Section 9.27 Notice-Prejudice Rule

• Library: Insurance Practice 2015

The notice-prejudice rule states that an insurer cannot avoid coverage of a claim based on the insured’s failure to provide timely notice unless the insurer can show that it was actually prejudiced by that failure. E.g., Weaver v. State Farm Mut. Auto. Ins. Co., 936 S.W.2d 818, 821 (Mo. banc 1997); Cont’l Cas. Co. v. Maxwell, 799 S.W.2d 882, 886 (Mo. App. W.D. 1990). The rule was formulated to prevent insurers from denying coverage for deficient notice under occurrence-based liability policies. See May v. Md. Cas. Corp., 792 F. Supp. 63, 67 (E.D. Mo. 1992). The rationale for the rule in that context is that coverage is triggered by the occurrence; therefore, notice is not an element of coverage. See Helfand v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 13 Cal. Rptr. 2d 295, 304 (Cal. Ct. App. 1992). This rationale does not necessarily pertain to claims-made director and officer policies when, as discussed in §9.25 above, notice has been held to be a coverage-defining element.

Numerous courts have rejected application of the notice-prejudice rule to claims-made coverage, holding that the insurer has a right to strict compliance with the policy’s notice provisions and does not need to show...