Proofs of loss and examinations underneath oath shall be my speech subject on the Annual Assembly of the Nationwide Affiliation of Public Insurance coverage Adjusters (NAPIA) in June. My speech commemorates the identical subject I gave 40 years in the past at NAPIA ‘s Annual Assembly in Carmel, California. If you happen to missed the one 40 years in the past, you might have considered trying to enroll in this one. We’d not be round in one other 40.
In preparation, I studied a regulation evaluate article, The Function of Prejudice in Resolving Insurance coverage Situation Clause Disputes: The Good, the Unhealthy, & the Ugly, 1 written by regulation professor Johnny Parker. The regulation evaluate article was a examine on the remedy of prejudice within the context of insurance coverage by the assorted states. I famous this text and the way it applies to late discover in The Discover Prejudice Rule Is By Far the Accepted Rule of Legislation Quite Than the Forfeiture of Coverage Advantages Rule.
When an insured suffers a loss, insurance coverage insurance policies typically require them to submit a sworn proof of loss detailing the character and extent of the damages. However what occurs if the proof of loss is filed late? Does the insurer have an computerized proper to disclaim the declare, or is the insured entitled to protection whatever the delay? The reply to those questions typically hinges on the idea of “prejudice,” a key problem that courts look at carefully in figuring out whether or not protection ought to be denied resulting from non-compliance with coverage situations.
Prejudice, within the insurance coverage context, refers as to if the insurer suffered a cloth drawback as a result of the insured failed to meet coverage situations in a well timed method. The precept is rooted in equity: Ought to an insurer be permitted to disclaim protection solely as a result of a policyholder was late in assembly a coverage situation, even when the insurer suffered no hurt because of this? To handle this dilemma, most jurisdictions have adopted what is called the “notice-prejudice rule,” an equitable doctrine requiring insurers to show precise prejudice brought on by an insured’s delay in offering a proof of loss.
Courts embracing the notice-prejudice rule emphasize that insurance coverage insurance policies are contracts of adhesion—standardized contracts drafted by insurers with out negotiation, the place shoppers have little or no enter past accepting the provided phrases. Recognizing the imbalance in bargaining energy between insurers and insureds, courts making use of the unfairness rule attempt to stop insurers from unjustly benefiting from a technical breach that leads to no significant drawback to them.
Traditionally, insurance coverage insurance policies handled well timed submission of a proof of loss as a strict situation precedent. Beneath this conventional view, insurers had been permitted to disclaim claims for any breach, no matter whether or not the insurer suffered hurt or prejudice. Over time, nonetheless, courts started to acknowledge the inherent unfairness and harshness of permitting insurers to keep away from paying in any other case legitimate claims resulting from a technical breach that induced no precise injury to the insurer.
The evolution in the direction of the notice-prejudice rule acknowledges the sensible realities going through insureds. Insurance coverage insurance policies are sometimes contracts of adhesion—standardized agreements provided on a take-it-or-leave-it foundation by insurers who maintain considerably larger bargaining energy. Most policyholders have little to no alternative to barter or perceive complicated contractual provisions. Consequently, implementing coverage situations with out consideration of prejudice typically results in disproportionate forfeitures, defeating the very objective of insurance coverage—to supply safety in opposition to loss.
In the present day, most states consider late proof of loss filings via one in all two prejudice requirements: precise prejudice or a rebuttable presumption of prejudice. In jurisdictions requiring proof of precise prejudice, the burden rests squarely with insurers. The insurer should exhibit, sometimes via clear proof, that the delay materially impaired their skill to research, defend, or settle the declare. Insurers might argue, for instance, that delayed discover compromised their skill to conduct a radical investigation, resulted within the lack of essential proof, or hampered their alternative to mitigate damages via well timed intervention.
In states making use of a rebuttable presumption of prejudice, the preliminary burden falls upon the insured to show that the insurer was not prejudiced by the late submitting. The insurer, nonetheless, finally bears the accountability of persuasion, which means it should exhibit substantial prejudice to prevail in a denial of protection.
Not all situations are evaluated equally underneath the unfairness rule. The rule generally applies to note of loss, cooperation, and proof of loss situations, whereas different provisions, akin to limitations on submitting fits, consent-to-settlement clauses, and examination-under-oath necessities, could also be handled in another way relying on jurisdiction. As an illustration, consent-to-settlement and cooperation provisions typically require insurers to exhibit precise prejudice to disclaim protection. In distinction, situations associated to the timing of lawsuits sometimes are enforced strictly and not using a prejudice evaluation.
Regardless of widespread adoption, the notice-prejudice rule just isn’t common. A minority of jurisdictions proceed to implement strict compliance with situations precedent, which means protection could also be forfeited with out regard to prejudice. Such states place vital weight on contractual freedom and coverage language, reasoning that courts mustn’t intervene with clearly expressed agreements. In these jurisdictions, insureds threat shedding protection totally resulting from even minor delays or technical missteps in submitting proofs of loss.
The pattern amongst courts to undertake the notice-prejudice rule displays a broader shift towards non-forfeiture based mostly on technicality. By emphasizing precise hurt to insurers moderately than strict adherence to contractual provisions, my view is that courts goal to stop unjust forfeitures and uphold the protecting intent underlying insurance coverage insurance policies. In essence, the pattern by courts is to let the declare be decided on its deserves.
Policyholders ought to stay conscious, nonetheless, that well timed compliance with coverage situations is all the time the perfect observe, as the applying of prejudice evaluation stays inconsistent throughout jurisdictions, leaving vital uncertainty for insureds who delay. In the end, insureds, their public adjusters, and their counsel ought to be attentive to deadlines and coverage language whereas additionally recognizing the potential for equitable aid when prejudice is absent.
Parker’s regulation evaluate breaks down these points on a state-by-state foundation. In case you are actually an insurance coverage protection nerd, you’ll love studying his regulation evaluate article.
I hope to see you on the NAPIA conference in Scottsdale this June. Here’s a hyperlink for registration: https://www.napia.com/occasions/2025-napia-annual-meeting-copy
Thought For The Day
“I’ve seen that people who find themselves late are sometimes a lot jollier than the individuals who have to attend for them.”
—E. V. Lucas
1 Johnny Parker, The Function of Prejudice in Resolving Insurance coverage Situation Clause Disputes: The Good, The Unhealthy, & The Ugly, 47 U. Mem. L. Rev. 779 (2017).
