Insurance companies generally need to know about property defects and recent damages to investigate claims. Insured businesses typically should provide prompt notice about incidents that damage their facilities, interrupt projects and necessitate an insurance claim.
Different policies may impose different timelines for notifying the insurance company of concerns. As a general rule, it is advisable for businesses to notify insurance companies as soon as possible about upcoming claims or recently-discovered issues with the property. In some cases, insurers may use the late notice defense to deny claims initiated weeks or months after a policyholder discovered property issues or sustained property damage.
How can policyholders overcome the late notice defense and obtain the coverage they deserve?
There must be proof of actual prejudice to deny a claim
Insurance companies must operate in good faith, which means they have an obligation to uphold their policies as written. Frequently, insurance companies issuing policies for builders include strict timelines regarding formal notice of defects, damage or impending claims. Even in cases where official notice complies with the technical requirements in the policy, the insurance company may still claim that delays in reporting the issue warrant the denial of the claim.
To overcome that claim denial, policyholders may need to work with an attorney. They can invoke the notice-prejudice rule. This rule prevents an insurance company from denying coverage based solely on delayed notice. The company must show that the delay caused actual prejudice.
In other words, extended reporting timelines must impact the ability of the insurance company to investigate the issue and make an appropriate determination about the claim. In such cases, the burden of proof falls to the insurer. The insurance company must show that the timing of notice impacted the company’s ability to investigate or impacted the final amount of damages incurred.
This doctrine has undergone review and received affirmation from California’s Supreme Court. Insurance companies cannot use a delay on its own as a justification for denying an otherwise valid claim, especially in scenarios where the delay does not have any noteworthy impact on the total losses or the ability of the insurance company to accurately investigate the situation.
Reviewing policy documents and initial claims paperwork with a skilled legal team can help frustrated builders and other business owners determine if they complied with policy requirements and the insurance company may have violated their rights. An insurance recovery attorney can help address complex claims disputes and help businesses to secure the compensation they deserve due to the coverage they carry.