Insurer Not Required to Show Prejudice from an Insured’s Late Notice When the Parties Contract for a Specific Reporting Period
The Fifth Circuit Court of Appeals recently affirmed an order granting summary judgment in favor of the Firm’s insurer client on an issue of first impression in Texas. The issue before the trial court was whether, under Texas law, an insurer is required to demonstrate prejudice resulting from an insured’s failure to comply with an agreed term set in an endorsement to the parties’ insurance contract establishing a specific time limit for an insured to give the insurer notice of a claim.
The case involved alleged damage to an insured’s commercial property from a hailstorm. The insured did not report the alleged loss to its insurer until approximately 17 months after the date of loss. The insurer denied the claim based on a one-year notice requirement in a policy endorsement. The Texas Windstorm or Hail Loss Conditions Amendment Endorsement stated that:
In addition to your obligation to provide us with prompt notice of loss or damage, with respect to any claim where notice of the claim is reported to us more than one year after the reported date of loss or damage, this policy shall not provide coverage for such claims.
The insured sued the insurer in Houston federal court, alleging causes of action for breach of contract and violations of the Texas Insurance Code. The insured argued the insurer was required to show prejudice from the insured’s late notice; the insurer argued that a showing of prejudice was not required. The trial court recognized that this issue had not been decided by the Texas Supreme Court of the Fifth Circuit Court of Appeals.
The Firm moved for summary judgment on behalf of the insurer based on the policy’s endorsement. The trial court granted summary judgment in favor of the insurer and dismissed the insured’s claims.
The Fifth Circuit Court of Appeals affirmed the trial court’s order and held that while insurers are required to show prejudice following the insured’s breach of general provisions requiring notice of loss or damage “as soon as practicable” (and variations thereof), that shifting burden was not required in this case where the parties signed a very specific endorsement that required the insured to submit claims for wind or hail losses within one year.
The Fifth Circuit’s decision is a significant victory for insurers which are often faced with the heavy evidentiary burden of establishing prejudice from an insured’s late notice of property damage claims.