Immediate knowledge of a loss is never guaranteed. For example, many northeastern residents winter down south and they may go months without visiting one of their properties. What happens if during one of those periods their property is damaged and they don’t find out until months later?
In this scenario, there are two different polices utilized by insurance companies which change the determination of coverage: Occurrence Polices and Claims-Made Policies.
In an occurrence policy, coverage is triggered based upon the date of the event giving rise to the claim. Occurrence policies do not provide coverage for events or acts occurring prior to the effective date of the policy. Because coverage is triggered based upon when the accident or injury occurred, the policy in force on the date of such event is the one which responds to the claim regardless of when the claim was presented to the insurance company.1
Conversely, a Claims-Made policy operates differently:
In a claims-made policy, coverage is triggered by the date the insured first became aware of the possibility of a claim and notified the insurer of such knowledge. The insurance policy in force on the date the insured gained such awareness is the one which responds to the claim. The policy period for a claims-made policy will extend backwards in time to a “retroactive date” years before the policy was purchased. Therefore, the policy will provide coverage for claims made today stemming from actions or events all the way back to that retroactive date. A claims-made policy requires the claim be made during the policy period or an extended reporting period.2
Coverage issues can arise when an insured makes a late-notice claim on a Claims-Made policy. For our northeastern residents mentioned above, this may be the situation when they discover damage months after the actual date of loss. Depending upon the state you live in, insurers may be required to prove notice-prejudice to deny a late-notice claim. Notice-prejudice, “bars an insurer from using late notice as a reason to deny an insured’s claim unless the insurer can show that the insurer was prejudiced by the untimely notice. Prejudice is not presumed from delayed notice alone. The insurer must show actual prejudice, not the mere possibility of prejudice.”3
In Pennsylvania, however, the burden falls on the insured. In ACE American Insurance Company v. Underwriters at Lloyds & Company, the Pennsylvania Supreme Court affirmed Superior Court of Pennsylvania’s ruling that, “in the ‘claims-made’ context, if an insured has clearly breached the notice requirement, an insurer need not show prejudice to deny coverage.” This means that if a policy includes a specific notice requirement, it will be the insured’s burden of proving they complied with the requirement in order to be afforded coverage.
While we may seem a bit like a broken record, but our first piece of advice to all insureds is to read your policy carefully, because in Pennsylvania time may not be on your side.
As always, here is a (mildly) related tune, one of my all time favorites, The Rolling Stones with Time Is On My Side: