Court Opinion

ID: 9497885
Source: CourtListenerOpinion
Date Created: 2023-08-05 17:02:34.609684+00
Date Added: 2024-06-11T17:58:28.774489
License: Public Domain

LUTTIG, Circuit Judge,
dissenting:
I would affirm the grant of summary judgment on the reasoning of the district court.
The majority’s conclusion that notice was provided to Federal while the damage was occurring is untenable. The majority appears not to dispute that notification only could occur when Federal had notice that losses had occurred and that those losses were at least potentially covered by the policy. Ante at 201 (“[I]t is hardly speculative to conclude that ... Federal *205should have perceived the potential for a claim being made by M/K under the Builder’s Risk Policy.”). That notification that a loss is arguably covered is required, rather than simply notification that an insured has suffered a loss, is confirmed by the command of the North Carolina courts that we construe timely notice requirements in accord with their purpose of “en-abl[ing] the insurer to prepare a defense by preserving its ability to investigate an accident.” Great American Ins. Co. v. C.G. Tate Construction Co., 315 N.C. 714, 340 S.E.2d 743, 746 (1986) (Great Amen-can II). If Federal did not receive notice that would persuade a reasonable insurer to investigate the loss, the notification requirement is thus unsatisfied.
M/K provides no evidence to support the conclusion that Federal had knowledge of damages “possibly covered under the Builder’s Risk Policy. Instead, M/K argues only that Federal had knowledge that M/K had suffered damages and was performing repairs. Given that M/K admits that it did not believe the problem was anything other than a design flaw until August 1997, no reasonable jury could possibly conclude that Federal’s employees knew or should have known that M/K might ultimately file a claim for the damage under the policy, and the majority’s contrary conclusion is simply unsupported by the record.1 Not only were Federal’s employees explicitly assured by M/K’s employees that the damage was caused by a non-covered harm, Federal’s employees did not even have responsibility for investigating insurance losses. See J.A. 2369, 2399-2400, 2416-19, 2426-27. Likewise, Federal cannot be said to have had notice of the covered loss or damage under the operations policy until M/K actually provided an indication that such a covered loss had occurred. The district court thus correctly concluded that notice was first provided of a possible covered loss under the Builder’s Risk Policy no sooner than September 1997, and of a possible covered loss under the Operations Policy in May 1998.
With a proper recognition of the time at which notice was given, it is clear that Judge Kang and Judge Shedd err by rejecting the district court’s conclusions that Federal was prejudiced in its investigation of the claim under the builder’s risk policy and that M/K failed to act in good faith in giving notice under the operations policy.
Substantial changes, including the rebuilding of the boilers, repairs to the fuel handling system, and the apparent shutdown of the facility, had occurred before Federal was given any detail on the facts of the supposed “claim” under the builder’s risk policy. J.A. 2693-94. Although North Carolina law requires that “the insurer must also show that the changed circumstance materially impairs its ability to investigate the claim or defend,” the North Carolina Supreme Court has also noted that “[ojften, proof of the changed circumstance itself will give rise to an inference of prejudice.”2 Id. Whatever Federal may have been able to piece together from fading memories and inoperable equipment, the complete shutdown of the *206facility undoubtedly is a sufficiently substantial “changed circumstance” to render an inference of prejudice appropriate.
M/K’s attempts to demonstrate that available evidence would prevent prejudice do not suffice to overcome this inference. M/K first argues that the non-claims representatives, by their mere presence at the facility and conversations with M/K’s employees, acquired sufficient information for a jury to conclude that the inability of claims representatives to investigate the damage was not prejudicial. However, M/K does not present evidence that these Federal employees performed any firsthand investigation of the boilers to make an independent determination of the cause of the damage. Accordingly, there are no grounds to believe that they acquired the knowledge necessary to make that determination now. M/K also argues that Federal could have examined the facility after it was no longer in operation, and consulted documents, records, photographs, and witnesses. But none of these sources would provide Federal with the opportunity to make the same firsthand investigation that the policy entitles it to make. Federal, thus, has clearly met its burden of proving that M/K’s delay in notifying it of the damage was prejudicial.
As to the operations policy, the district court concluded that M/K did not act in good faith, because “in late 1998 [six months before a claim was made], M/K was aware of the operations policy, «aware of the damage at the energy facility, aware of the suspension of operations at the recycling facility allegedly occasioned by that property damage, and aware of the lost revenue.” J.A. 2696. Neither M/K nor the majority disputes this statement. M/K’s only argument for reversal of -summary judgment is that Federal did not prove that M/K actually knew that the claim was covered by the operations policy. However, M/K bears the burden of proof on this question, and, .with respect to this burden, M/K neither proves that it lacked such knowledge- nor even explains how it could possibly have lacked such knowledge. See Great American I, 279 S.E.2d at 776 (“[W]e also now impose the requirement that any period of delay beyond the limits of timeliness be shown by the insured to have been in good faith.” (emphasis in original)). And it could not. After all, it had a copy of the policy and knew the cause of the damage. Given M/K’s knowledge, I fail to seé how one could describe M/K’s failure to give notice of loss under the insurance for six more months as anything other than a “purposeful and knowing failure to give notice.” See ante at 204 (opinion of Shedd, J.) (arguing that the district court did not sufficiently address whether M/K’s failure to give notice was purposeful and knowing).
The district court’s grant of summary judgment was thus compelled under North Carolina law as to both of the insurance policies at issue. I dissent from the majority’s reversal of that judgment.

. The majority’s description of the October 8, 1996 letter as the "smoking gun” is unpersuasive. Ante at 201 n. 15. That letter was a response to a notice of default issued by BCH to M/K. It addressed problems highlighted by BCH, but gave no indication that Federal was at all involved in the dispute. J.A. 1818-26.

. Although Judge Shedd gives great weight to the full list of factors the Great American I court lists as relevant to prejudice, ante at 203-04 (opinion of Shedd, J.), Federal’s showing that circumstances have changed and that the change impairs its investigative ability is sufficient to affirm summary judgment notwithstanding the presence or absence of other factors. See Great American Ins. Co. v. C.G. Tate Construction Co., 303 N.C. 387, 279 S.E.2d 769, 776 (1981) (Great American I).