In this issue:

• Contributory Negligence in Breach of Warranty Claims: Introducing a Plaintiff’s Improper Conduct in the Commonwealth of Virginia by Kelly M. Lippincott and J. Peter Glaws, IV
• When a Claim Takes You by Surprise: How to Use the Late Notice Defense in Maryland, Virginia and the District of Columbia By Kelly M. Lippincott and Kristine M. Ellison

Contributory Negligence in Breach of Warranty Claims: Introducing a Plaintiff’s Improper Conduct in the Commonwealth of Virginia

By Kelly M. Lippincott and J. Peter Glaws, IV

There is considerable disagreement among jurisdictions regarding whether a defendant may use defenses normally associated with negligence actions in claims for breach of implied warranties. Unlike many jurisdictions,¹ the Commonwealth of Virginia has refused to allow ex delicto defenses to bleed into actions ex contractu.² As a result of this, in products liability claims, Virginia plaintiffs will sometimes abandon their negligence counts in favor of proceeding on a breach of implied warranty claim to avoid a contributory negligence instruction³ The main objective of this strategy is to keep the plaintiff’s conduct away from the eyes and ears of the jury.

From the defense counsel’s perspective, nothing can be done about this tactic. However, at the point where a plaintiff believes he has escaped the consequences of his own improper or negligent conduct, the operative defense question becomes: how is it possible to get that same conduct in front of a fact finder for its consideration during deliberations? If an attorney is familiar with products liability defense in the Commonwealth and the elements of a breach of implied warranty claim, the question is not as difficult to answer as plaintiff’s counsel might hope. The caveat being that the defense attorney must steer clear of any indication that they are trying to make a contributory negligence or assumption of the risk argument.

In Virginia, a claim for breach of the implied warranty of merchantability arises under Va. Code § 8.2-314 which provides, “unless excluded or modified [under 8.2-316], a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to the goods of that kind.” A plaintiff can establish a claim for breach of implied warranty of merchantability by showing that, “(1) the goods were unreasonably dangerous either for the use to which they would ordinarily be put or for some other reasonably foreseeable purpose;and (2) the unreasonably dangerous condition existed when the goods left the defendants hands.”⁴ Unreasonably dangerous products are defined as those: “(i) defective in assembly or manufacture; (ii) imprudently designed; or (iii) not accompanied by adequate warnings about their hazardous properties.”⁵ However, even if the implied warranty of merchantability is breached, the plaintiff must meet the same causation standard that would permit recovery under a negligence theory.⁶

Defense counsel has two opportunities to use the same set of facts in a breach of warranty claim that he would use in arguing for a contributory negligence instruction. The first is the “open and obvious” defense. This defense (like contributory negligence) acts as a complete bar to the plaintiff’s claim if the defect of which the plaintiff complains was “known, visible, or obvious to him.”⁷ The second is a proximate causation argument, which would be identical to a causation analysis on a negligence based claim.⁸

The open and obvious defense and contributory negligence are related, but the open and obvious defense focuses on the hazard itself rather than the actual conduct of the plaintiff.⁹ As noted above, a Virginia plaintiff cannot recover for a breach of an implied warranty “if the purported defect of which the plaintiff complains was known, visible or obvious to him.”¹⁰ The focus of the open and obvious defense is not whether the defect itself (e.g. failure to warn, design defect, etc.) was obvious, but whether the hazard or risk which ultimately caused the injury was clearly apparent.¹¹ A hazard or risk is open and obvious, “if the person using the product is or should be aware of the risk”¹² but, proceeds to act in a manner where a reasonably prudent person could or should have anticipated the resulting accident.¹³

Accordingly, defense counsel has a two tiered argument under the open and obvious theory. First is to establish that the risk itself is obvious and second is to address the plaintiff’s conduct in light of that risk. Because the operative question is not whether the defect itself was obvious, but whether the risk was obvious, the plaintiff’s subsequent actions in the face of that obvious risk are critically important in establishing that he behaved in an unreasonable manner in the face of that risk. This is the same conduct that would be used in a contributory negligence setting.

For example, in Austin v. Clark Equipment Co., the Fourth Circuit Court of Appeals (applying Virginia law) held that a forklift with limited visibility was not unreasonably dangerous because the hazard created by the reduced visibility was open and obvious.¹⁴ In Austin, two warehouse workers were operating forklifts and had previously been trained regarding their limited visibility and were aware of the risks associated with that limited visibility. However, despite the training and knowledge of the risks, the plaintiff was severely injured when her co-worker impaled her with the forklift’s teeth. Thus, the forklift’s manufacturer was not liable on the breach of warranty claim because the hazard (being the injury to the plaintiff) was known, visible, or obvious to the other driver and that driver operated the forklift in an unreasonable manner in the face of the open and obvious hazard.

The second opportunity to put the plaintiff’s conduct before the fact finder is in a causation argument. Even if a warranty is breached, the plaintiff must meet the same causation standard that would permit a recovery under a negligence theory.¹⁵ Under Virginia law, a “plaintiff cannot recover unless [he] establishes the breach as the proximate cause [of the alleged injury].”¹⁶ In a products liability case, causation requires the plaintiff “to demonstrate with reasonable certainty that if there is more than one possible cause of the accident, the [d]efendants caused the accident.”¹⁷

Factors courts have considered significant in product liability causation include: product misuse, alteration, obviousness of the danger, whether a warning advocated by the plaintiff would have actually changed the plaintiffs conduct, lapse of time between sale of the product and the accident, as well as others. All of these factors have a common denominator; the conduct of the plaintiff. If defense counsel can show that the plaintiff’s conduct was at least equally responsible for the alleged injury, the breach of warranty is inapposite and judgment should be in favor of the defendant.¹⁸

Although every case is unique, there should rarely, if ever, be a situation in products liability litigation where a plaintiff is able to keep his own conduct from the fact finder through a tactical maneuver. However, as stated above, it cannot be stressed enough that any introduction of a plaintiff’s conduct must be couched strictly in words associated with causation or ex contractu defenses. Framing the argument in a manner indicating contributory negligence is an easy opening for a limiting instruction that the fact finder should not consider the plaintiff’s conduct in that context.

1. See E.L. Kellet, Contributory Negligence or Assumption of the Risk as a Defense to Action for Personal Injury, Death, or Property Damage Resulting from Alleged Breach of Implied Warranty, 4 A.L.R. 3d 501 (2012) (outlining the availability of tort based defenses in breach of warranty claims within the Several States and Federal courts generally).
2. Wood v. Bass Pro Shops, Inc., 250 Va. 297, 300-01, 462 S.E. 2d 101, 102-03 (1995).
3. Id.
4. Butler v. Navistar Int’l Transp. Corp., 809 F. Supp. 1202, 1205-06 (W.D.Va. 1991).
5. Id. at 1206.
6. Id. at 1208.
7. Bass Pro Shops, 250 Va. at 301, 462 S.E. 2d at 103 (stating the principle of law).
8. Butler, 800 F. Supp. at 1208.
9. King v. Flinn & Dreffein Eng’g Co., No. 7:09-cv-00410, 2012 WL 3133677, *7 (W.D. Va. July 30, 2012).
10. Freemen v. Case Corp., 118 F.3d 1011, 1014 (4th Cir. 1997) (internal citations omitted).
11. Id. at 1014-15.
12. Id. at 1014.
13. Flinn & Dreffein, 2012 WL at *7.
14. 48 F.3d 833 (4th Cir. 1995).
15. Butler, 809 F. Supp. at 1208.
16. Id.
17. Sprouse v. American Tire Distrib., Inc., No. 3:08-CV-491, 2009 WL 1404735, *3 (E.D.Va. May 15, 2009) (citing reported Virginia decisions – omitted).
18. See Butler, 809 F. Supp. at 1208 (establishing a common causation standard for negligence and breach of warranty clams); See also Sprouse v. Am. Tire Distrib., Inc., No. 3:08-CV-491, 2009 WL 1404735, *3 (E.D. Va. May 15, 2009).

When a Claim Takes You by Surprise: How to Use the Late Notice Defense in Maryland, Virginia and the District of Columbia

By Kelly M. Lippincott and Kristine M. Ellison

Introduction
Despite timely reporting requirements set forth in their insurance policies, some insureds delay in notifying their insurer until months or years after the claim arises. Although the insured can raise the defense of late notice, each state approaches this defense differently and the strength of such a defense will vary depending upon the jurisdiction and the facts of the case. For instance, some jurisdictions require a showing of prejudice, while others view violations of the notice provisions to be a breach of the policy by the insured. This article examines the differences in the late notice defense in Maryland, Virginia and the District of Columbia and the burdens placed on an insurer who seeks to assert the defense.
Maryland

In Maryland, whether an insurer can use late notice to disclaim coverage for an action depends on a number of factors. As an initial matter, the insurer should determine whether the claim was actually made during the policy period. If it was not made against the insured during the policy period, then the insurer can disclaim coverage for that reason alone, regardless of when the insured gave notice.¹ If the claim was made during the policy period but the insured gave notice after the expiration of the requisite time frame for notice under the policy, then the ability to disclaim coverage will turn on whether the notice provisions are conditions precedent or covenants.² This principle applies regardless of whether the policy is a claims-made or a claims-made-and-reported and reported.³ If the notice provisions are covenants, then late notice constitutes a breach of the policy by the insured, triggering application of Md. Ins. Code § 19-110.⁴ Section 19-110 states:

An insurer may disclaim coverage on a liability insurance policy on the ground that the insured . . . has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.

Although the Maryland courts have not examined the issue, a federal district court in Maryland determined that if notice provisions/reporting requirements are made part of the policy’s coverage grant, then they are more appropriately considered conditions precedent to coverage and no showing of actual prejudice is required.⁵

Maryland courts have provided direction as to what circumstances will support a finding of prejudice as a matter of law. An insurer receiving notice after an adverse judgment usually can establish prejudice as a matter of law because at that point the insurer has been completely deprived of its “right to control the investigation, defense, and settlement of the claims.”⁶ Even an excess insurer, as opposed to a primary insurer, was actually prejudiced as a matter of law when it did not receive notice until after an adverse judgment was entered because its policy gave it the right to participate in legal actions arising from claims under the policy.⁷

Comparatively, pointing simply to the length of the delay of the notice is not sufficient to establish prejudice as a matter of law. An insurer lost on summary judgment based on the insured waiting twenty-nine months after a motor vehicle accident to report the accident because the prejudice it claimed was only “possible, theoretical, conjectural, or hypothetical.”⁸ Although the insurer claimed its investigation was hindered by the late notice, the insurer provided no evidence that it actually attempted to investigate the accident.⁹

Maryland cases give no other examples of what may qualify as “actual prejudice.” But in an analogous context, the Court of Special Appeals found no distinction between the burden to prove “actual prejudice” under Md. Ins. Code § 19-110 and the burden to prove “prejudice” under Md. Labor and Employment Code § 9-704 (Notice to Employer-Accidental personal injury).¹⁰ Consequently, the Court required an employer to “produce some evidence that a change occurred in the employee’s condition, the scene of the accident, or the memory or availability of witnesses, etc., from day 10 after the accident [as required under employer’s policy] to day 19 [when employee gave notice], that hampered their defense to the claim.”¹¹ This guideline can assist insurers in their attempts to prove that they suffered prejudice as a result of the late notice – they need to point to how their defense against the claim would have differed had they been notified pursuant to the time frame in the policy as opposed to when they actually received notice.

Virginia
Virginia does not have a statute that requires a showing of prejudice like Maryland’s Insurance Code § 19-110. Virginia treats the policies as any other contract for purposes of coverage and looks first to the notice provisions of the specific policy at issue. A court then determines whether the alleged “violation of the notice requirement is substantial and material,” and if it is not, then the insurer can still disclaim coverage even if it concedes that the late notice did not prejudice it.¹² “If a violation of the notice requirement is substantial and material, the insurance company need not show that it was prejudiced by such a violation.”¹³ In Walton, the Supreme Court held that a delay of over two years in complying with the provisions of the policy’s listed duties after the loss was, as a matter of law, a substantial and material violation of the policy.¹⁴Additionally, in State Farm Mutual Insurance Co. v. Porter, the Supreme Court of Virginia held that where the record indicates that the insured willfully violated policy provisions requiring notice of the accident, notice of the lawsuit and forwarding the lawsuit papers, the insurer need not demonstrate anything else to disclaim coverage.¹⁵

An insurer should not, however, be too confident in its late notice defense because other considerations may apply. A recent decision from the Eastern District of Virginia outlined several important considerations for cases involving late notice.¹⁶ The insured should always begin with the well-settled principle that whether the insured gave notice of the claim “as soon as practicable” is normally a question of fact for the jury.¹⁷ Even when an insured’s notice to the insurer was delayed by a relatively short amount of time and lacks justification or extenuating circumstances, it remains a jury issue whether notice was given “as soon as practicable.”¹⁸ Although an insurer usually does not need to demonstrate that it was prejudiced by the insured’s delay in providing notice, a jury may consider lack of prejudice if the jury is already considering the reasonableness of the delay.¹⁹ In some circumstances, however, the Court may determine as a matter of law that the length of the delay was so long that it violated an insurance policy’s notice provision as a matter of law.²⁰

Other considerations apply when an insured puts on evidence of extenuating circumstances related to the delay. If the delay is not so long as to make the question one of law for the court, the jury may consider whether these circumstances furnish a justification or excuse for the delay.²¹ “Extenuating circumstances may include, for example, an injury that precludes the insured from notifying its insurer of an occurrence.”²² When an insured contends that his mistaken, subjective belief that his policy would not be implicated caused the delay, the jury must evaluate the delay from an objective point of view because the insured’s subjective belief is not, as a matter of law, an excuse or justification for the delay.²³ “Put differently, it is no defense to a claim that notice was untimely to say that the insured subjectively did not understand his policy might be implicated.”²⁴ In sum, the duty to notify the insurer arises when an incident occurs “‘which was sufficiently 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.’”²⁵

Distinct from the relationship between the insurer and the insured, Virginia law requires the insurer to notify the claimant once the insurer has decided to disclaim coverage. Va. Code § 38.2-2226 requires the insurer to notify claimant’s counsel of a breach of the terms of the insurance policy within “forty-five days after discovery by the insurer of the breach or of the claim, whichever is later.”²⁶ Moreover, if an insurer and insured execute a nonwaiver of rights agreement because of the breach, or if the insurer sends the insured a reservation of rights letter, the insurer is required to notify the claimant within forty-five days of either action, or after notice of the claim is received, whichever is later.²⁷ Additionally, “[f]ailure to give the notice within forty-five days will result in a waiver of the defense based on such breach to the extent of the claim by operation of law.”²⁸ Notwithstanding these provisions, if the claimant has filed a civil action to pursue the claim, the insurer must “give notice of reservation of rights in writing to the claimant . . . not less than thirty days prior to the date set for trial of the matter.”²⁹ The court may use its discretion to shorten the thirty day limit, but failure by the insured to give the notice within the requisite time period “shall result in a waiver of the defense based on such breach to the extent of the claim by operation of law.”³⁰

District of Columbia
Similar to Virginia, the District of Columbia does not have a statute that requires a showing of actual prejudice in response to a late notice defense. In D.C., compliance with notice provisions in insurance contracts is a contractual precondition to coverage such that failure to provide notice releases the insurer from liability.³¹ Reasonableness of the notice given is usually a question for the jury to determine based on the unique facts and circumstances of each case; but when the evidence proving the timing is undisputed, a trial court may determine whether the notice was reasonable as a matter of law.³² Consistent with precedent, the Greycoat Court applied the three Starks³³ factors for to determine whether the late notice was reasonable: “1) what the insured could have believed were its obligations under the policy, (2) what the insured could have believed about its likely liability in the underlying action, and (3) what the insured could have believed was the likelihood of being sued.”³⁴ In the same decision, the Court reaffirmed that D.C. law does not require an insurer to show that the late notice of the claim has prejudiced it.³⁵

In a few cases, D.C.’s courts have determined that the late notice was per se unreasonable. For example, notice to an insurer over two and a half years following an incident, which was also five months after the claimants filed suit was unreasonable as a matter of law, using the date of the filing of suit as the event triggering the notice requirement.³⁶ Additionally, although a claimant did not have standing to bring an action against the insurer, the Court held that the insurer was entitled to summary judgment when its insured failed to notify the insurer of the claim until a lawsuit between the claimant and the insured was already pending, approximately three and a half years after the incident giving rise to the claim.³⁷

Conclusion
Maryland, Virginia, and D.C. highlight some of the various approaches towards the late notice defense in different jurisdictions. Before asserting or relying on a late notice defense, it is important to understand how the jurisdiction approaches such a defense and what the insurer will need to show in order to prevail. Time delay is usually not enough to successfully assert a late notice defense and prejudice can be difficult to establish as a matter of law. Knowing the key distinctions in the use of the late notice defense in the jurisdiction can help an insurer better assess how to advance such a defense and determine its likelihood of prevailing on such a defense.

1. T.H.E. Ins. Co. v. P.T.P. Inc., 331 Md. 406, 628 A.2d 223 (1993).
2. Sherwood Brands, Inc. v. Great Am. Ins. Co., 418 Md. 300, 13 A.3d 1268 (2011).
3. Id. at 330, 13 A.3d at 1268.
4. Id. 
5. Minn. Lawyers Mut. Ins. Co. v. Baylor & Jackson, PLLC, 852 F. Supp. 2d 647, 662 (D. Md. 2012).
6. Prince George’s Cnty. v. Local Gov’t Ins. Trust, 388 Md. 162, 189, 879 A.2d 81, 97 (2005).
7. Id. at 193, 879 A.2d at 100.
8. Gen. Accident Ins. Co. v. Scott, 107 Md. App. 603, 612, 669 A.2d 773 (1996).
9. Id. at 617, 669 A.2d 773.
10. Elste v. ISG Sparrows Point, LLC, 188 Md. App. 634, 656, 982 A.2d 938, 951 (2009).
11. Id.
12. State Farm Fire & Cas. Co. v. Walton, 244 Va. 498, 504, 423 S.E.2d 188, 192 (1992) (citing State Farm Fire & Cas. Co. v. Scott, 236 Va. 116, 120, 372 S.E.2d 383, 385 (1988)).
13. Id. (citing Scott, 236 Va. at 120, 372 S.E.2d at 385).
14. Id. at 505, 423 S.E.2d at 192.
15. 221 Va. 592, 599, 272 S.E.2d 196, 200 (1980).
16. Nationwide Mut. Fire Ins. Co. v. Overstreet, 568 F. Supp. 2d 638, 644 (E.D. Va. 2008).
17. Mason & Dixon, Inc. v. Cas. Co., 199 Va. 221, 98 S.E.2d 702, 705 (1957) (citing Shipp v. Conn. Indem. Co., 194 Va. 249, 72 S.E.2d 343 (1952)); see also Atlas Ins. Co. v. Chapman, 888 F.Supp. 742, 745 (E.D. Va. 1995).
18. Compare Liberty Mut. Ins. Co. v. Safeco Ins. Co. of America, 223 Va. 317, 288 S.E.2d 469, 473 (1982) (notice given 51 days after the occurrence “without any justification whatever, constitutes a breach of the policy condition in question.”) with State Farm Fire & Cas. Co. v. Scott, 236 Va. 116, 372 S.E.2d 383, 386 (1988) (notice given 11 weeks after occurrence was not a breach of the notice provision as a matter of law, and the Court upheld the jury’s verdict in favor of the insured).
19. Nationwide, 568 F. Supp. 2d at 646.
20. As discussed above, illustrative cases include: State Farm Mut. Auto. Ins. Co. v. Porter, 221 Va. 592, 272 S.E.2d 196, 200 (1980) (holding that insured breached policy as a matter of law where insurer received notice only from hit-and-run victim’s attorney); Dan River, Inc. v. Commercial Union Ins. Co., 227 Va. 485, 317 S.E.2d 485 (a seven-year delay in notifying the insurer of a discrimination suit was unreasonable as a matter of law).
21. Nationwide, 568 F. Supp. 2d at 644-45.
22. Id. See Mason & Dixon, 199 Va. 221, 98 S.E.2d 702 (declaring reasonableness of several month delay in notifying insurer a question of fact for the jury when insured was unconscious for two weeks after his accident, remained in the hospital for six weeks, and wore a cast on his leg for eight weeks after he left the hospital); State Farm Mut. Auto. Ins. Co. v. Douglas, 207 Va. 265, 266, 148 S.E.2d, 775, 776-77 (1966) (upholding trial court finding that sixty-five days after accident was reasonable when insured was rendered unconscious and did not recall the details of the accident, eventually was able to get evasive and uncooperative other driver to fill out a form describing the accident to submit to insurer); see also Penn-America Ins. Co. v. Mapp, 461 F.Supp.2d 442, 454 (E.D. Va. 2006) (finding that the insured had not breached the notice provision of his policy, despite a two-year notice delay, where the accident occurred after the insured’s business had closed and on property not owned by the insured).
23. See Dan River, 227 Va. 485, 317 S.E.2d 485, 487 (1984) (finding insured’s decision to wait more than seven years after discrimination lawsuit was filed unreasonable as a matter of law based on insured’s belief that it was only liable for injunctive relief).
24. See Walton, 244 Va. at 502, 423 S.E.2d at 191 (finding a two-year delay unreasonable as a matter of law where the insured refused to notify his insurer of child’s wrongdoing because the child “had not been convicted of anything”); Lord v. State Farm Mut. Auto. Ins. Co., 224 Va. 283, 287-88, 295 S.E.2d 796, 799-800 (1982) (upholding verdict for insurer where insured waited 173 days to notify his insurer and where insured “was not prevented by his injury, or any other circumstance, from personally notifying State Farm seasonably,” but rather “simply was ignorant of the policy provisions which, arguably, may have covered his medical expenses”); cf. Mt. Vernon Bank & Trust Co. v. Aetna Cas. & Sur. Co., 224 F. Supp. 666 (E.D. Va. 1963) (granting summary judgment for insurer where insured waited ten months to notify insurer because he believed the victims had settled the dispute).
25. Walton, 244 Va. at 504, 423 S.E.2d at 192 (quoting Black’s Law Dictionary 1080 (6th ed.1990)) (alteration in original).
26. Va. Code § 38.2-2226.
27. Id.
28. Id.
29. Id.
30. Id.
31. Diamond Serv. Co. v. Utica Mut. Ins. Co., 476 A.2d 648, 652-54 (D.C. 1984).
32. Greycoat Hanover F St. Ltd. P’ship v. Liberty Mut. Ins. Co., 657 A.2d 764, 768 (D.C. 1995) (citing Starks v. N. E. Ins. Co., 408 A.2d 980, 982-83 (D.C.1979)).
33. Starks, 408 A.2d at 982-83 (D.C. 1979).
34. Greycoat, 657 A.2d at 768 (citing Diamond Serv., 476 A.2d at 653; Starks, 408 A.2d at 983).
35. Id. at 768 n. 3 (citing Greenway v. Selected Risks Ins. Co., 307 A.2d 753, 756 (D.C. 1973)).
36. Id. at 769.
37. Sidibe v. Travelers’ Ins. Co., 468 F. Supp. 2d 97, 102 (D.D.C. 2006).