The notice prejudice rule protects policyholders from undue forfeiture of benefits when they fail to report a claim within the applicable insurance policy’s deadline. California’s notice-prejudice rule allows a policyholder to file a claim after the reporting deadline if it can show that the late notice did not result in any prejudice to the insurance company. However, under New York law, an insurance company need not demonstrate actual prejudice to deny coverage for a late-reported claim. UP argued that where a policy issued to a California policyholder contains a choice of law provision applying less-favorable New York law, California’s law should prevail. Related, a consent provision in a first-party policy should also be subject to California’s notice prejudice rule. Unlike a third party claim, there is no risk of collusion between the policyholder and a third-party claimant where a settlement is reached without the insurer’s consent, nor does the insurer lose the right to control the defense. UPdate: The Supreme Court of California agreed with UP that (1) the notice-prejudice rule is a fundamental policy of the state, and that (2) the notice-prejudice rule should be applied to the consent provision in this case. UP’s breif was cited – opinion and brief below.
Insurance company must show prejudice if it denies a claim based on late notice
- New York
The issue in this case was whether the lower court erred in dismissing policyholder’s claim for insurance coverage based on untimely notice by failing to consider prejudice to the insurance companies. UP argued that the notice-prejudice rule protects insurance consumers from untimely forfeiture. UP also…
The notice-prejudice rule supports insurance consumers by avoiding disproportionate forfeiture when an insured fails to report a claim within the time stated in the policy. UP argued in its brief that insurers may not avoid responsibility for a covered claim unless the insurer can show…
- Duty to Defend
UP addressed two issues in its brief: (1) under Maryland law, an insurer must show actual prejudice in order to escape coverage for a valid claim that is reported after the policy deadline; and (2) duty to defend principles applicable to the insurer should not…