Insurance contracts generally require that policyholders provide the insurer with proper notice of a claim and, in many cases, an occurrence that may lead to a claim. Insurance companies insist on notice provisions to protect their interests. Prompt notice of a claim allows insurers to conduct investigations while the witnesses are still available and memories are still fresh, and it permits them to allocate reserves to cover the liability. It is important to understand and comply with your policy’s notice provision, because failure to give proper, timely notice under the terms of your policy can have devastating consequences for your business.
What Is Considered Proper Notice?
Notice must be both sufficient and timely in accordance with the policy language, which varies from policy to policy. Most general commercial liability (CGL) policies require that you provide proper notice of both claims and occurrences that could reasonably result in a claim. Typically, notice must be provided in writing to a proper representative of the insurance company, and it must include particulars to the time, place and circumstances of the occurrence, the names and addresses of injured persons and available witnesses, and other relevant information to allow the insurance company to investigate the claim or determine if an occurrence is likely to lead to a claim. While policy provisions require timely notice, the wording often does not specify an amount of time. Rather, the time requirement is expressed in terms such as “immediately,” “as soon as practicable” or “within a reasonable time.” Courts typically judge the timeliness of notice based on what a reasonable insured would have done under similar circumstances.
When Is Late Notice Excused?
Untimely notice may be excused under certain circumstances. If you were unaware of an occurrence or a loss, this may excuse a delay in filing notice. Less commonly, you may be excused if you had a good-faith belief that you were not liable for an occurrence and the court deems your belief to be objectively reasonable. It is also possible that a court will excuse untimely notice if it finds you had a reasonable belief that the loss fell outside the scope of the policy coverage – provided you exercised due diligence in examining your policies.
What Happens When There Is an Unexcused Delay?
Traditionally, proper notice was viewed as a condition to receive trigger coverage. As such, an insured’s unexcused delay in providing notice relieved the insurer of its duties to defend and indemnify the insured. In recent years, the majority of jurisdictions have adopted a “notice-prejudice rule.” This rule holds that an insurer cannot be excused from liability unless it can be demonstrated that a late notice materially prejudiced the insurer’s ability to respond to a claim. As one court held, “[I]t is inequitable for an insurer that has not been prejudiced by a delay in notice to reap the benefits flowing from the forfeiture of the insurance policy. In light of the adhesive nature of such contracts as well as our inclination to construe these contracts against the drafter/insurer, we believe that this State’s public policy disfavors the ability of an insurer to escape its contractual duties due to a technicality.”1 However, some states still follow the no-prejudice rule and others limit the notice-prejudice rule to occurrence policies, applying the no-prejudice rule to claims-made policies.
What Constitutes Prejudice?
Different courts have applied varying standards and consider many factors in determining whether an insurer has suffered prejudice as a result of late notice. Relevant factors have included “the availability of witnesses to the accident; the ability to discover other information regarding the conditions of the locale where the accident occurred; any physical changes in the location of the accident during the period of the delay;… the preparation and preservation of demonstrative and illustrative evidence …; and so on.”2 In some cases, the issue of prejudice may be a question of fact, and courts may look at the totality of circumstances caused by the untimely notice in assessing whether the insurer suffered prejudice.
While most jurisdictions place the burden of demonstrating prejudice on the insurer, a minority hold that when there is an unreasonable delay in providing notice, there’s a presumption of prejudice, and that the insured bears the burden of showing that the delay in providing notice has not prejudiced the insurer.3
If you are involved in a dispute with your business insurance company, contact Schwartz, Conroy & Hack. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.
1 Alcazar v. Hayes, 982 S.W.2d 845, 850-53 (Tenn. 1998)
2 Great Am. Ins. Co. v. C. G. Tate Constr. Co., 303 N.C. 387, 279 S.E.2d 769, 776 (1981)
3 Liberty Mutual Ins. Co. v. OSI Indus., Inc., 831 N.E.2d 192, 203 (Ind. App. 2005)