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EmailInsurance carriers want the earliest possible notice of any claim. Investigation of the claim will be most effectively done while memories are fresh and evidence is available. In addition, an insurance company must financially account and plan for its expected losses by setting proper financial reserves. So it is no wonder that virtually all insurance policies include provisions that obligate the insured to place the carrier on notice of a loss as soon as practicable.
But what happens when the notice of claim arrives late? Can the carrier escape the duty to indemnify by arguing that that the insured violated the contract by providing late notice?
In an earlier blog post HERE, we anticipated that the Nevada Supreme Court would eventually have to face this issue and laid out the three options that the court could select. We wrote about untimely notice explaining that:
courts generally take one of three views as to whether the claim should be paid. One view is that timely notice is a condition precedent to coverage. An unexcused delay automatically results in a loss of coverage. See United Services Auto Ass’n v. Allstate Ins. Co., 662 P.2d 1102 (Colo. Ct. App. 1983). The second view is that late notice generally avoids coverage unless the insured can show that the insurance company suffered no prejudice because of the late notice. See Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530 (Iowa 2002). The third view is that unexcused untimely notice results in a loss of coverage only if the insurer can show that it has been prejudiced by the delay. See Zuckerman v. Trans America Ins. Co., 133 Ariz. 139, 650 P.2d 441 (1982).
In its recent opinion of Las Vegas Metropolitan Police Dept. v. Coregis Ins. Co., 127 Nev. Adv. Op. 47, 256 P.3d 958 (2011), the Nevada Supreme Court selected option number three. In the Metro case, LVMPD had been accused of violating an individual’s civil rights. Metro had an insurance policy with Coregis Insurance. Metro’s policy included a substantial self-insured retainer. Thinking that the case would be resolved within the self-insured retainer, Metro did not get around to notifying the carrier until ten years after the occurrence that had led to the civil rights suit. Coregis denied the claim based upon late notice.
Metro defended the suit and settled the civil rights claim. It then turned to Coregis for reimbursement of the defense costs and settlement amount, less the self-insured retainer. In the declaratory relief action, the trial court granted summary judgment in favor of the insurance company citing the late notice provision of the policy.
On appeal, the Nevada Supreme Court overturned the summary judgment finding that there were questions of fact. The court pointed to NAC 686A.660(4) which states:
4. No insurer may, except where there is a time limit specified in the insurance contract or policy, require a claimant to give written notice of loss or proof of loss within a specified time or seek to relieve the insurer of the obligations if the requirement is not complied with, unless the failure to comply prejudices the insurer’s rights.
The court enforced the above regulation and followed the majority of jurisdictions that require the insurer to show (1) notice was late and (2) the carrier had been prejudiced by the late notice. The court explained that:
Prejudice exists “where the delay materially impairs an insurer’s ability to contest its liability to an insured or the liability of the insured to a third party.” West Bay Exploration v. AIG Specialty Agnencies, 915 F.2d 1030, 1036-37 (6th Cir. 1990) (internal quotation omitted). The issue of prejudice is an issue of fact See Mutual of Enumclaw Ins. Co. v. USF Ins. Co., 191 P.3d 866, 876 (Wash. 2008).
The Supreme Court returned the case to the District Court for a trial on the issue of whether the carrier suffered the prejudice described by this definition. At that trial, the Court said that it was the insurance company’s burden to demonstrate that it had been prejudiced citing Co-Op. Fire Ins. v. White Caps, Inc., 694 A.2d 34, 38-39 (Vt. 1997) and Brakeman v. Potomac Ins. Co., 371 A.2d 193, 198 (Pa. 1977).
Therefore, if an insurance company is going to deny a claim based upon late notice, it needs to be prepared to come forward with specific evidence of prejudice caused by the delay. Maybe a critical witness had died. Perhaps physical evidence is missing or compromised because of the delay. In an instance, if you have questions regarding delay related issues, Mills & Associates is prepared to advise on your options.
