Last week, Shaun Marker started us on the topic of late notice for hurricane claims. He ended his post with a few questions for later discussion, such as “what is timely notice, and how has the insurer been deprived of the opportunity to investigate the facts?” Corey Harris gave an excellent explanation of “what is timely notice” in his blog entries on January 23 and January 30 of this year.
Corey’s posts for the most part address the question of when notice is timely, noting that the answer to the question of when notice is timely depends on the facts and circumstances of each case. This week, I’d like to discuss a little more about the policy reasons behind the timely notice insurance contract provisions. In other words, I hope to answer the question of why timely notice is required. Knowing why timely notice is required is the key for an insured to prepare to rebut an insurance company’s assertion, or worse, a presumption, that notice was untimely.
“The purpose of a provision for notice and proofs of loss is to enable the insurer to evaluate its rights and liabilities, to afford it an opportunity to make a timely investigation, and to prevent fraud and imposition upon it.” State Farm Mut. Auto. Ins. Co. v. Ranson, 121 So. 2d 175, 180 (Fla. 2d DCA 1960); see also, 13 Couch on Ins. § 186:14. The notice provision is also “designed to enable the insurer to … assess whether it should settle or litigate the claim, if litigation is determined to be the best course of action, to prepare an adequate defense….” 16 Williston on Contracts § 49:109 (4th ed.).
As Shaun and Corey previously stated, in Florida, untimely notice that prejudices the insurer could possibly result in a denial of coverage. Bankers Ins. Co. v. Macias, 475 So.2d 1216 (Fla. 1985). Courts often use the purpose of the notice provision to determine whether a delay in notice has prejudiced the insurer, holding that a frustration of the purpose of the notice provision results in prejudice to the insurer. See e.g., American Mut. Liability Ins. Co. v. Beatrice Companies, Inc., 924 F. Supp. 861, 871 (N.D. Ill. 1996). Thus, an infringement on an insurance company’s right to investigate, protect itself from fraud, determine its liability, prepare an intelligent estimate, or plan for litigation, may result in prejudice to the insurer.
Hurricane damage, like any kind of property damage, may be readily apparent or may not manifest itself until well after the storm has passed. When claims are presented to the insurance company months or years after the storm, the insurance company’s typical response is to assert prejudice due to untimely notice. This response may only be accurate if the insured indeed knew about the damage and waited to report it. If damage is not manifest until months or years after the storm, an insured can argue that prejudice should not be found as long as the insured gives timely notice of the newly discovered damage.
In many cases, the insured promptly notifies the insurance company of damage after a storm, but the insurance company does not do a thorough inspection to find all of the damage to repair. In these cases, the insurance company may be found to blame for any prejudice it asserts. The insured gave the insurance company timely notice of the loss, gave the insurance company an opportunity to investigate, to protect itself from fraud, determine its liability, prepare an estimate, and plan for litigation at the time the loss was initially reported.
The notice provision puts the burden on the insured to provide timely notice of a loss to the insurance company. In hurricane “reopen” cases where prejudice is asserted, the insurance company may be misrepresenting the facts and the law. By asserting prejudice in a hurricane reopen case, the insurance company may be attempting to require the insured to not only provide timely notice of a loss, but also to conduct a thorough investigation, protect the insurer against fraud, and evaluate the rights and obligations of the insurance company. That type of burden shifting is not contemplated in the insurance contract or case law interpreting the contract.
If an insurance company is asserting prejudice due to late notice on a particular claim, especially a hurricane reopen, more than likely you need competent legal representation that has proven experience in dealing with these types of issues.