A classic example of the need for sound legal advice can be seen in questions of proper notice. The typical insurance policy has a notice provision. The contract requires the insured individual or insured company to give timely notice of a claim. From the perspective of an insurance company, notice is important. Early investigation gives the adjuster the chance to find out the facts. The passage of time can be harmful to a claim. Not to mention, the insurance company needs to know about losses to set reserves and make suitable financial decisions.
For some, the questions seems quite simple. The insurance policy is a written contract. If the insurance policy says prompt notice, it should be given. If notice is not timely made, then there is no coverage. They believe the breach of the contract terminates the coverage. Others would argue prompt isn’t defined. So what if the notice is one day late? The argument carries some degree of logic. If you were one day late on your mortgage payment, would you want the loan called due. Would having to pay the loan balance in full the next day be possible? It really would seem unfair to lose the house over a payment one day late.
The issue of timing as a defense to coverage is all or nothing. If late notice is a complete defense, then the insurance policy benefits are forfeited. In a large claim or a serious fact situation, the stakes are high. Denial of the coverage would be devastating to the insured.
So why wouldn’t the insured give notice of a claim? The most obvious reason is fear over loss of future coverage entirely. Policy holders worry about being able to purchase insurance. Insureds are also concerned over the increase in premiums. If the situation “goes away”, then why risk the increase in premiums. Another reason can be the belief there is really not injury or damage. Suppose the manager of an apartment complex witnesses a 28 year old trip on the sidewalk. The young man falls to the grass. He looks athletic, strong, healthy. No obvious harm is present. He says not to worry, that he is fine. Calling the agent to report a claim seems over the top, downright silly. The claim goes unreported until the lawsuit arrives.
Jurisdictions across the country have reached different conclusions.
Recent decisions in Colorado and Wyoming illustrate the tension in the law on notice. The Colorado Supreme Court has twice cut back on its previous ten-year streak of expanding coverage for insureds by refusing to allow insurers to enforce technicalities in notice clauses to prevent coverage. Colorado’s neighbor to the north, Wyoming, headed in the other direction in 2016. Most states now employ the modern rule, which requires insurers to prove prejudice before they can void coverage. In May 2016, the American Law Institute adopted the modern rule for its Restatement of the Law, Liability Insurance, a position that could be influential in the courts.
More perilous to both insurers and policy holders are the courts that change their mind and reverse the rule announced just a few years earlier. Colorado seems to have some of these shifting winds:
Last year. . . the supreme court refused to apply the notice-prejudice rule to claims-made policies. Craft v. Philadelphia Ins. Co., 343 P.3d 951 (Colo. 2015). There, an officer of an insured company sought coverage under a D&O policy approximately 16 months after the policy period expired, even though the underlying lawsuit was filed during the policy period and the case had already been settled.
This year, the Colorado Supreme Court reversed a court of appeals ruling, holding that an insured cannot obtain coverage for a settlement of a claim or even a pending case with or without notice, if the carrier objects to the settlement. Stresscon v. Travelers Indem. Co., 370 P.3d 140 (2016) (Stresscon I). In 2013, the court of appeals had expanded the notice-prejudice rule to the “no voluntary payments clause” in Stresscon v. Travelers Indem. Co., 2013 COA 131. There, a concrete subcontractor, who admitted that it caused an accident at an U.S. Army base which delayed the project, notified its insurance carrier of the general contractor’s claims. The carrier arguably refused coverage, and the insured then settled with its general contractor on a series of contract claims (after allegedly inviting the carrier to the settlement meetings) and later sued for an indemnity. The court of appeals correctly rejected this technicality and found that the concrete company was well justified in its decision to settle and thus had successfully rebutted the arguable prejudice from the late notice and was entitled to recover.
Take Away – coverage counsel needs to be used to evaluate late notice as a defense. The law is changing. As it does, the courts go back and forth trying to reach the best answer. Until the answer to the question is firmly established, there is danger in denying a claim for late notice. Always involve trusted legal counsel with knowledge and expertise in insurance matters.
In Oklahoma, we will be glad to assist you. Coverage issues have been part of our practice and we have helped resolved several late notice claims. If you have questions about what constitutes late notice, call us. Don’t take on the decision without a good attorney familiar with Oklahoma law. 918-587-1525.