In my prior blogs on Arizona insurance law, I discussed how insurance companies cannot simply get off the hook if a policyholder submits a claim late or files a lawsuit after the statute of limitations has expired. In those instances, an insurance company cannot avoid accepting or paying a claim (assuming there is coverage) unless it can show that it suffered actual prejudice from the policyholder’s delay. The same holds true for a proof of loss.
The Arizona Administrative Code has a regulation that is on point:
No insurer shall, except where there is a time limit specified in the policy, make statements, written or otherwise, requiring a claimant to give written notice of loss or proof of loss within a specified time limit and which seek to relieve the company of its obligations if such a time limit is not complied with unless the failure to comply with such time limit prejudices the insurer’s rights.1
Indeed, in Arizona the "prejudice" rule applies to a proof of loss. For example, if an insurance company requires a policyholder provide a proof of loss within 60 days of the request, and the policyholder does not submit the proof of loss until 90 days after the request, the insurance company cannot deny the claim on the ground that the proof of loss is late unless it can demonstrate prejudice. To establish prejudice, the insurance company has the burden to show that because of the delay it was denied the opportunity to fully investigate the claim or that its claim evaluation was adversely affected.
It is important to note that while the "prejudice" rule applies in Arizona, it does not apply in every state. If you have a question as to whether the "prejudice" rule applies in your state, you should contact an insurance professional.
1 A.A.C. R20-6-801 ("Unfair Claims Settlement Practices") subsection D.4.