(Note: This Guest Blog is by Corey Harris, an attorney with Merlin Law Group in the Tampa, Florida, office. This is the second of a twelve part series he is writing on proof of loss).

So here you are, only a short time after your home or business has been destroyed by a hurricane, wildfire, or some other form of Mother Nature’s wrath. You have spent countless hours meeting with your adjuster, insurance company, and various contractors, attempting to pick up the pieces and move forward. Things seemingly could not get any worse, until you received that letter from your insurance company requesting that you submit a Proof of Loss. So what now? Do you really have to put in the time and effort necessary to submit a proper Proof?

As discussed in the previous post, What is a Proof of Loss, and What Purpose Does it Serve?, many times filing out a proof of loss can be a prerequisite for recovery. Sometimes failing to submit a Proof of Loss may be grounds for the insurer to deny coverage for the loss. The first place to look to see what your obligations are in regards to submitting a Proof of Loss is the policy. Some policies specifically state that an insured’s failure to submit a Proof of Loss may void coverage under the policy and some do not. Courts have looked at these disputes on a case by case basis. If the policy states that a Proof is required, then the insured may be voiding coverage by failing to do so.

If the policy does not state that failing to submit a Proof of Loss will void coverage, some courts have not been willing to find that an insured’s claim can be denied simply by failing to submit one. For instance, in Continental Fire Ins. Co. v. Whitaker & Dillard, 112 Tenn. 151 (Tenn. 1904), a Tennessee court stated:

If a policy of insurance provides that notice and proofs of loss are to be furnished within a certain time after loss has occurred, but does not impose a forfeiture for failure to furnish them within the time prescribed, and does impose forfeiture for a failure to comply with other provisions of the contract, the insured may, it is held, maintain an action, though he does not furnish proofs within the time designated, provided he does furnish them at some time prior to commencing the action upon the policy. And this has been held to be true even though the policy provide that no action can be maintained until after a full compliance with all the requirements thereof.

The Court’s opinion in Continental is in line with cases from numerous other jurisdictions including West Virginia, Michigan, Pennsylvania, and Kentucky. While these rulings stand for the premise that a policy may not be voided for failure to submit a Proof of Loss, they do not mean that a Proof does not ever have to be filed. A Proof of Loss is still a prerequisite for recovery; an insurer may not deny a claim simply because it is not filed within the specific time frame allotted.

Courts also sometimes focus on whether the insured has substantially complied with the policy provisions and what prejudice has resulted from the insured’s actions. If the policyholder has made a good faith effort to comply with the Proof of Loss requirements and there has been no prejudice to the insurer because of a minor technicality, courts are more reluctant to find that the policy has been breached. See for instance, Walker v. American Bankers Ins. Group, where a court found that an insured has substantially complied with the proof of loss provisions if they have submitted enough information to:

afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obliged to pay…. to furnish the insurer with the particulars of the loss and all data necessary to determine its liability and the amount thereof. Walker v. American Bankers Ins. Group, 108 Nev. 533, 537 (Nev. 1992).

In Walker, the Court went on to say that the insured had substantially complied with his Proof of Loss obligations by submitting a one-page, unsigned and unsworn, list to the insurer within the time frame allowed under the policy. This was a far cry from what the insurer contemplated when it asked for a Proof of Loss, but the Court found that it was close enough to serve the overall purpose of the obligation.

Many times there will be a problem with the technicalities which makes the Proof incomplete. Some of the most common mistakes include the insured’s failure to sign, failure to notarize, or failure to provide the insurer with the necessary supporting information. In these instances, the insurer will likely reject the Proof of Loss. When such a rejection takes place, the insurer should notify the policyholder that the proof has been rejected and what steps must be taken in order to fix the problems. In most instances, the policyholder can easily make the necessary changes and the insurer will likely accept the Proof.

In the end, we are all human and mistakes happen. While there are many different reasons for which an insurer might reject a Proof of Loss, a disagreement as to the amount of damages contained in the Proof is usually not one of them. This does not mean that submitting an inaccurate Proof of Loss is not a reason that an insurance company might attempt to avoid coverage. In situations where there are incorrect statements in the Proof, courts often look at the nature and circumstances of the error and attempt to determine the insured’s intent.

If the insured filled out the Proof of Loss in good faith and the insurer was not prejudiced by the mistake, courts tend to find that coverage has not been voided. As with other aspects of the policyholder’s duties following a loss, however, if the insured’s errors are not made in good faith or are attempts to defraud the insurer, the insurer may have a valid defense to avoid coverage.

The old adage “if something is worth doing, it is worth doing right” undoubtedly applies to the creation and filing of a proof of loss. By acting in good faith to comply with the post-loss obligations under the policy, the policyholder can avoid many common pitfalls and move their claim along more quickly.

Please take note that the requirements under the National Flood Insurance Program (NFIP) Policies are much different and much of this does not apply. To hear about that, however, you will have to check back in the weeks to come.