As discussed briefly in my previous blog, (What Happens if a Proof of Loss is not Submitted, is Incomplete, or is Inadequate?), when an insurer receives a Proof of Loss it must either accept or reject the Proof. Initially, the insurer has the right to review a submitted Proof of Loss and make its own determination as to the submission’s sufficiency under the policy. However if the sufficiency is disputed, the final determination will be a question for the court to decide. It is important to note, however, that the insurer should only reject a Proof of Loss for technical reasons and not simply because it disagrees with the amounts being claimed. These technical errors usually include failing to sign or notarize the Proof and/or failing to provide proper supporting documentation.
Once an insured has submitted a Proof the ball is in the insurer’s court. The carrier must make the determination whether to object or not. Similarly, when a policyholder submits a Proof of Loss he or she can assume that it was adequate unless advised otherwise by the insurer. See John Hancock Mut. Life Ins. Co. v. Highley, 445 P.2d 241 (Okla. 1968).
If the insurer does make a determination that the Proof of Loss is inadequate, it has an obligation to act in good faith and notify the policyholder of the rejection. This notification should not simply consist of a blanket statement that the Proof has been rejected. Instead, the insurer has an obligation to point out the specific defects and allow the policyholder a reasonable amount of time to cure them. By failing to provide the insured with the specific defects or not allowing a reasonable time to cure, the insurer is likely acting in bad faith and could be held liable for its conduct.
So what should the policyholder do if the Proof is rejected? Well, above all else, the insured should attempt to cure the technical defects. If the time to submit the Proof has not expired, the insured can generally submit additional forms. Similarly if an insurer rejects a Proof of Loss just before the deadline for submission, the insured may be allowed a reasonable time to cure the defects even after its expiration. See Hanover Fire Ins. Co. of N.Y. v. Hodges, 37 Ga. App. 229, 139 (1927).
Further, if the time to submit the Proof has expired, a new Proof of Loss may be considered to relate back to the original thus complying with the applicable time limitation. Generally, a Proof can be amended to reflect the correct amount of damages as long as the original was filed within the applicable timeframe and was not filed with the intent to defraud or deceive the insurer. Happy Hank Auction Co. v. American Eagle Fire Ins. Co., 136 N.E.2d 842 (1956). When these questions of motive arise, the court will usually take a close look at the facts and circumstances surrounding the claim to determine whether there was a simple error or something more which might justify precluding coverage. As long as there is no finding of intent to deceive or defraud the carrier, courts are many times hesitant about voiding coverage without giving the insured an opportunity to cure the defects.
As always it is important to note there are many differences in the rules under a homeowner insurance policy and the NFIP flood policy and these general rules may not apply when dealing with the latter. One common theme running through both of these policies, however, is submitting a Proof of Loss is an important step which should not be taken lightly. Dealing with these requirements can be a daunting task for insureds and, as Bill Cornell pointed out in his comment to last week’s post, it is always recommended that a policyholder seek the assistance of an attorney or public adjuster to ensure that the Proof is accurate and properly filled out.