A case issued yesterday shows when late notice is simply far too late. The policyholders lost in Kramer v. State Farm Florida Insurance Company,1 because they had no proof that the insurer was not prejudiced by the late notice of the loss. There should be an asterisk to this post because the lesson is that if the engineering experts cannot determine the covered cause of an admittedly late noticed loss which could have resulted from uncovered causes, courts will not generally be helpful to policyholders seeking recovery.
After storms, people do not get on their ladders and inspect their roofs for damage. Here is what the typical policyholder will face if they are asked by their insurer to inspect a roof after a storm to see if there is damage:
In the alternative, as we have learned from Kramer, State Farm expects its insureds to get on their roofs –risking serious injury or death — and inspect for possible damage. The Court did not address whether this expectation violates public policy. Maybe the judges or their law clerks did not think about this practical aspect, the risks of climbing on a roof, or were far too concerned about the letter of the law to consider why insurance laws originated in the first place.
It seems common sense that the discussion about the practical aspects of "notice" should be discussed because the notice of loss clauses were first instituted for fire losses. Historically, all property policies covered only fire losses. Fire losses are easy to see and report. Requirements that a fire loss be reported right away seem reasonable. Accordingly, prompt notice clauses are reasonable following fire losses, but very problematic with the modern insurance policy which covers "all risks" of physical damage, including subtle windstorm and hail damage to a roof. Do we want public policy and law to require policyholders to inspect their roofs following every storm regardless of risk to life and limb?
I wonder how many judges and law clerks (or even State Farm executives) have ever climbed on a roof to look for windstorm or hail damage even though their policies require them to do so if they have a loss to report? Even if they did, most of us in this business know that few would be able to identify the subtle but substantial signs of wind or hail damage.
Still, the facts of instant case provide a very valuable lesson. The Court clearly considered the following edited observation significant:
In September, 2004, Hurricane Frances and Hurricane Jeanne allegedly damaged the insured’s’ roof.
The insureds did not give immediate notice of the alleged loss to the insurer and did not submit to the insurer a sworn proof of loss within 60 days after the alleged loss. Instead, the insureds decided for themselves that the roof tiles which blew off their roof were not the type of damages which involved the policy at issue.
Four years later, in 2008, a leak occurred in the insureds’ roof. The insureds again did not give notice of the alleged loss or submit a sworn proof of loss to the insurer. Instead, the insureds decided for themselves that the amount of money to repair the leak was below their deductible and, as such, did not involve the policy at issue.
In May, 2009, the insureds were advised by a person who inspected their roof that Hurricane Frances and Hurricane Jeanne may have caused damage to their roof. Later that month, the insureds filed a claim with the insurer for the estimated cost to replace the roof.
…the insurer argued that the engineer’s affidavit did not rebut the presumption [of prejudice.] The insurer referred to the engineer’s report referenced in the affidavit. In the report, the engineer stated: “Foot traffic over the prior 11 years may have contributed to the breakage, though wind damage, in our opinion, was equally likely.” (emphasis added). The engineer also stated: “Since resetting of tiles occurred prior to this inspection, it was not possible to discern the full extent of the damages that existed immediately after [the hurricanes].” (emphasis added). According to the insurer: “If the [insureds’] own expert can’t determine the cause, how can [the insurer]?”
…the insureds’ untimely pre-suit notice of the alleged loss and untimely pre-suit submission of the sworn proof of loss is presumed to have prejudiced the insurer. Thus, the burden shifted to the insureds to show that the insurer was not prejudiced by their untimely pre-suit notice of the alleged loss and the untimely pre-suit submission of the sworn proof of loss. . . .
Here, the insureds failed to come forward with counterevidence sufficient to reveal a genuine issue of material fact as to whether the insurer was prejudiced by the insureds’ untimely pre-suit notice of the alleged loss and untimely pre-suit submission of the sworn proof of loss. The insureds’ evidence consisted of their structural engineer’s affidavit. In the affidavit, the engineer stated in general terms that he had worked on many cases where the insurer in this case “has relied on engineers to determine the cause of damage to property years after a storm.” According to the engineer, “As described in the attached report, damage as a result of hurricanes is noticeably different from other causes of loss such as wear and tear, deterioration, and the like.”
However, as the insurer argued, the engineer’s report, when discussing the damage specific to the insureds’ roof here, stated: “Foot traffic over the prior 11 years may have contributed to the breakage, though wind damage, in our opinion, was equally likely.” (emphasis added). The engineer’s report also stated: “Since resetting of tiles occurred prior to this inspection, it was not possible to discern the full extent of the damages that existed immediately after [the hurricanes].” (emphasis added). We agree with the insurer that the engineer’s affidavit and report did not create a genuine issue of material fact as to whether the insured had rebutted the presumption of prejudice to the insurer. In fact, the engineer’s statement bolstered the insurer’s argument that it had been prejudiced. As the insurer argued: “If the [insureds’] own expert can’t determine the cause, how can [the insurer]?”
The bottom line is that an expert retained after a late reported loss should be able to explain the cause of loss. If not, the policyholder will likely have a difficult time collecting benefits.