View Our Practice Areas

The Proper Time to Enforce Loss Notification Time Limits

Sanders & Parks, P.C.

Mark Worischeck

Shanks Leonhardt

On Oct 5, 2010, Phoenix suffered a catastrophic hail storm that became one of the largest single property losses in the United States. Various property insurers have consulted with Sanders & Parks, P.C. on an array of coverage and defense issues related to the storm.

One question that many insurers faced involved the applicability of clauses requiring an insured to notify the insurer of any weather-related loss within a specific time limit (e.g., 180-days after any loss). Due to the nature of hail damage, many insureds were not immediately aware their homes suffered damages. Thus, they made claims well after the loss-notification deadlines.

At Sanders & Parks, we advised our insurer clients on the proper application of these clauses. No Arizona court has held they are per se unenforceable. Instead, courts examine the enforceability of such clauses using the "notice-prejudice" rule. This rule states that an insurer cannot escape liability under a policy simply because the insured failed to give notice within a specific time. The insurer must show actual and substantial prejudice. At a minimum, the insurer will likely want facts showing the delay prevented it from accurately assessing the loss (e.g., the insured made repairs prior to notification).

Thus, any insurer that is considering applying such a loss notification clause should tread carefully. Before applying this type of clause, an insurer must investigate each tardy claim and develop a compelling factual basis to assert that it suffered actual and substantial prejudice due to the late notice.