Warehouseman's Legal Liability
Coverage and Notice Requirements

Q

We insure a company that rents storage units to individuals who store their goods at the insured's premises. One of the individuals who stored his goods at our insured's place fell behind in his rental fees and the insured began legal proceedings to auction the renter's goods. The goods were legally auctioned in March of 1999, but the renter was apparently unaware of this since he began paying the rental fee again in April. Due to an error by the insured in handling paperwork, the rental fees were accepted from April, 1999 through October, 1999. In November, 1999, the renter came to pick up his goods and was told then that the goods had been auctioned in March. The renter filed a lawsuit in July of 2001, at which time the insured notified the insurer. The insurer denied coverage because the warehouseman's legal liability policy has a one year notice clause.

We read the notice clause and it says “it shall be necessary for the insured to render written notice of any occurrence or claim within one year from the date of expiration or cancellation of this policy or such claim shall be invalidated.” The policy expired on September 7, 2000. It is our contention that since the renter discovered his goods were gone in November, 1999 and the insured received the lawsuit in July of 2001 and notified the insurer immediately, that is within the “one year from date of expiration” period and the notice requirements have been met. The insurer disagrees and says that the date of loss was the date of the auction, not the date of discovery, and that the notice was not within the one year requirement.

Will you please review the policy and give us your opinion on this notice issue?

Ohio Subscriber

A

The policy you sent for review requires the insured to give written notice of a claim or an occurrence that may give rise to a claim no later than one year from the date of expiration of the policy. It seems to us that the insured had no reason to think a claim or an occurrence giving rise to a claim might happen until the renter made arrangements in November, 1999 to pick up the goods that were no longer there. You said that the insured began legal proceedings to auction the renter's goods and that notice was given of the auction. We have to presume then that the insured believed that he was acting legally and properly in auctioning the renter's goods. In other words, he had no reason to believe that a claim or a lawsuit would arise over the auction since he had acted within the legal framework. Only when the renter showed up and wanted the goods would the insured have any inkling that a problem may be on the radar scope. The mistake the insured made in accepting the rental payments after March is not really relevant to the issue.

At that time, the insured should have notified the insurer that a problem existed and that a claim or lawsuit might be made. But, the policy gave the insured one year from the date of the expiration of the policy to notify the insurer. So, if the insured notified the insurer of the lawsuit in July, 2001, that was within the one year reporting period of the policy that expired in September, 2000.

The insurer is basing its decision on the date of the auction, but that is not what the policy says. Paragraph 3 of the policy you sent to us states “the insured, upon knowledge of a claim or of any occurrence which may give rise to a claim, shall give written notice … as soon as practicable”. As stated above, the insured thought he was acting in a legal manner and according to law and so, why would he think a claim or an occurrence giving rise to a claim would spring from the auction? The insured knew, or should have known, of a possibility of a claim in November, 1999 when the renter came for the goods and they were not there; he should have notified the insurer then. Nonetheless, the insured had a one year reporting period after the policy ended and that is what he used.

So, it is our opinion that the policy wording gave the insured until September, 2001 to render the notice of claim to the insurer. This was done since the insured gave notice in July of 2001. The policy should respond to this claim.

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