Sizemore and E Dillon agreed to attend a
conciliation meeting scheduled March 14, 2013. Prior to the conciliation meeting,
E Dillon provided notice of Sizemore’s claim to Travelers for the first time through
correspondence dated February 28, 2013. (Dudley Letter 2-3, ECF No. 15-11.)
Thereafter, on March 11, 2013, Travelers denied coverage for E Dillon’s claim,
stating that “[t]he almost two (2) years delay in reporting this matter does not
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satisfy the Policy provision requiring that a Claim be reported as soon as
practicable.” (Travelers Letter 5, ECF No. 15-13.)
Following the conciliation meeting, the EEOC presented E Dillon with a
draft Conciliation Agreement, proposing that the company pay $178,000 in back
wages and damages. (Conciliation Agreement 5, ECF No. 15-16.)

E Dillon

rejected this proposed settlement. Subsequently, Sizemore filed suit in this court,
alleging he had been discriminated against due to his disability based on the same
facts as his EEOC claim. (Compl., Case No. 1:13CV00048, ECF No. 15-14.) The
Summons and Complaint were served on E Dillon’s registered agent in September
of 2013. (Dudley Letter 2, ECF No. 15-14.) The court set a mediation date for
February 11, 2014, and a trial date of September 29, 2014. (Id.) E Dillon did not
inform Travelers of the pending suit until February 3, 2014, when it requested by
letter that Travelers defend against Sizemore’s claims in the mediation and trial.
On February 10, 2014, Travelers responded by again denying coverage, based on E
Dillon’s failure to notify Travelers of Sizemore’s claim as soon as practicable, as
required by the insurance policy. Ultimately, E Dillon settled Sizemore’s claims
for $45,000, incurring $70,873.12 in attorney’s fees and costs. (Compl. 2, ECF
No. 1.)

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II.
Under Federal Rule of Civil Procedure 56(a), summary judgment is proper
“if the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” In order to preclude
summary judgment, the dispute about a material fact must be “‘genuine,’ that is, if
the evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, if
the evidence of a genuine issue of material fact “is merely colorable, or is not
significantly probative, summary judgment may be granted.” Id. at 249-50
(citations omitted). In considering a motion for summary judgment under Rule 56,
a court must view the record as a whole and draw all reasonable inferences in the
light most favorable to the nonmoving party. See Shaw v. Stroud, 13 F.3d 791, 798
(4th Cir. 1994).
Because subject-matter jurisdiction rests upon diversity of citizenship, the
case is governed by Virginia law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
(1938). An insurance policy is a contract, and the court will give “the words used
in this policy their ordinary and usual meaning when they are susceptible of such
construction.” State Farm Fire & Cas. Co. v. Walton, 423 S.E.2d 188, 191, (Va.
1992). If the policy language is unambiguous, the court will “simply apply the
terms of the policy as written.” Id.
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It is undisputed that the Policy required notice of claims “as soon as
practicable,” but that E Dillon waited almost two years before notifying Travelers
of its claim. Under Virginia law, insurance policy provisions requiring notice of a
claim “as soon as practicable are reasonable and enforceable.” State Farm Fire &
Cas. Co. v. Wallace, 997 F. Supp. 2d 439, 446 (W.D. Va. 2014) (internal quotation
marks and citation omitted). Therefore, a policy’s requirement of “timely notice of
an accident or occurrence is a condition precedent to an insurance company’s
liability coverage requiring substantial compliance by the insured.” Id. (internal
quotation marks and citations omitted). Where the failure to notify is “substantial
and material,” the insurer has no longer owes a duty to defend or indemnify the
insured. Id. (internal quotation marks and citation omitted).
“Three factors bear upon the materiality of a breach of the notice provision
of a policy: (1) the reasonableness of the delayed notice, (2) the amount of
prejudice suffered by the insurer as a result of the delay, and (3) the length of time
that elapsed before notice was given.” Id. at 447 (internal quotation marks and
citations omitted).

The reasonableness of an insured’s notice of a claim is

determined using an objective standard, and notification is required “whenever it
should reasonably appear to the insured that the policy may be implicated.” Id.
(internal quotation marks and citations omitted); see also Walton, 423 S.E.2d at
192 (stating that obligation to notify arises with “incident which was sufficiently
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serious to lead a person of ordinary intelligence and prudence to believe that it
might give rise to a claim for damages covered by [the] policy”) (internal quotation
marks and citation omitted). Further, “a prolonged delay in notification alone may
breach the policy even absent a showing of prejudice.” Wallace, 997 F. Supp. 2d
at 446 (internal quotation marks and citations omitted).
Although the reasonableness of a notice delay is generally a factual question
reserved for the jury, id. at 447, I find that under the circumstances of this case, E
Dillon’s two-year notification delay was a material breach of the Policy as a matter
of law.

See Va. Farm Bureau Mut. Ins. Co. v. Sutherland, No. Civ.A.

7:03CV00122, 2004 WL 2360162, at *2 (W.D. Va. Oct. 19, 2004) (“The question
of delayed notice may be decided as a matter of law where reasonable men could
not differ as to the inferences to be drawn from the undisputed facts.” (internal
quotation marks and citation omitted).)

The Policy explicitly required any

“Executive Officer” — which would include then President and Chief Financial
Officer Dudley, who acknowledges he was aware of the EEOC charge — to notify
Travelers of the claim “as soon as practicable.” Given that the Policy specifically
defined EEOC proceedings as a type of “Employment Claim” subject to coverage,
it was not reasonable for E Dillon to wait until it knew a lawsuit would be filed
before invoking the Policy. Under these circumstances, it should have “reasonably

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appear[ed]” to E Dillon that the Policy would be implicated by Sizemore’s EEOC
claim.
It may be argued that under the Policy, Travelers had no duty to defend the
EEOC claim, and E Dillon therefore had no duty to notify Travelers until the actual
lawsuit was filed. This reading, however, would contradict the Policy’s plain
language, which explicitly defines an “Employment Claim” to include EEOC
proceedings. “Failure to give timely notice will not be excused when the insured
only subjectively concludes that coverage under the policy will not be implicated.”
Dan River, Inc. v. Commercial Union Ins. Co., 317 S.E.2d 485, 489 (Va. 1984)
(emphasis added).
Further, Travelers was clearly prejudiced by the delay, as it lost the
opportunity to investigate the claim, direct E Dillon’s defense, and attempt to
resolve the claim before the EEOC concluded there was reasonable cause to find
disability discrimination against Sizemore. The EEOC’s Conciliation Agreement,
which proposed payment of $178,000 in back pay and damages, further diminished
any leverage Travelers might have had in settling the case, and increased the
likelihood that a lawsuit would be filed.
Even if there were no prejudice, however, the length of the delay alone is
sufficient to conclude that E Dillon materially breached the Policy’s condition of
coverage. The two-year delay in this case far exceeds delays that have been found
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unreasonable as a matter of law in Virginia. “Virginia courts have generally held
that notice given beyond 75 days, without a reasonable excuse, is untimely,” and
“a delay of 601 days is beyond the outer limits of reasonableness.” Sutherland,
2004 WL 2360162, at *2; see also Atlas Ins. Co. v. Chapman, 888 F. Supp. 742,
744 (E.D. Va. 1995) (finding 126-day delay unreasonable), aff’d, No. 95-2404,
1996 WL 436562, at *1 (4th Cir. July 23, 1996) (unpublished); Lord v. State Farm
Mut. Auto. Ins. Co., 295 S.E.2d 796, 799-800 (Va. 1982) (finding 173-day delay
untimely); State Farm Mut. Auto. Ins. Co. v. Porter, 272 S.E.2d 196, 200 (Va.
1980) (finding delay of seven months untimely).
For these reasons, I find that E Dillon materially breached the Policy’s
condition of coverage, and that Travelers was therefore entitled to deny E Dillon’s
claim.
III.
For these reasons, it is ORDERED that Defendant’s Motion for Summary
Judgment (ECF No. 14) is GRANTED.

A separate judgment will be entered

herewith.

ENTER: June 12, 2015
/s/ James P. Jones
United States District Judge

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