A Magnifying Glass on the Notice Prejudice Standard in Massachusetts for Excess Insurers

What happens between a primary and excess liability insurer when their mutual insured is hit with a verdict $2.15 million over the primary limit and the excess insurer was not put on notice until after the verdict? This was the issue recently tried by the carriers in Acadia Insurance Company v. Scottsdale Insurance Company, in the Suffolk Superior Court in Massachusetts.¹

Both Acadia and Scottsdale provided liability insurance to Transpro, LLC, a transportation company located in Massachusetts. Transpro was insured under a $1 million primary liability policy issued by Acadia and a $2 million excess policy issued by Scottsdale. The underlying case arose from an incident in which a toddler was left alone in a student transport van operated by Transpro for multiple hours in the month of August.² The child’s mother brought suit alleging that he suffered post-traumatic stress as a result of the incident and that she suffered loss of consortium.

The sole dispute in the underlying case was over damages, as Transpro stipulated to liability. The defendant, Transpro, contended that the child sustained no physical injuries as a result of the incident and challenged the medical evidence submitted in support of the PTSD diagnosis. Prior to trial, Acadia assessed the full settlement value of the case at $125,000. Scottsdale contends that Acadia undervalued the claim.³ On the eve of trial, the plaintiff made a settlement demand of $170,000. Acadia countered with $115,000 which was rejected. The matter did not resolve and instead proceeded to trial, during which counsel for Transpro declined to call its rebuttal medical expert witness. The jury returned a verdict of $3.15 million in favor of the plaintiff.

Scottsdale received its first notice of the claim three days after the verdict was entered.

The underlying case went to a post-verdict mediation where the case ultimately settled for $2.2 million. Acadia paid $2 million toward the settlement, comprising its $1 million policy limit and another $1 million. Scottsdale contributed $200,000.

Acadia filed the subject insurer action against Scottsdale to recoup the $1 million it paid in excess of its primary limit. Acadia argued that Scottsdale breached its excess policy by failing to pay its limits.⁴ In defense, Scottsdale argued that because it was prejudiced by the insured’s late notice of the claim, it had no obligation to tender its limits or extend coverage to satisfy the judgment or settlement.

At trial, “the jury found that Transpro had provided late notice of the claim to Scottsdale, but [that] Scottsdale failed to prove it was prejudiced by the late notice.” The jury, therefore, determined that Scottsdale breached its policy by not contributing its full excess limit of $1 million and awarded Acadia the requested $1 million.

The matter was ultimately resolved via a settlement post-verdict.  

¹ Mass. Lawyers Weekly Staff, Carriers sue each other over obligations to mutual insured, Massachusetts Lawyers Weekly 2024 WLNR 6536122 (May 10, 2024); Joint Pre-Trial Memorandum, Acadia Insurance Company v. Scottsdale, No. 17-0209-B (Mar. 29, 2024) (Doc. 53).
² Order on Scottsdale Insurance Company’s Opposition to Plaintiff’s Motion for Directed Verdict and Cross-Motion for Directed Verdict, Acadia Insurance Company v. Scottsdale, No. 17-0209-B (Apr. 16, 2024) (Doc. 58).
³ Scottsdale counterclaimed against Acadia for the $200,000 it paid in settlement on a theory of equitable subrogation. Scottsdale argued that Acadia acted negligently in failing to settle the underlying case prior to trial for within the policy limit.