Contractor’s $25M Insurance Claim Waived Because of Untimely Notice to Insurer

A recent holding in Fairfax County Circuit Court reinforces the importance of contractors giving timely claim notice to their insurers. The case, St. Paul Fire and Marine Ins. Co. v. HITT Contracting, Inc., decided on December 12, 2024 by the Hon. David A. Oblon, involved a construction project gone awry. HITT, the construction manager, filed suit against the project owner, Glenstone, for unpaid work. Glenstone denied liability and counterclaimed against HITT alleging problems with HITT’s work.

HITT had a three-layer insurance policy tower in place for the project work: a first layer of $2M as primary coverage; a second layer of $25M, an excess policy on the first; and a third layer, a $25M excess policy on the second. St. Paul’s issued that latter second layer excess policy.

Glenstone’s counterclaim against HITT sought $35.9M in damages. Despite the amount, HITT chose not to notify St. Paul’s of the Glenstone counterclaim because HITT initially concluded the counterclaim lacked merit. HITT and Glenstone thereafter engaged in settlement negotiations, including a mediation approximately five months after Glenstone’s service of the counterclaim.

At mediation, Glenstone offered to settle the case for $11M plus HITT’s waiver of $18M of unpaid work invoices. HITT was not agreeable and the mediation impassed, after which HITT only then decided to notify St. Paul of the potential insurance claim. St. Paul’s denied coverage because of the notification delay.

HITT and Glenstone ultimately settled the Glenstone counterclaim for $51M regarding which HITT sought payment from St. Paul under the second excess layer policy. St. Paul maintained its coverage waiver position and refused to provide insurance coverage for HITT’s claim or contribute to HITT’s settlement with Glenstone.

In the Fairfax County litigation, St. Paul sought a declaratory judgment regarding its coverage obligations. In response, HITT counterclaimed against St. Paul for breach damages because the insurer had denied coverage and refused to contribute to HITT’s settlement with Glenstone. The court found for St. Paul.

The court’s decision focused on the timing of HITT’s notice of a likely insurance claim to St. Paul. St. Paul’s “Loss Notification” provision in HITT’s policy read:

You . . . must tell us or our agent if any occurrence, event, accident, offense, incident, act, error, or omission happens or is committed that will likely result in damages that exceed the loss notification amount shown in the coverage Summary [50% of the combined total of limits of coverage for you “Underlying Insurance.”].

While this provision lacks a set deadline for notice, the court held the law implies “reasonable notice” after the likelihood of a claim arises, with reasonability being a factual issue to be decided on a case-by-case basis.

Analyzing the facts, the court concluded that HITT’s failure to notify St. Paul until five months after service of the counterclaim, and after HITT had already engaged in unsuccessful mediation with Glenstone, was not reasonable and prejudiced St. Paul, because – among other things - the delay made it then impossible to know if the insurer’s involvement in the mediation would have impacted resolution of the counterclaim. Because HITT unreasonably delayed notice to St. Paul, the court held HITT’s coverage claims against the insurer were barred.

This case illustrates the importance of focusing on potential insurance coverage early in the dispute process. Non-compliance with an insurance contract’s requirements, including regarding claim notice, can have negative consequences. The trigger for a claim is its likelihood, not its merits.

Contractors must not delay claim notice to insurers about a potential claim. Even if a claim is determined to be being premature or meritless, giving notice allows an insurer to investigate promptly and potentially minimize losses. Conversely, delaying notice can have significant consequences on an insurer’s potential liability for the claim, even if that claim is otherwise covered under your insurance policy.