An insurer generally may not deny a claim solely because of an insured’s delayed notice of a claim "unless the insurer was substantially prejudiced thereby."1 Typically, the insurer will argue prejudice if the delayed notice impaired its ability to investigate a claim. But what if an insured gave timely notice of a claim, but failed to provide a proof of loss? Does the "notice-prejudice" rule still apply?

In a decision issued this past week by a California appellate court, the answer is yes. In Henderson, et al. v. Farmers Group, Inc., et al.,2 (a wildfire soot and ash case) the trial court granted defendant Fire Insurance Exchange’s motion for summary adjudication as to the breach of contract and bad faith claims of several plaintiffs because they failed to submit proofs of loss as required by the policy. The trial court held that Fire Insurance Exchange need not show substantial prejudice to enforce its defense based on the lack of proof of loss. The appellate court disagreed and reversed the trial court’s ruling and held that to enforce a defense based upon the insured’s failure to provide a timely proof of loss, the insurer must show it suffered substantial prejudice. The appellate found that Fire Insurance Exchange presented no evidence of prejudice and therefore, was not entitled to summary judgment. In applying the “notice-prejudice” rule in this specific context, the appellate court cited California’s strong public policy against “technical forfeitures” and described the rule as a guide for courts when construing conditions in insurance contracts to prevent the insurer from escaping a liability which it expressly undertook.

Not that it is ever wise to disregard an insurer’s request for a proof of loss, but sometimes the omission may have been due to inadvertence or a mistake. It’s good to know that depending on the circumstances, the absence of a proof of loss may not doom a policyholder’s claim. The insurer still must prove actual and substantial prejudice if it denies a claim based on a failure to provide a proof of loss.

1 Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303.
2 Henderson, et al. v. Farmers Group, Inc., et al. California Court of Appeal (Second Appellate District) Case No. B236259, Slip Opinion (certified for publication), 10/24/12.