Investigating late-reported property claims can be challenging for adjusters and insurers. Often, it is difficult to determine cause of the loss resulting in coverage decisions that may be challenging to advance and support at trial. In many cases, there are multiple insurers on the property loss over a period of years, which complicates determining the policy period in which the covered loss occurred.
Most policies and state laws place the coverage burden of proof on the insured. To make a claims decision, the insurer must make a similar determination, which is challenging for late-reported claims. It is not uncommon for repairs to be completed or the property to have sustained subsequent damage. Even when repairs have not been made, it is often difficult to pinpoint the date of loss with experts involved. Additionally, if a claim is denied for late notice, it is highly likely that the insured will allege that the insurer failed to properly investigate the claim and allege bad faith in a lawsuit.
An insurer that denies a claim for late notice should meticulously investigate, and document every step of the investigation. Involving an SIU unit may be useful in proving the insurer reasonably investigated the claim. Underwriting inspections and prior loss claim files can be key in determining pre-loss conditions. If the independent consultant is unable to make a causation determination, the insurer may use that in litigation to prove prejudice. It is also recommended to involve in-house or outside counsel in late reported claims to ensure a full investigation.
Late notice is equally difficult when there are multiple insurers on a property loss and the insurers cannot determine when the covered loss occurred. Each insurer of the property over the period of time during which the loss could have occurred should conduct an independent and extensive investigation.
Expert Perspective
Late-reported claims can make determining the timeframe in which the damage occurred more difficult or nearly impossible. Damage that would have appeared fresh shortly after an event will have been exposed to the elements and will often be in a weathered condition. It is difficult to separate event-related damages from non-event-related damages or determine which of multiple events may have caused the damages.
In late-reported claims, information on performance of repairs is often not obtainable or provided. In many claims, an engineer is unable to determine whether the repairs were due to event[1]related damages or simply part of routine maintenance of the building.
Engineers must often rely upon historical and satellite images of a building; however, often, historical images are not available immediately before and after an event. Multiple storms could have impacted the structure within the timeframe between the most recent pre-event image and the post-event image. If an engineer cannot form an opinion and clear scope of event-related repairs due to difficulties arising out of the late reporting of a claim, the adjuster is often unable to complete a repair cost estimate and resolve the claim, which may lead to further difficulties during the claims-handling process or if the claim later transitions into litigation.
Outside Counsel Perspective
The first thing an insurer, engineer, consultant, or counsel must do is read the policy. Policies almost always require prompt notice of a claim. In most jurisdictions, to uphold an insurer’s denial of coverage based on late notice, the court must first inquire as to whether the failure to provide prompt notice prejudiced the insurer. In many states, late notice is only a valid coverage defense if the insurer can prove it was prejudiced by the insured’s failure to give prompt notice. Key cases include:
In Florida, Bankers Ins. Co. v. Macias, 475 So. 2d 1216 (Fla. 1985); Perez v. Citizens Property Insurance Company, 343 So. 3d 140 (Fla. 3d DCA 2022); and Vega v. Safepoint Insurance Company, 326 So. 3d 176 (Fla. 3d DCA 2021) hold that a policyholder’s primary contractual duties after suffering a potential loss is to provide prompt notice to the insurer. Prompt notice is often described as a condition precedent to insurance coverage. When late notice is given, a rebuttal presumption of prejudice is imposed against the policyholder, which requires an insured to come forward with evidence to establish that an insurer has not, in fact, been prejudiced by the late reporting. Prejudice can simply mean that an investigation was more difficult or that better conclusions could have been drawn from a timely reported claim.
In California, Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414, 431 [179 Cal.Rptr.3d 717, 730], as modified on denial of reh’g (Nov. 12, 2014); Cisneros v. UNUM Life Ins. Co. of America, 134 F.3d 939 (1998); Pacific Employers Ins. Co. v. Superior Court (Rausch) (1990) 221 Cal.App.3d 1348, 1357, 270 Cal. Rptr. 779; Campbell v. Allstate Ins. Co. (1963) supra, 60 Cal.2d303, 306, 32 Cal.Rptr. 827, 384 P.2d 155; and Pitzer College v. Indian Harbor Insurance Company (2019) 8 Cal.5th 93 [251 Cal.Rptr.3d 701, 447 P.3d 669] hold California’s notice-prejudice rule generally allows an insurer to deny coverage based on late notice of the claim only if the insurer establishes substantial prejudice. Additionally, the notice-prejudice rule is a fundamental policy of California. It cannot be contractually waived, and it “protects insureds against inequitable results that are generated by insurers’ superior bargaining power.” The “notice-prejudice rule promotes objectives that are in the general public’s interest because it protects the public from bearing the costs of harm that an insurance policy purports to cover.” The “‘notice requirement serves to protect insurers from prejudice…not…to shield them from their contractual obligations’ through ‘a technical escape hatch.’”
New York applies a notice-prejudice rule to policies issued or delivered in New York, but policies issued outside New York are subject to a no-prejudice rule. As a result, if New York law applies to a California-issued policy, the insurer would not be required to establish prejudice in order to deny a claim based on late notice.
In Louisiana, the cases of State v. National Union Fire Insurance Company, 146 So. 3d 556 (La. Ct. App. 2014); Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570 (5th Cir.1990); and Moufarrej v. UNUM Provident Corp., 100 Fed.Appx. 284 (5th Cir. 2004) hold that unless the insurer is actually prejudiced by the insured’s failure to give timely notice, the insurer cannot avoid liability under the policy. If the insurer receives sufficient information to act on a claim, the manner in which it obtained the information is immaterial. An insurer cannot, without a clear showing of sufficient prejudice, use the insured’s failure to give proper notice to defeat a valid claim by an injured third party who is not at fault. Finally, the policy requires compliance with notice as a condition precedent, and if the insured fails to comply, the claim will be denied regardless of whether the insurer can demonstrate prejudice.
In Texas, Greene v. Farmers Ins. Exch., 446 S.W.3d 761 (Tex. 2014); PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008); McCutchin v. Trinity Universal Ins. Co., No. 05- 97-00826-CV, 1999 WL 793367, at *1 (Tex. App.—Dallas Oct. 6, 1999, no pet.); and Wash. Mut. Bank. v. Commonwealth Land Title Ins. Co., No. 13-08-00256-CV, 2010 WL 135685 (Tex. App.—Corpus Christi– Edinburg Jan. 14, 2010, no pet.) set forth the following standard: (1) An insured has the burden of segregating property damage caused by a covered peril (such as a hail storm during the policy period) from property damage caused by an uncovered peril (such as excluded wear and tear or hail damage occurring outside the policy period); (2) a delay of 19 months is unreasonable and not prompt as a matter of law; and (3) the insured’s failure to provide notice compromised the reliability and availability of evidence necessary for the insurer to investigate the claim The insured’s response to a late notice argument will always be a bad faith setup for failure to investigate. The overarching goal in a late-reported property claim should always be a thorough investigation using all available resources, which will put the insurer in the best possible position to defend a failure to reasonably investigate a claim at trial.