When a loss occurs, one of the first things a policyholder should do is let its insurance company know about the loss. I know, some policyholders hesitate to report losses because it might cause their premiums to rise or because they don’t think they have any liability for the loss or because they think they can recover the loss through other means. While there may be some, albeit few, reasons to delay or withhold reporting a loss to an insurance company, the failure to timely advise an insurance company of the loss may result in a second loss — the loss of insurance protection.
In a recent case before the United States Court of Appeals for the Second Circuit, a policyholder found out the hard way what happens when you don’t report a loss to your insurance company in a timely manner.
Different states have different rules about late notice, but in New York, timely notice is a condition precedent to coverage and prejudice does not have to be shown by the insurer if the notice is late. There is an exception to this rule, however, where the insurance policy falls within Insurance law section 3420, which bars late notice in certain circumstances from precluding coverage unless actual prejudice can be shown. That exception applies primarily to liability policies and personal injuries (but not exclusively).
Late notice is often an issue because nearly every insurance policy has a provision requiring the policyholder to provide notice of loss to the insurance company as soon as reasonably possible, immediately or as soon as practicable or similar language. That’s because an insurance company will want to start investigating a loss as quickly as possible and preserve evidence if necessary, among other reasons.
In Minasian v. IDS Property Casualty Ins. Co., No. 16-80-cv (2d Cir. Jan. 19, 2017) (Summary Order- No Precedential Effect), the policyholders were burglarized at the insured property. The relevant policies had notice provisions that required prompt notice. There was no dispute that the burglary happened on January 1 and the policyholders did not notify their insurers until March 28. The district court noted that the policyholders reported the burglary to the police the same day, as required by the policies, but did not notify the insurers until 86 days later.
The policyholders argued that their notice was timely or their delay should be excused because they reasonably believed the police investigation might turn up the stolen goods and that they notified the insurance companies as soon as the police investigation was closed. The policyholders also claimed that their alleged lack of sophistication should excuse their notice delay.
In affirming the district court’s grant of summary judgment to the insurers, the Second Circuit noted that even if the policyholders believed in a possible recovery, it would not have prevented a reasonable person from suspecting the possibility of a claim. The belief of a possible recovery, said the court, cannot form a reasonable and excusable basis for notice delay.
The circuit court also agreed with the district court that alleged lack of sophistication cannot excuse the notice delay, especially when the policyholders had the ability to obtain insurance coverage over the goods and to secure appraisals for those items. Moreover, in a footnote, the court noted that the policyholders failed to cite any New York cases recognizing lack of sophistication as a reasonable excuse for failure to give timely notice.
Finally, the court again agreed with the conclusion of the district court that “[n]o reasonable person could interpret this language [the definition of covered loss] to mean that a known theft of property only becomes a covered loss once the police cease to conduct an active investigation.”
The simple lesson here, which applies to almost all insurance situations, is that if you think you have a claim, report it. Better safe than sorry.