THE ATCHISON, TOPEKA & SANTA FE  )
RAILWAY COMPANY,                 )
                                 )
                Plaintiff,       )
                                 )
v.                               )    CASE NO. 94CV1464
                                 )
STONEWALL INSURANCE COMPANY,     )
et al.,                          )
                                 )
                Defendants.      )
_________________________________)

The above matter is before this court on Santa Fe's Motion for Partial Summary Judgment Regarding the Insurers' Late Notice Defense. After careful consideration, the court grants Santa Fe's motion.

1. Each Santa Fe insurance policy at issue contains a notice clause. A typical "notice" provision is contained in International Surplus Lines Insurance Company (ISLIC) Policy Number 2298 (3/17/81 to 3/17/82). The pertinent language of that "notice" clause states:

Written notice of each occurrence or accident shall be given by or on behalf of the Assured to the Underwriters as soon as practicable through Rollins Burdick Hunter Co., who are hereby authorized to instruct Messrs. Mendes & Mount, to assess the loss on behalf of Underwriters after notice has been received by an Executive Officer or the Manager of Insurance located at the Insured's Corporate Headquarters, 224 South Michigan Avenue, Chicago, Illinois 60604.

ISLIC Policy No. 2298 at Section III, ¶ 3, Exhibit A hereto. The other policies at issue have substantially similar language.

2. Each policy also contains the following clause or a substantially similar one:

The exact terms and conditions of this manuscript form are to be regarded as substituted for those of the certificate, cover note or policy to which it is attached and forms a part, wherever and insofar as such terms and conditions may conflict.

Id. at Section IX, Exhibit A hereto.

3. Some of the alleged policies produced by the insurers include jackets or cover notes which contain the following language or substantially similar language:

2. Notice of Loss, Participation in Defense by the Company

Notice of an occurrence which appears likely to involve this policy shall be given by or on behalf of the insured to the company or any of its authorized agents as soon as practicable. The company at its own option may, but is not required to, participate in the investigation, settlement or defense of any claim or suit against the insured.

Id. at Part V--Conditions (SFIP0003904). Santa Fe disputes whether the "jacket" language constitutes part of the policy.

4. Lexington Defendants, Lloyd's London and Certain London Market Insurance Companies, Fireman's Fund and National Surety Corporation, First State, Nationwide Mutual, and Stonewall each first received Notice of Santa Fe's NIHL claims on or about July 21 - 27, 1989. Wassau Mutual Insurance Co. first received notice April 21, 1987 and International Surplus Lines (ISLIC) first received notice sometime in 1989.

5. None of the Insurers listed in #4 (hereinafter referred to as Certain Insurers) have any facts which demonstrate prejudice by the timing of the notice it received of the NIHL claims. However, as London Market stated, it did not believe it was prejudiced because Santa Fe had not presented a covered claim.

6. Certain Insurers took no action to negotiate, defend, or prevent NIHL claims against Santa Fe.

7. Santa Fe's pay-outs for NIHL claims are among the lowest in the industry.

8. Of the ten claims that Santa Fe settled from August 1, 1965 through June 30, 1971, nine pertained to traumatic hearing loss and only one pertained to NIHL.

9. On December 10, 1976, E.B. Hill, a former Santa Fe engineer, filed a lawsuit against Santa Fe alleging NIHL.

10. Additional uncontroverted statements of fact regarding NIHL claims against Santa Fe as well as excerpts from correspondence to or from Santa Fe administrators, etc. are contained in this court's Memorandum of Law on Certain Defendants' Motion for Summary Judgment on the Issues of Fortuity and "Known Loss" and Santa Fe's Cross-Motion for Partial Summary Judgment on "Known Loss" and "Fortuity Defenses."

11. By the time Santa Fe gave Certain Insurers notice, Santa Fe had received notice of 247 NIHL claims (in addition to the claims noted above).

Santa Fe alleges in its motion that although each of the remaining insurers have claimed a "late notice" affirmative defense, they cannot meet their burden under Kansas law of demonstrating "actual damage" or "material prejudice" with regard to Santa Fe's defense, negotiation, and settlement of the noise-induced hearing loss (NIHL) claims asserted by its employees.

London Market (joined by other defendant insurers) argues that each contract required Santa Fe to give Insurers written notice of any occurrence as soon as practicable. London Market contends that under both Kansas and Illinois law such notice provisions are a condition precedent to coverage.

Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Dickens v. Snodgrass, Dunlap & Co., 255 Kan. 164, 166, 872 P.2d 252 (1994).

Generally before summary judgment may be granted, the record before the court must show conclusively that there remains no genuine issue as to a material fact and the moving party is entitled to judgment as a matter of law. A mere surmise or belief on the part of the trial court, no matter how reasonable, that a party cannot prevail upon a trial will not warrant a summary judgment if there remains a dispute as to a material fact which is not clearly shown to be sham, frivolous, or so unsubstantial that it would be futile to try the case. The manifest purpose of summary judgment is to obviate delay when there is no real issue of fact. A court should never attempt to determine the factual issues on a motion for summary judgment, but should search the record for the purpose of determining whether factual issues do exist. If there is a reasonable doubt as to their existence, a motion for summary judgment will not lie. A court, in making its determination, must give to the party against whom summary judgment is sought the benefit of all inferences that may be drawn from the facts under consideration.

Mechtley v. Price, 217 Kan. 344, 347, 536 P.2d 1385 (1975).

Where genuine issues of fact remain undetermined, the granting of summary judgment is improper. Willard v. City of Kansas City, 235 Kan. 655, syl ¶ 1, 681 P.2d 1067, (1984). The court upon drawing all inferences in the light most favorable to the non-moving parties, finds that no genuine issues of material fact have been raised and that Plaintiff Santa Fe's Motion for Partial Summary Judgment Regarding Insurers' Late Notice Defense should be granted as a matter of law as set forth below.

In this court's Memorandum Decision and Order regarding the conflict of laws issue, it was decided that Kansas law would apply to the late notice defense by Certain Insurers. Specifically, this court said:

. . . the court finds that under National Union, Kansas has established a clear public policy not to allow insurance companies to escape liability under a technicality when insureds provide notice late, although, the insurer is not prejudiced by it. Thus, due to public policy concerns, this court will apply Kansas law to the issue of whether Insurers must show prejudice if it is found the insured provided unreasonably late notice.

Memorandum Decision and Order regarding conflict of laws, p. 16.

This court also found that there was no dispute that Certain Insurers were not prejudiced by any "late notice" having found that:

Whether Insurers were prejudiced is not at issue in this case as Insurers have agreed to the fact that they were not prejudiced, as some have stated they have not been prejudiced by the notice and others have stated that had they been notified earlier, they would not have stepped in to defend Santa Fe because they did not believe coverage applied. Therefore, the issue before the court on notice is whether it was unreasonably late. The record has demonstrated no prejudice occurred. Thus, in applying Kansas law, even if the notice was unreasonably late, Insurers cannot escape liability under their late-notice defense, because they cannot show prejudice.

Memorandum Decision and Order regarding conflict of laws, p. 15.

London Market joined by the other Defendant Insurers cites no facts which demonstrate that any of Certain Insurers were prejudiced by the timing of the notice given by Santa Fe of the NIHL claims.

Under Kansas law, the insurers must prove "actual damage" resulting from the policyholder's failure to give notice. Home Life Ins. Co. v. Clay, 11 Kan. App. 2d 280, 287, 719 P.2d 756, 762 (1986), citing Board of County Commissioners v. U.S. Fidelity Guaranty Co., 96 Kan. 255, 258, 150 P. 590 (1915). In the absence of a forfeiture clause, which does not exist in Santa Fe's policies, the insurers have the burden of proving actual prejudice, Phico Ins. Co. v. Providers Ins. Co., 888 F. 2d 663, 669 (10th Cir. 1989) (construing Kansas law). Kansas law on this issue was recently reiterated in Creek v. Harder Construction Co. and Maryland Casualty Co., 25 Kan. App. 2d, 232 [quoting Cessna Aircraft Co. v. Hartford Accident & Indemnity Co., 900 F. Supp. 1489 (D. Kan. 1995)]:

[U]ntimely notice, even if a breach of a condition precedent to coverage is not alone sufficient to excuse performance of the insurer or to relieve the insurer of its obligation to provide coverage when coverage would otherwise be afforded. Kansas also requires a showing of actual prejudice as a result of the untimely notice. [Citation omitted]. Prejudice is not presumed and the burden is on the insurer to show that the prejudice is substantial. [Citation omitted].

. . . [U]nder Kansas law, an insurer must show prejudice as to its ability to defend the underlying claim. The only Kansas case arguably addressing the issue indicates that it is the defense of the underlying claim that is the proper focus in determining whether there has been substantial prejudice to an insurer as a result of an insured's breach [citation omitted].

900 F. Supp. at 1515-16 n. 34.

London Market and Certain Insurers took no action to negotiate, defend, or prevent any NIHL claims against Santa Fe. Even if they had been given notice earlier many of the Insurers conceded that they would not have acted differently. These excess Insurers had no right nor obligation to control the defense or settlement of any claim. The policies provide for indemnification only.

Since it was decided Kansas law will apply to the late notice defense and Kansas requires a showing of prejudice, Certain Insurers cannot escape liability as no prejudice has been shown. Although London Market Defendants provide in their response to Santa Fe's motion the date which Santa Fe allegedly knew about the potential loss in NIHL claims, they do not show prejudice occurred. A bald allegation is made in which London Market Defendants state:

. . . there is no genuine issue of material fact that Santa Fe's failure to give Insurers notice until 1989 deprived them of the opportunity to: (1) investigate the alleged "occurrence;" (2) assess whether to specifically exclude NIHL claims; (3) assess whether to continue to insure Santa Fe and the appropriate premium in light of the risk; and (4) properly assess the loss and Insurers' legal defenses based on underlying claim information. Moreover, the economic damage suffered by Insurers as a result of such late notice is substantial given that timely notice would have prevented many Santa Fe employees from even suffering NIHL and significantly lessened the amount of hearing loss suffered by others. Finally, had Santa Fe given timely notice of the alleged "occurrence," fewer insurance contracts would have been potentially liable for the loss, which again has a direct bearing on the economic damage suffered by Insurers.

London Market Defendants' Memorandum in Response to Santa Fe's motion, p. 24.

However, as noted by Santa Fe, these are mere assertions, speculative in nature, with no evidentiary support of any actual prejudice suffered by the Insurers which is required under Kansas law. Guardian Trust Co. v. American States Ins. Co., 1996 WL 509638, at 4-5 (D. Kan. 1996). Thus, the Insurers have not brought forth the evidence to show they will prevail in proving prejudice. In addition, as stated above, the "actual prejudice" must directly involve the handling of an underlying claim or lawsuit. Cessna, 900 F. Supp. at 1515-16.

Finally, Santa Fe asserts that at the time the occurrence ended in 1985 there were only approximately ten hearing loss claims. (The court in its Memorandum Decision regarding Fortuity and Known Loss found eleven claims were filed prior to and including 1985). This minimal number of claims was not nearly enough to suggest that a NIHL loss in excess of the lower limit of even the first layer of Santa Fe's policies was "likely."

For the above reasons, Santa Fe's Motion for Partial Summary Judgment Regarding the Insurers' Late Notice Defense is granted. The foregoing shall serve as the journal entry of judgment in this matter. No further journal entry is required.

IT IS SO ORDERED.

Dated this 24th day of July , 2000.

 
__________________
Nancy Parrish
District Judge
Division Fourteen

I hereby certify that a copy of the above and foregoing MEMORANDUM DECISION AND ORDER was mailed this 24th day of July , 2000 to the following:

 
Weston W. Marsh
David V. Goodsir
Freeborn & Peters
311 S. Wacker Drive
Suite 3000
Chicago, Illinois 60606

 
Steve R. Fabert
Fisher, Patterson, Sayler & Smith
3550 SW 5th Street
Topeka, Kansas 66601

 
Thomas M. Ryan
Bollinger, Ruberry & Garvey
Citicorp Center
500 West Madison Street
Suite 2300
Chicago, Illinois 60661

 
Arthur A. Glassman
Michael E. Francis
Sloan, Listrom, Eisenbarth, Sloan & Glassman
714 Capitol Federal Building
Topeka, Kansas 66603

 
Corliss S. Worford
Richard M. Watson
Lord, Bissell & Brook
One Atlantic Center
1201 West Peachtree Street
Suite 3700
Atlanta, Georgia 30309

 
Daniel E. Murphy, II
Gilberg & Kiernan
1250 Eye Street, N.W.
Suite 600
Washington, DC 20005

 
Steven W. Cavanaugh
Fisher, Cavanaugh & Smith
534 Kansas Avenue
Suite 1035
Topeka, Kansas 66603

 
Eric C. Young
Dunham Boman & Leskera
103 East B Street
Belleville, Illinois 62220

 
Paul E. Escobar
German, Gallagher & Murtagh
The Bellevue
Fifth Floor
200 South Broad Street
Philadelphia, PA 19102

 
Richard W. Bryan
Jackson & Campbell
South Tower
One Lafayette Center
1120-20th Street, NW
Washington, DC 20036

 
Richard V. Eckert
5601 SW Barrington Court South
Topeka, Kansas 66614

 
Stacy S. Freel
Brand & Novak
135 South LaSalle Street
Suite 3700
Chicago, Illinois 60603

 
____________________________
Norma J. Dunnaway
Administrative Assistant