Positive Signs in the Enforcement of Late Notice Provisions

Alice in Wonderland Rabbit

This year was off to a positive start in the realm of property insurance with a decision out of the Second Circuit upholding an at times embattled policy provision that is found in nearly every property insurance policy: the late notice provision. Courts’ varying enforcement of such provisions has hindered insurers from enforcing rights vital to protecting their ability to start investigating a loss as quickly as possible. The opinion in Minasian v. IDS Prop. Cas. Ins. Co., 676 F. App’x 29 (2d Cir. 2017) was thus welcome news for the insurance industry, with the appeals court enforcing the late notice provision in a series of property policies which required that the insured provide its carrier prompt notice of a loss.

The Minasian case concerned insureds who made a claim on three insurers arising out of the burglary of nearly $200,000 worth of stolen goods, including jewelry. The insureds waited 86 days, which is nearly 3 months, to report the loss to their insurers, even though they had filed a police report on the day of the burglary. The three policies required that the insured to provide notice of loss to the insurer “as soon as reasonably possible,” “immediate[ly],” and “as soon as practicable.” Considering these provisions, the insurers denied coverage based on, among other reasons, the failure to give proper notice.

On appeal from the district court’s decision to uphold the denial of coverage, the Second Circuit found that the 86-day reporting delay was sufficient to bar coverage under the late notice provisions. The court explained that timely notice was a condition precedent to coverage and that without a reasonable basis for delay of notice, coverage could be denied. The Second Circuit rejected as a matter of law the insureds’ argument that extenuating circumstances – specifically, the possibility of the police recovering the property – excused compliance with the policies’ post-loss notice requirements. As the court explained, “[e]ven assuming plaintiffs held the professed belief in a possible recovery, which would not have prevented a ‘reasonable person’ from suspecting ‘the possibility of a claim.’” The opinion is consistent with other Circuit Courts which have held that unresolved issues after a loss do not excuse the insured from providing notice. See, e.g., Yacht Club on the Intracoastal Condo. Ass’n, Inc. v. Lexington Ins. Co., 599 F. App’x 875, 880 (11th Cir. 2015) (“Prompt notice is not excused because an insured might not be aware of the full extent of damage or that damage would exceed the deductible.”).

State courts this year have reached conclusions consisted with Minasian and Yacht Club, finding in at least one other instance that the loss itself triggers the notice requirement even if there are unresolved coverage issues. Shugarts v. Mohr, 375 Wis. 2d 225, 894 N.W.2d 443 (Ct. App. Wis. March 14, 2017) concerned a UIM claim, in which the insureds argued that notice was timely provided because that policy’s UIM coverage was only triggered once the insureds became aware that the other driver’s insurer would not offer policy limits. The court, however, explained that notice should have been provided immediately after the loss, regardless of when the UIM rights were triggered.

Although Minasian and similar cases are important “wins” for insurers, their impact is limited by the fact that some jurisdictions require that the insurer show “prejudice” to enforce late notice provisions. The Minasian court importantly reaffirmed that New York law does not require a finding of prejudice to deny coverage pursuant to a late notice provision. Unfortunately, without a ruling with regard to “prejudice,” this case is largely inapplicable in states with a prejudice requirement.

Two Fifth Circuit opinions in recent years, however, serve as reminders that courts have also moved toward a more diligent enforcement of late notice provisions even in “prejudice” states. As seen in last year’s Hamilton Properties v. Am. Ins. Co., 643 F. App’x 437 (5th Cir. 2016) opinion, the “prejudice” requirement is not as much of a hurdle for the insurer that it might have been. In that case, even though the court assumed for arguments sake that the insurer could not show prejudice, the court’s finding that an insured bears the burden to segregate losses resulting from either covered or uncovered perils means that it is often in the interest of the insured to submit timely notice of a claim. Further, in Alaniz v. Sirius Int’l Ins. Corp., 626 F. App’x 73 (5th Cir. 2015), the court concluded that the insurer was prejudiced as a matter of law, explaining that the “continued deterioration of the property prejudices [the insurer’s] ability to investigate to what extent any damage to the properties might be attributable to the March 2012 hailstorm and exacerbates the cost of any repairs.” Thus, there a trend in the enforcement of late notice provisions in “prejudice” states just as much as Minasian exemplifies this trend in non-“prejudice” states.

The recent insertion of Minasian into the body of property insurance case law solidifies insurers’ right to notice of a claim, placing the burden on the insured to provide a reasonable and credible explanation for any delay in reporting a loss to its insurer. Along with cases like Hamilton Properties and Alaniz, the past few years have shown positive trends in the enforcement of late notice provisions as a whole, regardless of whether those jurisdictions require prejudice or not.

About The Author

Stephen is an associate in Cozen O'Connor's Global Insurance Department in Philadelphia. Stephen graduated with his J.D. from the University of Virginia School of Law and received his Bachelor of Arts, summa cum laude, in history and political science from Rutgers. While at UVA Law, Stephen was a member of the Virginia Law & Business Review and received a Pro Bono Certificate of Recognition for Pro Bono Service Hours.

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Posted in Conditions, Coverage, Notice, Prejudice, Uncategorized
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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