SW Legal studies in Business

Failure to Quickly Notify Insurer Did Not Invalidate Policy
Description Texas high court held that when an insured failed to notify an insurer in a timely manner about a matter that could cause the insurer to defend or indemnify the insured, it did not invalidate the policy. The delay in notification was immaterial as it did not prejudice the outcome of the matter.
Topic Insurance
Key Words

Commercial General Liability; Duty to Defend; Copyright Infringement; Notification

C A S E   S U M M A R Y
Facts

PAJ, a jewelry company, had a commercial general liability (CGL) policy from Hanover. It covered, among other things, liability for advertising injury. It required PAJ to notify Hanover of any claim or suit against PAJ “as soon as practicable.” In 1998, Yurman Designs demanded PAJ stop marketing a particular jewelry line and then sued PAJ for copyright infringement. Unaware that the CGL policy applied, PAJ did not notify Hanover of the suit until four to six months after litigation began, which Hanover contended violated the terms of the policy. PAJ sued Hanover, seeking a declaration that it was obligated to defend and indemnify PAJ. The trial court held for Hanover, as did the appeals court. PAJ appealed.

Decision

Reversed, rendered, and remanded. The failure of PAJ to timely notify Hanover of a claim was an immaterial breach of the insurance contract. It did not relieve the insurer of the contractual coverage obligation. Only a material breach would relieve that obligation. The delay in notification did not prejudice the matter, as it had not gone to trial.

Citation PAJ, Inc. v. The Hanover Insurance Co., 243 S.W.3d 630 (Sup. Ct., Tex., 2008)

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