CHAPTER § 5.08 Importance of Notice Provisions

• Jurisdiction: United States

§ 5.08 Importance of Notice Provisions

[1] Notice Requirements

In order to give the insurance company an opportunity to acquire full information about the circumstances of a claim through an adequate investigation, insurance policies typically require, as a "condition precedent" to coverage, that insureds give notice of any losses incurred and of any claims made against them "as soon as practicable."²⁰² Moreover, many policies include a provision that the policyholder must give the insurer notice whenever he or she has information from which one could reasonably conclude that an occurrence or loss has taken place that might potentially implicate the insurance policy.²⁰³ Some policies may contain a specified number of days within which notice of the claim must be given.

Regardless of the type of notice required, some jurisdictions interpret these provisions strictly and permit the carrier to bar coverage for untimely notice, even if the delay did not prejudice the carrier.²⁰⁴ Other courts, however, will not entertain a late-notice defense unless the insurer can show prejudice from the delay.²⁰⁵ Due to "the purpose of notice provisions and their adhesionary nature," there is a "definitive trend" in favor of requiring prejudice in order to bar coverage as a result of untimely notice.²⁰⁶ Most jurisdictions "now hold that either by court decision or by statute, denial of coverage for reasons of delay in giving notice of an accident or occurrence is not valid unless it can be shown that the insurer's rights have been prejudiced thereby."²⁰⁷

[2] Form of Notice

The standard for determining what constitutes effective notice "has been held to be an objective one based on the policyholder's compliance with the terms of the policy."²⁰⁸ The terms of the insurance policy also govern the form of notice to be given. Where an insurance policy requires notice to be given in writing, oral notice will not suffice.²⁰⁹ The insured must give notice directly to the insurer, which typically includes its "authorized agents" such as local agents, adjusters, or claims-handling services.²¹⁰

Generally, the insurer may satisfy the notice requirement by giving "actual, constructive, or inquiry notice."²¹¹ Thus, "[e]ven when the policy requires notice 'with full particulars,' only such details need be included as will enable the insurer to determine whether a claim is likely to be made against the insured."²¹² This is because the "object of the notice required by the notice clause is to acquaint the insurance company with the occurrence of an accident, so that it may make proper investigation, and take such action as may be necessary to protect its interest."²¹³

[3] Notice of Circumstance

"The written notice upon which a claim can relate back is referred to as a 'notice of cir-cumstances.'"²¹⁴ The provisions governing notice of circumstance permit policyholders the option to inform the insurance company of "circumstances which may subsequently give rise to a Claim," even if the situation may not constitute a current claim.²¹⁵

In recent years, courts have faced the challenge of examining the adequacy of notice of circumstances letters.²¹⁶ A notice of circumstances "create[] a notification process for Claims filed both inside and outside the Policy Period."²¹⁷ For policyholders, it remains important to file a detailed notice of circumstances. As a federal district court held: "It allows a related subsequent 'Claim' to 'relate back' to the time the initial 'Notice of Circumstances' was given to the insurer for purposes of assessing whether a claim was 'made' within the operative policy period."²¹⁸ A "relation-back" clause simply establishes the applicable policy year in which a "Claim" falls—it does not create coverage for matters that do not constitute "Claims" in the first instance.²¹⁹

Typical insurance policies allow policyholders to provide a notice of circumstance to the insurance company before the policy expires that give rise to a claim after the policy expires. The Ninth Circuit recently held that the notice provided must be "sufficiently specific . . . to be regarded as providing the kind of written notice that constitutes an insuring event under the [notice of circumstances] provision."²²⁰

To submit a valid notice of circumstances letter, it remains important for policy-holders to provide all the information required by their insurance policy. Failure to provide adequate information under the policy, or failure to provide any notice of circumstances whatsoever, can lead to courts barring insurance recovery.²²¹

[4] Timing

Courts often focus on the reasonableness of the notification to determine whether the insured complied with the timing provisions of the underlying policy.²²² As such, an insured may be excused from giving timely notice if the insured lacks...