Insurers on occasion deny coverage or make claim decisions based on one ground, and then later, during litigation, seek to avoid liability based upon an entirely new defense theory. Although coverage decision letters regularly throw in boilerplate language seeking to avoid waiving coverage defenses, I was recently asked whether an insurer can deny coverage or refuse to pay additional policy benefits during the claim stage based on one ground, and then later, after litigation has commenced, seek to avoid coverage based on the insured’s alleged failure to fulfill the proof of loss condition. To answer this question, we need to first review some general principles concerning proof of loss.
Proof of Loss Basics:
First-party property insurance policies contain provisions known as conditions in the event of loss. One of the conditions is the “proof of loss” condition. This condition usually requires that the insured give the insurer timely notice of a claim. In addition, certain policies, including first party property policies, require the insured to provide a formal proof of loss. [See California Insurance Code § 2071].
As an example, under the California Standard Form Fire Insurance Policy, the insured must:
“[W]ithout unnecessary delay” furnish a “complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed”; and
within 60 days after the loss, provide a sworn proof of loss stating “the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto. . . .” [California Insurance Code § 2071.]
Other first party insurance policies are less specific. Some simply require a “detailed proof” or “due proof” or “satisfactory evidence” of loss. [See Culley v. New York Life Ins. Co. (1945) 27 Cal.2d 187, 192 —“due proof of disability”].
Where the policy calls for a sworn proof of loss, the insured is required to comply. But absent such a requirement in the policy, no particular form of proof is required. Even an oral communication may enable the insurer to form an estimate of its rights and liabilities. [Culley v. New York Life Ins. Co., supra, 27 C2d at 192, 163 P.2d at 701 (predating Ins.C. § 10350.7)—“due proof of disability” satisfied at meeting arranged by insurer to enable insured to comply with policy and to provide insurer with necessary information although parties also contemplated filing proof in written form; see McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal. App. 3d 1030, 1046, 200 Cal. Rptr. 732, 741—insurance company “does not have the right to insist the claim be proved only through certain types of evidence”]
Furthermore, the “proof of loss” form may be prepared by insurer. Insurers often prepare a proof of loss form based on its investigation and submits it to the insured for signature. [See Rosenblum v. Safeco Ins. Co. (2005) 126 Cal.App.4th 847, 853, fn. 7]. As an example, some policy forms specify:
send us a signed, sworn statement of loss containing the information we request to settle
the claim. You must do this within 60 days after our request. We will supply you with the
necessary forms. . . .
Denial of Coverage Waives the Defense:
If the insurance company denies coverage (for some reason other than a prejudicially late-filed notice of claim), it waives any policy requirement for notice and proof of loss. [Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865, 881; Downey Sav. & Loan v. Ohio Cas. Ins. Co. (1987) 189 Cal.App.3d 1072.]
“The law is established that where an insurance company denies liability under a policy which it has issued, it waives any claim that the notice provisions of the policy have not been complied with.” [Comunale v. Traders & Gen. Ins. Co. (1953) 116 Cal. App. 2d 198, 202-203, 253 P2d 495, 499]
By taking the position that the claim is not covered, the insurer demonstrates that any defect in the notice and proof of loss did not affect its decision. [See Select Ins. Co. v. Sup.Ct. (Custer) (1990) 226 Cal.App.3d 631, 637.]
“The reason for the rule is that, where the insurer denies all liability under the policy, the insured is misled into believing it would be futile for the insured to file a proof of loss, pay premium arrearages, or otherwise perform any affirmative obligation under the policy.” [Alta Calif. Regional Ctr. v. Fremont Indem. Co. (1994) 25 Cal.App.4th 455, 467-468 (disapproved on other grounds in Waller v. Truck Ins. Exch., Inc. (1995) 11 C4th 1, 34, 44 CR2d 370, 388)].