## Facts

- Aetna issued Dr. Raymond R. Zukaitis a professional liability policy for August 31, 1969 to August 31, 1970 through Ed Larsen Insurance Agency, Inc.
- The alleged malpractice occurred on September 27, 1969, during Aetna’s policy period.
- Aetna canceled its agency contract with the Ed Larsen Insurance Agency effective August 1, 1970; the agency, without notifying Zukaitis, placed later coverage with St. Paul Fire & Marine Insurance Co. for August 31, 1970 to August 31, 1971.
- On August 7, 1971, Zukaitis received written notice of a malpractice claim based on the 1969 treatment.
- On August 10–11, 1971, Zukaitis reported the claim to the Ed Larsen Insurance Agency by phone and forwarded the written claim at the agency’s request.
- The agency mistakenly referred the claim to St. Paul, which retained counsel and defended Zukaitis after the malpractice suit was filed on November 22, 1971.
- On January 25, 1974, St. Paul determined it was not the carrier for the 1969 incident, notified Aetna and Zukaitis, and defense counsel withdrew.
- Zukaitis demanded a defense from Aetna on May 28, 1974; Aetna refused. Zukaitis retained counsel and obtained summary judgment in the malpractice case.
- Zukaitis sued for declaratory judgment that Aetna owed a defense and reimbursement of defense costs; the district court ruled for Aetna on stipulated facts.

## Issues

1. Whether notice of the malpractice claim given in August 1971 to the insurance agency that had historically handled the insured’s coverage constituted notice to Aetna, despite cancellation of the agency’s contract with Aetna and the agency’s misdirection of the claim to another insurer.
2. Whether Aetna could deny its duty to defend (and defense-cost liability) based on late or defective notice when the insured promptly notified the agency and another insurer initially provided a defense.

## Decision

- The Nebraska Supreme Court reversed.
- Notice to the Ed Larsen Insurance Agency in August 1971 was treated as notice to Aetna for a claim arising during Aetna’s policy period.
- Aetna had a duty to defend Zukaitis in the malpractice action.
- Aetna was liable for the reasonable attorney’s fees and expenses Zukaitis incurred in defending the malpractice suit after Aetna refused to defend.
- The case was remanded with directions to enter judgment consistent with these holdings.

## Legal Principles

- When an insured reasonably relies on the insurance agency through which coverage was procured and maintained, and the insured is not informed of changes in the insurer–agency relationship, the agency may retain apparent authority to receive notice of claims arising under the earlier policy.
- A policy requirement of written notice “as soon as practicable” may be satisfied by timely notice to an agent with apparent authority, even if the insurer does not receive actual notice until later due to the agent’s mistake.
- An insurer seeking to avoid a defense obligation on notice grounds must show a failure of substantial compliance with notice conditions and, in context, prejudice attributable to the asserted notice defect.
- An insurer that wrongfully refuses to defend is responsible for the insured’s reasonable defense costs incurred as a result of the refusal.

## Conclusion

The court held that Zukaitis’s prompt notice to the long-used insurance agency was effective notice to Aetna for a claim arising during Aetna’s policy period, and Aetna therefore owed a defense and reimbursement of the insured’s reasonable defense expenses incurred after Aetna declined to defend.


Zukaitis v. Aetna Cas. & Sur. Co., 195 Neb. 59, 236 N.W.2d 819 (Neb. 1975)