LATE NOTICE AND COVERAGE
Insurance policies, aka contracts of insurance, uniformly contain clauses requiring insureds seeking coverage notify the relevant insurer of their perceived injury “promptly,” “as soon as practicable,” (whatever that word might mean), or some temporal interval of the sort. Obviously, these clauses limit coverage, but they are seldom called “exclusions”; usually they are to be found in the “Conditions” section, as opposed to the “Exclusions” section. For the sake of simplicity, I shall use the term “prompt” to cover all the various ways policies might say “pretty quick” or “pretty much straight away–no irrelevant, meaningless, or devious detours allowed.”
Of course, whether the policyholder has actually given the carrier notice of the injury promptly is a question of fact, and–in fact–it has two dimensions with respect to speed. The first one is the question, “When did (and/or should have) the insured realize that he had something on his hands that might, “oughta” be reported?” The second question is “Was the notice given by the insured to the insurer within a temporal unit which can be counted as prompt, given the surrounding circumstances?”
(In this blog/blawg, I am addressing only policies, whether first party or third party, where coverage is based on the time of the occurrence only. I am not discussing policies like professional malpractice policies where coverage usually exists in all respects only during a specified policy period or its purchased extension. Often professional malpractice policies are called “claims made policies” and/or “Error and Omissions” [E and O] Policies.” Of course, a claims made policy need not be a professional malpractice policy.)
Of course, since the issue of whether the insured’s notice was timely is a triable issue of fact, the insurer might wish to raise it. However, given its indeterminacy the the opportunity for policyholder oppression its use created, the sovereign began imposing a limitation or condition on carriers, and it was the following. A carrier could not succeed in denying coverage on the grounds of late notice unless it could prove that it was itself injured or damaged by the alleged lateness, i.e., when the report was actually made. Technical lateness does not by itself justify denial. (This is not so with professional malpractice policies since they are often worded in such a way that there must be a report to the insurance company of a claim against the insured within the policy period.)
Putting the burden of proof on the insurer, of course, makes the clause very much like an exclusion, and that is appropriate, whether it is to be found in the “Conditions” section of the policy or yet elsewhere. This may be conceptually bothersome since even insurance agreements contain language limiting coverage–limiting language excludes some things or states of affairs from coverage–but the law still takes the insured to have the burden of proof when it comes to whether there is coverage.
(Maybe the courts are saying that exclusionary language will be treated as or like an actual exclusion–placed within the category of actually being “an exclusion”–where the burden of proof is shifted to the insurer when and only when the content of the clause is quite distinct from what is to be found in the insuring agreement(s). ((Consider the following two examples: Insuring Agreement: We cover only blue cars. [Grey cars and gray cars, among others, are excluded from coverage by being left out, but there is not an out-and-out exclusion.] Exclusion: Though we cover multi wheeled motor vehicles, we do not cover those with only three wheels or fewer.)))
In any case, over the years, the courts have come to ignore the general, categorical (as it were) language of the insurance contracts and require that carriers prove that they have been harmed by the lateness of the notice. This is very hard to do in most kinds of insurance cases, when there is not something else justifying exclusion. This might happen if a person had an auto wreck and sold the care before it reported the accident. It would be much harder for the insurer to avoid coverage if there was a wreck and the car simply sat enclosed in a reasonable garage for a few months. Of course, it would be even harder for the insurer if there are photos taken right after the tree in the insured’s front yard fell on the car as the result of a wind storm.
The period of harmless non-notification can be quite a while. There was a case some years ago when a building damaged from a snow storm was not revealed to the insurer for several months. Of course, it was relevant that the building was in a far northern region of Canada where no one could go except on a sleigh being propelled faster than eagles by 8 giant–anything but tiny–coursers aka huskies. (For a visual exploration of these matter, see Cover Page, NEW YORKER, December 21-28, 2015.)
Many litigating coverage attorneys who represent insurers, not to mention some carrier claims departments have been discouraged. Sometimes insurers feel like public authorities, e.g., not just plaintiff’s lawyers but the courts as well, do not take seriously that insurance policies are real contracts. The addition of there-must-be-prejudice on to the explicit contract clause you-must-report-what-you-think-is-a-loss-promptly, especially where the insurer has to prove it was prejudiced, stimulates this feeling.
The industry and their lawyers may take heart. Quite recently, the Fifth US Circuit Court of Appeals issued a pro carrier per curiam* and not-to-be-published opinion in the case of Alaniz v. Sirius Int’l Ins. Corp., #15-40497 (September 14, 2015).
It may not be history making precedent, but it is still a boon. It may not involve just late notice by itself, but it did involve what might be called at best “negligent delay in notification.” The Alaniz case involve a hailstorm and an building. Here are the court’s best words:
“The primary purpose of a prompt notice and proof of loss provision in a policy such as this one is to allow the insurer to investigate the incident close in time to the occurrence, while the evidence is fresh and so that it may accurately determine its rights and liabilities under the policy (and take appropriate remedial action).”
Obviously, a skeptical claims department can do a lot with this language when they receive a notice that seems late. What it may not do, however, it sit idly by. It must investigate the loss, but at the same time, when first party policies are at stake it’s investigation can include issues about whether it was injured by the timing of the insured’s report of loss. This might be called an integrated investigation.
Third party, liability policy investigations are a bit more complicated. These investigations cannot be integrated, if the defense counsel hired by the insurer to defend its insured is investigating the insured’s loss. Integrating the investigation would create a forbidden conflict of interest for defense counsel and would cause the insurer to be in bad faith.
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Originally posted on 12/31/2015 @ 9:34 pm