Are Insurance Late Notice Provisions Toothless After Arrowood v. King?

*Republished with permission of the Connecticut Law Tribune and The Insurance Coverage Law Bulletin.

Until 2012, an insured seeking coverage after providing late notice of a claim had the burden of proving that its insurer was not prejudiced by the late notice — if the insured could not meet this burden, then the claim would not be covered. See Aetna Cas. & Surety Co. v. Murphy, 206 Conn. 409 (1988); see also Case Notes, infra. In a surprise decision in 2012, Arrowood Indemnity Co. v. King, 304 Conn. 179 (2012), the Supreme Court of Connecticut sua sponte shifted the burden of proof to the insurer, requiring insurers to affirmatively prove that they were prejudiced in order for late notice to negate coverage. Id. (overruling Aetna Casualty & Surety Co. v. Murphy, 206 Conn. 409, 538 A.2d 219 (1988)). Now four years out from King, this article examines subsequent Connecticut case law addressing late-notice provisions in various insurance policies and attempts answer the question: Are late notice provisions now toothless or do they still have some bite?

The claim at issue in King arose from a 2002 accident wherein the insureds’ son towed a friend, who was riding a skateboard, behind an ATV owned by the insureds. The friend on the skateboard (unsurprisingly) suffered significant injury. After the incident, the families socialized and the family of the injured boy never expressed an intent to file suit. As a result, the policyholders never provided notice to their homeowner’s insurance company of a potential claim under their policy until after they were served with a complaint.

The ensuing insurance dispute made its way up to the U.S Court of Appeals for the Second Circuit, where the court certified several questions to the Connecticut Supreme Court, just one of which pertained to late notice. The notice issue was framed as whether the socialization of the families and lack of an indication of intent to file suit excused the delay of notice when the policy required the insured to “give notice as soon as practical.” The court held that the accident was of such a severe nature that any reasonable person would expect a claim could arise. The court noted, however, that there must be prejudice to the insurer before it could be excused from coverage based on the late notice of claim.

Unexpectedly, the court took the opportunity to revisit the burden of proof on the demonstration of prejudice caused by late notice of a claim. Since 1988, Connecticut law allowed insurers to enjoy a presumption of prejudice caused by late notice of a claim; accordingly, it was up to policyholders to disprove prejudice once late notice was established. See Murphy, supra. The King Court concluded that, moving forward, insurance companies would have the burden of proving that they were prejudiced due to late notice of a claim by a preponderance of evidence. See King, supra; see also Arrowood Indem. Co. v. King, 699 F.3d 735 (2d Cir. 2012) (affirming ruling of District Court based on responses to certified questions). The King Court held that this was appropriate because placing the burden on the insured often left the latter with the difficult (if not impossible) task of proving a negative, which difficulty was further exacerbated by the insurer’s potential interest in concealing information regarding whether it actually suffered prejudice. The court reasoned that leaving the burden of proof with the insured would reduce the likelihood of the factfinder obtaining enough information to make the correct determination on the issue of prejudice, creating an unfair result.

With insurers assuming the burden of proving prejudice caused by late notice in the wake of King, outcomes have been mixed. The new burden of proof was first applied in Connecticut with some analysis by the district court in Prizio v. Lincoln National Life Insurance Co., No. 3:11-CV-736 (JBA), 2014 U.S. Dist. LEXIS 43886 (D. Conn. Mar. 31, 2014), in a case that was not particularly close. In Prizio, the insured made a claim for long-term total disability benefits because she fell into a deep depression after her husband’s death. She claimed that her disability began in May of 2006, but she did not make a claim for benefits for over three years, until July of 2009. Her insurer moved for summary judgment, claiming that it was prejudiced by late notice of the claim because it was unable to interview the insured’s co-workers and clients from the pre-May 2006 period, when the plaintiff also purportedly suffered from depression, or to obtain adequate contemporaneous medical information from 2006 to 2009.

Further, the insured did not blame her late notice on her depression, but rather said that she was reluctant to open herself up to a fight with the insurer, and also said that she did not initially know whether her insurance covered mental disabilities. On this record, the court held that the insurer satisfied its burden of proving prejudice, and granted its motion for summary judgment, but not before chastising the insurer for erroneously (and perhaps disingenuously) arguing that the burden of disproving prejudice rested with the insured as it had before King.

About two months after the Prizio decision, the first superior court decision addressing a late notice claim under the post-King framework was issued, though it was not particularly illuminating. Jarrett v. Gov’t Employees Ins. Co., No. CV-13-6036638-S, 2014 Conn. Super. LEXIS 1379 (Conn. Super. Ct. June 4, 2014) (Sommer, J.). The Jarrett plaintiffs suffered a hit-and-run and made an uninsured motorist claim to their insurer 11 months later, even though their policy required notice of hit-and-run accidents within 30 days. The insurer filed a motion to dismiss the plaintiffs’ suit based on their failure to satisfy a condition precedent to coverage, and the court’s consequent lack of subject matter jurisdiction to hear the suit.

The court, in a thoughtful opinion, rejected this argument and denied the motion to dismiss. Although the plaintiffs were undisputedly late in filing their claim and “failed to comply with the relevant cooperation clause,” the court observed that “Supreme and Appellate Court precedent requires the court to make a factual determination on prejudice before it can decide whether the plaintiffs’ failures are a valid enough reason to deny coverage.” Given the court’s remark that the plaintiffs’ lapse might affect the merits of the case, it may have rendered a different decision if the argument had been raised, as it should have been, by a motion for summary judgment. Timely notice is arguably all the more important, and a prejudice defense all the more compelling, in a hit-and-run case, where information can be inherently difficult to gather.

Next, the District of Connecticut addressed the case of State Farm Fire & Casualty Co. v. Yoel, No. 03:13CV101 (AWT), 2014 U.S. Dist. LEXIS 116742, at *11-22 (D. Conn. Aug. 21, 2014). By most accounts, the insured, Mr. Yoel, punched another man several times until his mouth was bloody and he fell onto the ground. However, the accounts began to diverge at that point, as Mr. Yoel testified that the man got right up and seemed okay, whereas his victim stated that he was unconscious and did not regain consciousness until he was brought to the hospital after the fight. Though the altercation occurred in June of 2010, Mr. Yoel did not report his claim to his insurer until January 2012, prompting his insurer to seek summary judgment on the grounds that Mr. Yoel gave late notice of his claim.

The court denied the motion, however, due to an issue of fact as to both prongs of the controlling analysis. First, there was a disputed fact as to whether Mr. Yoel was guilty of “unreasonable delay” in reporting his claims due to conflicting evidence of whether he appreciated the extent of his victim’s injuries. Second, the insurer had not conclusively proven prejudice, because the witness whom the insurer claimed it had lost the ability to interview had provided a statement to the police just after the incident, and the statement was available to the insurer.

The pendulum swung in the insurers’ favor, however, with two Superior Court decisions: Jazlowiecki v. Nationwide Ins. Co. of Am., No. HHD-CV126036618S, 2014 Conn. Super. LEXIS 2004 (Aug. 8, 2014) and Argonaut Insurance Co. v. Town of Berlin, No. CV-12-6017084, 2014 Conn. Super. LEXIS 2929, at *1-11 (Conn. Super. Ct. Dec. 1, 2014) (Swienton, J.).

Jazlowiecki involved a claim for coverage under a homeowner’s insurance policy, after the insured was subject to a counterclaim alleging harassment, retaliation, nuisance, injunctive relief and statutory violations stemming from a dispute between neighbors. Nationwide disclaimed coverage, asserting a late notice defense (among others). The Court (Wahla, J.) granted summary judgment for Nationwide, agreeing that notice was late (it should have been given when the counterclaim was formally served on the insured instead of 10 months later on the eve of trial) and that Nationwide was prejudiced thereby because “discovery had closed, experts had been retained and disclosed, the trial management conference had been completed, and the trial was scheduled to commence within days,” thus robbing Nationwide of its ability to meaningfully participate in the defense.

In Argonaut Insurance, the company pursued a declaratory judgment and moved for summary judgment when it was not notified of a workers compensation claim until 18 months after the incident. The Town apparently did not contest that its delay was unreasonable, instead arguing that the insurer could not establish a good defense to the underlying claim, as the Town argued was necessary to establish prejudice. The insurer argued that it did not need to establish a defense to the underlying claim, since General Statutes Section 31-294(c) created a conclusive presumption that the insurer accepted the claim because it did not contest the claim within 28 days of written notice to the employer, and the deprivation of the insurer’s right to contest the claim constituted prejudice as a matter of law. The court sided with the insurer, granting summary judgment in its favor.

The sixth (and most recent) case to consider this issue did so after trial, holding that the claims notice by the pro se insured, an elderly widow, was not prompt but was nonetheless not unreasonably delayed where she waited until after the spring thaw to present a claim for water damage, and further holding that her homeowners insurer failed to provide any evidence of prejudice. Garre v. Peerless Ins. Co., No. CV-12-6013760S, 2015 Conn. Super. LEXIS 199 (Conn. Super. Ct. Jan. 30, 2015) (Pellegrino, J.T.R.).

Although the evidence showed that the damage stemmed from a storm occurring in late February 2011, with ice damming and significant water seepage occurring after the storm, the plaintiff failed to report the loss until the summer of 2011, in part because she did not know she could. Nonetheless, the court held that the insurer failed to present evidence of prejudice and that, in any event, the insurer was not prompt in its investigation of the claim because it did not send its representative to the plaintiff’s home until months after the claim was made.

At that point, it denied her claim based on “long-term repeated seepage of water, lack of maintenance and visible rot,” a denial which the court held was unsupported by “credible” evidence. Notably, Judge Zemetis had denied a prior motion for summary judgment by Peerless as well, holding that the insurer had failed to substantiate its “mere assertion that ‘the property was not protected in any way from further damage between the date of the alleged loss and the date it was reported to Peerless six months later.’” Garre v. Peerless Ins. Co., No. CV-12-6013760, 2013 Conn. Super. LEXIS 1763, *15, 2013 WL 4504933 (Conn. Super. Ct. Aug. 6, 2013). Accordingly, Peerless failed to prove either prejudice or a breach of the policy’s late notice provision.

As a final note, notwithstanding the above, the type of insurance policy at issue matters. Connecticut law remains clear that proof of prejudice is not required where claims-made policies are at issue, and summary judgment in such cases is routinely granted even without proof of prejudice. See Tucker v. Am. Int’l Group, Inc., No. 3:09-CV-1499 (CSH), 2015 U.S. Dist. LEXIS 9874, *33-34 (D. Conn. Jan. 28, 2015) (Haight Jr., J.) (citing ITC Investments, Inc. v. Employers Reins. Corp., No. CV-98-115128-S, 2000 Conn. Super. LEXIS 3544 (December 11, 2000) (Corradino, J.)); D&M Screw Mach. Prods., LLC v. Tabellione, CV-12-6017117S2014, Conn. Super. LEXIS 417, *11 (Conn. Super. Ct. Feb. 24, 2014) (Gleeson, J.).

Claims-made policies aside, what’s clear from case law in the wake of King is that, while the late notice defense has been dulled by the burden-switching decision, it remains a viable defense and is far from toothless. Care must be taken in the pursuit of such defenses in the case of insurers, and in contesting such defenses in the case of insureds. Policyholders should provide notice as soon as possible lest coverage be foreclosed. Insurers would be wise to document any prejudice they may suffer as a result of late notice, should think twice about denying homeowner’s coverage to sweet old ladies, and should investigate claims promptly in order to boost the chance of success on a late-notice defense.