Disclosure on Renewal Application Insufficient


The Resolution Trust Corp. (RTC) brought a civil action against LaForge and the officers and former officers of Peoples Savings and Loan Association (the “Thrift”) alleging negligence, gross negligence, and breach of a fiduciary duty.


American Casualty provided a directors and officers liability policy to the Thrift.  LaForge requested that American Casualty defend him under the policy.  American Casualty refused to defend LaForge because neither LaForge nor the Thrift gave it notice of the claim during the policy period.


LaForge brought an action for declaratory judgment against American Casualty to establish that the Thrift provided adequate notice of occurrences that might give rise to claims in its policy renewal renewal application.  The renewal application listed several loans as substandard.  In addition, one of American Casualty’s underwriters investigated the application and noted that the Thrift’s financial condition was deteriorating.  He also noted that the Federal Home Loan Bank Board had criticized the Thrift for sub-standard assets.


LaForge argued that this information was sufficient notice of potential claims to obligate American Casualty to defend and indemnify him for the RTC claim. The trial court granted American Casualty’s motion for summary judgment on the ground that American Casualty had not been given sufficient notice of the claim during the policy period.


On appeal, the court of appeals held that the renewal application did not provide effective notice of claims or potential claims.  The application was designed to seek a continuation of coverage from the insured rather than to seek recovery under the policy in effect at that time.  There is a substantial difference, the court stated, between an insurer being on notice that its insured is a poor risk for future insurance and having received specific notice of a claim or potential claim.


Accordingly, the court affirmed the decision of the trial court and held that St. Paul had not been given effective notice of the RTC claim.


LaForge v American Casualty Company of Reading, Pennsylvania, 37 F3d 580 (10th Cir 1994).


Note: The court noted that its decision was consistent with results reached by other circuits citing Resolution Trust Co. v Artley, 24 F3d 1363 (11th Cir 1994); American Cas. Co. v  Continisio, 17 F3d 62, 68 (3d Cir 1994); FDIC v Mijalis, 15 F3d 1314, 1330 (5th Cir 1994) [see summary at (7) 190-1*]; McCullough v Fidelity & Deposit Co., 2 F3d 110, 112-13 (5th Cir 1993).