Delay in providing records leads to insurer win in seafood processor case

Citing a 15-month delay in refusing to supply material financial records, a federal appeals court ruled in favor of insurers including a Crum & Forster Co. unit Tuesday in a dispute with a seafood processor, in a divided opinion.

Seattle-based Icicle Seafoods Inc. sought “loss of hire” coverage from various U.S. and London insurers including C&F unit United States Fire Insurance Co., claiming in part its factory processing vehicle was unable to process fish in its Alaska fishery because of engine damage, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in United States Fire Insurance Co.; et al. v. Icicle Seafoods Inc.; et al.

The U.S. District Court in Seattle granted insurers summary judgment in the insurer’s favor and was affirmed by the 9th Circuit in its 2-1 ruling.

“Icicle expressly and unequivocally refused to supply material financial records for at least 15 months,” the majority opinion said. 

Insurers “were prejudiced as matter of law by this 15-month delay, which culminated in a demand letter from Icicle threatening administrative action and a bad faith claim against insurers if Icicle’s demand was not paid in full without seeing documents later produced in the ensuing lawsuit before us,” it said.

Insurers then faced a “Hobson’s choice” of either paying an unsubstantiated claim “or exposing itself to bad faith liability,” the court said, in citing an earlier ruling.

“On this record, Icicle breached its implied duty to cooperate, and Insurers were prejudiced as matter of law,” it said, in ruling in the insurer’s favor.

The dissenting opinion said the majority opinion is “troubling.  If followed, this could open the floodgates to denials of coverage based on little more than what is better characterized as discovery disputes over insurers’ adjustment claims.”

It said “the penalty for discovery disputes should not be denial of coverage; appropriate penalties for dilatory discovery are available, including limiting recoverable damages for a claim.

“The penalty here is all the more harsh because insurers acknowledged a possible covered loss of nearly $1 million based on the information that was provided.”