2.5 Duty to Give Notice of Claims or Lawsuits[504]

JurisdictionArizona

Most insurance policies, including automobile liability policies, require insureds to promptly[505] notify the carrier of a claim or lawsuit for which coverage is sought under the insurance carrier's policy. Typically, the policy will state that a failure to provide prompt notice of the claim or lawsuit will render the policy unenforceable as against the carrier. Notice is often expressly made a condition precedent to any liability of the carrier under its policy.[506]

Notice requirements are liberally construed to prevent a policy forfeiture. For example, the typical notice clause requires the insured to give the carrier notice of a claim "as soon as practicable." This requirement is generally construed to mean that notice must be given within a reasonable time after the insured-against event occurred, having in view all facts and circumstances of the claim. "If the sum of these facts and circumstances can be sufficient to constitute a reasonable excuse for failure to give notice, then such reasonable excuse will restore the timeliness of notice."[507]

Generally, an insurance carrier is not relieved of its contractual liability because of the insured's failure to give notice unless it can show that it has actually been prejudiced thereby.[508] The mere fact of delay in giving the carrier notice of the claim is not sufficient to establish actual prejudice.[509]

In the absence of a policy requirement that a particular loss be reported in a specific manner, it has generally been held that any method serving to advise the carrier of the loss will be sufficient if the notice contains enough information to enable the carrier to adequately consider its rights and liabilities.[510] The supreme court has held that "substantial compliance" with a detailed notice requirement will prevent a policy forfeiture because the information provided to the carrier allowed it to pursue a complete investigation and evaluation of the claim.[511]

The burden of establishing prejudice is upon the insurance carrier.[512] In Lindus v. Northern Insurance Co.,[513] the court explained the reasoning for placing this burden on the insurance carrier:

Although it may be difficult for an insurer to prove prejudice in some situations, it ordinarily would be at least as difficult for the injured person to prove a lack of prejudice, which involves proof of a negative. The presumption would not be in keeping with the public policy of this state to provide compensation for those negligently injured in automobile accidents through no fault of their own [citations omitted], and we are of the view that a judicially created presumption of prejudice, whether conclusive or rebuttable, is unwarranted.[514]

A failure to give the insurance carrier notice of an automobile liability claim will not forfeit the policy's liability coverages.[515] Under Arizona's Financial Responsibility Act, a carrier cannot raise the insured's failure to give notice of the claim or lawsuit, even though a default judgment may have been entered against the insured, as a policy defense against a third-party claim. Under the provisions of A.R.S. Sec. 28-4009(C)(5)(a),[516] "the liability of the insurance carrier . . . becomes absolute when injury or damage covered by the motor vehicle liability policy occurs." The statute also provides that "a violation of the policy shall defeat or void the policy." The supreme court in Sandoval v. Chenoweth,[517] found that the provisions of former A.R.S. Sec. 28-1170(F)(1)[518] were applicable to situations where the insured failed to provide notice of a third-party liability claim to the carrier after an accident occurred.

A failure to give a timely notice of a first-party uninsured or underinsured motorist claim may result in a coverage forfeiture. In State Farm Mutual Automobile Insurance Co. v. Tarantino,[519] the supreme court found that the insured failed to give timely notice of his uninsured motorist claim when the notice was given to the carrier four and one-half years after the accident, forfeiting coverage.

The insured in Tarantino injured his knee in an automobile accident on May 11, 1969. The driver of the other vehicle, who was at fault in causing the accident, was uninsured. The insured continued to have problems with his knee following the accident. Finally, in November 1973, the insured filed a formal claim with State Farm under the uninsured motorist provisions of his policy. The formal claim was the first notice that the carrier had of the May 11, 1969 accident. State Farm rejected the claim, alleging that the insured breached the contract by failing to notify State Farm of the loss "as soon as...

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