This case takes place in Rhode Island and involves a dispute between a city and its excess worker’s compensation insurance carrier. The city filed a declaratory judgment action. The city is self insured for claims made by its employees up to $500,000.00 in disbursed benefits. The excess insurer covers claims by city workers exceeding that amount. The policy requires the city to give notice to the insurer when a claim likely to reach the threshold of the excess coverage. The city also is required to exercise diligence, prudence, and good faith in the defense and settlement of all claims in their entirety.
The city was met with an excess claim — one for permanent total disability — and admittedly failed to give timely notice. However, the failure does not automatically negate coverage under state law. The failure raises a rebuttable presumption of prejudice to the insurer. The insured can overcome this by proving a lack of prejudice in fact. The insurer also asserts that the city breached its obligations to exercise due diligence and good faith in settling the underlying claim.