One of the most common questions that in-house counsel may have for coverage counsel is, “What is the effect of providing late notice of an insurance claim?” The answer is that it depends on which state’s law applies to the insurance policy. A minority of states view notice as a condition precedent to coverage, and unexcused or unreasonably late notice voids coverage. The majority of states, however, have adopted the notice-prejudice rule, which is one of the most beneficial rules to policyholders. Rooted in equity and contract principles, it holds that untimely notice does not waive coverage unless the insurance carrier has been materially prejudiced by the delay. But a state’s adoption of the notice-prejudice rule is usually not the end of the story. As the notice-prejudice rule has gained prominence, insurers hav
e shifted strategy from arguing against the adoption of the notice-prejudice rule to urging courts to carve out exceptions to the rule in which the insurer is deemed to suffer prejudice as a matter of law. This strategy, if successful, could have the effect of eroding the protection that the notice-prejudice rule affords policyholders. At a minimum, it will foster uncertainty among policyholders as to whether the notice-prejudice rule will apply. Continue reading “What Happens If Your Company Gives Late Notice of a Claim to Its Insurer? Hint: Insurers Should Not Make Policyholders Guess”
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