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Timely Notice Required: U.S. Fifth Circuit Affirms District Court’s Denial of Coverage Due to Prejudicial Delay by Insured to Inform Carrier of Claim

February 21, 2025

Written by Karina Shareen

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Timely Notice Required: U.S. Fifth Circuit Affirms District Court’s Denial of Coverage Due to Prejudicial Delay by Insured to Inform Carrier of Claim

In the case of Champagne v. A & T Maritime Logistics, Inc., et al., the Fifth Circuit upheld the district court's decision to deny insurance coverage due to the insured's delayed notification of a claim, which prejudiced the insurer. The case involved a vessel's allision[1] with an embankment on Bayou Black and the Gulf Intracoastal Waterway in Houma, Louisiana. RLI Insurance Company (“RLI”) had issued a protection and indemnity policy to A & T Maritime.

A & T Maritime had been hired by a company to move barges between the lower Mississippi River and Houston. Since A & T Maritime did not own a vessel, it entered into a bareboat charter agreement with Alexis Marine in 2020 for the M/V Uncle Blue. The agreement required A & T Maritime to add Alexis Marine as an additional insured on its insurance policies, including the one issued by RLI.

At one point during the project, the M/V Uncle Blue suffered a blown engine, leading A & T Maritime to switch to a different vessel, the M/V Uncle John. Both A & T Maritime and Alexis Marine agreed that the bareboat charter terms would apply to this replacement vessel.

On March 10, 2020, while operating the M/V Uncle John for Russell Marine, A & T Maritime caused the vessel to strike an embankment. Although A & T Maritime photographed the damage, it did not deem the incident significant. The company failed to notify RLI about the allision or the resulting damage. Instead, A & T Maritime offered $3,500 to Mildred Dampeer, the embankment's owner, to cover the damage. Dampeer rejected the offer.

Five months later, on August 30, 2020, Dampeer informed A & T Maritime that the damage was worsening. With no settlement reached, Dampeer sold her portion of the embankment to Robert and Elizabeth Champagne (the “Champagnes”), who included an assignment of rights in the sale. The Champagnes then sued A & T Maritime and Alexis Marine. In response, Alexis Marine filed a crossclaim against A & T Maritime and a third-party claim against RLI. A & T Maritime filed a similar crossclaim against RLI, seeking defense, indemnity, and reimbursement for defense costs. RLI was not notified about the allision until the Champagnes filed their lawsuit. Once RLI was informed, it filed counterclaims against A & T Maritime, Alexis Marine, and the M/V Uncle John.

A & T Maritime and Alexis Marine both sought partial summary judgment, requesting reimbursement for their defense costs. The district court denied these motions, ruling that A & T Maritime’s coverage was disputed and that the policy did not impose a duty to defend. As a result, RLI was not required to reimburse defense costs. The district court held that the duty to reimburse defense costs merged with RLI's duty to indemnify.

In August 2022, RLI moved for summary judgment, seeking dismissal of the claims against them. The district court granted RLI’s motion, finding that A & T Maritime had violated the policy's notice requirements and that this breach had prejudiced RLI.

On appeal, A & T Maritime argued that: (1) its notice to RLI was not unduly delayed; (2) exclusion of all coverage was not the appropriate remedy; and (3) the policy required RLI to pay defense costs as they were incurred.

The RLI policy contained three separate "prompt notice" provisions. The Fifth Circuit emphasized that, under Louisiana law, an insurer must demonstrate actual prejudice from a late notice to deny coverage. A & T Maritime argued that because RLI had the opportunity to participate in the defense of the lawsuit from the beginning, the delay in notification did not prejudice the insurer. However, the Fifth Circuit rejected this argument, asserting that actual prejudice needed to be demonstrated.

The Court concluded that RLI had been prejudiced because A & T Maritime failed to take necessary action after the allision. Despite being notified that the damage was worsening, A & T Maritime took no steps to mitigate the damage or protect RLI's interests, such as evaluating the costs or damages. As a result, RLI lost the chance to settle the claim for $3,500, and the damage ultimately led to a $200,000 settlement. The Court ruled that RLI had shown sufficient prejudice, making denial of coverage the appropriate decision.

This case shows the importance of timely notifying a carrier of a potential claim, regardless of how significant or insignificant, an insured thinks the damage may be. Failure to timely provide notice of a claim may cause actual prejudice to a carrier, which could preclude of liability coverage under a policy.

[1] An ‘allision’ is defined as the ‘running of one ship upon another that is stationery.’ Distinct from ‘collision,’ an allision occurs when a ship strikes a stationary object while a collision involves two moving vessels or objects. Trico Marine Assets Inc. v. Diamond B Marine Servs. Inc., 332 F.3d 779, 786 (5th Cir. 2003).

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