Sometimes, what you don’t know can’t hurt you. That was the insured’s argument on appeal in a recent declaratory judgment action in which the liability insurer sought to be excused from defending an underlying lawsuit because the insured failed to notify the insurer of the accident until after the lawsuit was filed. In Forshee v. Employers Mut. Cas. Co., Case No. A11A0092 (Ga. App. Apr. 28, 2011), the insured, Johnny and Elizabeth Forshee, owned a service station and convenience store. On November 23, 2007, a customer fell as she walked toward the store. Mr. Forshee did not see the woman fall, but he saw her on the ground, and he went out to help her up. The woman went back to her car and may have mentioned that her arm was hurting. When Mr. Forshee offered to call for medical assistance, however, the woman refused. She told him she was going home, and she left. No one at the store knew the woman or how to get in touch with her, and she never contacted the store. The Forshees did not report the accident to their insurer, Employers Mutual Casualty Company. It was only when the woman filed and served her lawsuit two years later that the Forshees learned that the woman had broken her arm and sought treatment on the day of the accident.
The Employers Mutual policy provided that the insured “must see to it that we are notified as soon as practicable of an ‘occurrence’ or an offense that may result in a claim,” including details of the occurrence and the identity of the injured persons and witnesses. The trial court ruled that Employers Mutual was entitled to declaratory judgment because a two-year delay in reporting the accident was unreasonable. The trial court pointed out the severity of the injury and the fact that the underlying plaintiff sought treatment the same day should have prompted the Forshees to report the incident to Employers Mutual.
On appeal, the Court of Appeals held that the trial applied the wrong legal standard in concluding that Employers Mutual owed no defense or coverage in the underlying lawsuit. The trial court erred by failing to consider what the Forshees knew at the time of the accident and before the lawsuit was filed. While noting an insurer may not be obligated to defend and provide coverage when its insured fails to satisfy the policy’s condition precedent of providing notice of the incident, the Court of Appeals stated that “an insured is not required to foresee every possible claim, no matter how remote, that might arise from an event and give notice of it to his insurer,” but must only “act reasonably under the circumstances.” The question is whether an “ordinarily prudent and reasonable person” would be justified in not giving notice of an accident, given its “nature and circumstances,” including the severity of any injuries or property damage. The Court found “the trial court failed to eliminate the distorting effects of hindsight when it based its reasonableness determination on how severe the injury turned out to be, rather than how severe it would have appeared to a reasonable person in the position of the Forshees.” The Court vacated the trial court’s judgment and remanded the case for the trial court to determine whether the Forshees acted reasonably in not giving notice, based on what they knew at the time of the accident.