Vol. 8, No. 4, Pg. 20. No Harm, No Foul: Applying Insurance Policies' Notice Clauses.

• Author: By Allan Levin

South Carolina Lawyer

1997.

Vol. 8, No. 4, Pg. 20.

No Harm, No Foul: Applying Insurance Policies' Notice Clauses

20NO HARM, NO FOUL: Applying Insurance Policies' Notice ClausesBy Allan LevinVirtually every liability insur- ance policy contains a clause that requires an insured to notify his or her insurer as soon as practicable of events, claims or ' suits that may trigger the insurer's obligations under the policy.

For more than half a century it has been an unquestioned axiom of South Carolina insurance law that, absent waiver, an insured's failure to comply with a liability policy's notice provision negates the carrier's contractual obligations. However, recent appellate opinions may have eroded this doctrine. A prudent lawyer (and his or her client) might well profit from an analysis of these opinions if only to help predict in which direction the law is headed.

With this purpose in mind, this article discusses when courts have and have not allowed a breach of a policy's notice clause to serve as a coverage defense and reviews the elements that courts consider when ruling on these issues.

NOTICE AS A PREREQUISITE TO RECOVERY

As early as the 1930s, it was hornbook law that breach of an insurance policy's notice clause automatically relieved the insurer of its duty to defend and to indemnify the insured.

Perhaps the most frequently cited authority for this rule is Lee v. Metropolitan Life Insurance Co., 186 S.E. 376 (S.C. 1936). Mrs. Lee was a mill employee insured under a group disability policy that required written notice and proof of disability as a condition precedent to coverage. However, Lee did not timely submit the required notice and proof of loss. Consequently, the trial judge granted the carrier's motion for a directed verdict. The Supreme Court affirmed, explicitly holding in an oft-quoted phrase that:

[n]o rule is more firmly established in this jurisdiction than that one suing on a policy of insurance, where the notice required by the policy is not timely given, cannot recover. And the court has gone so far as to hold that the failure to give the required notice in the allotted time is fatal to the right of recovery, even if it be shown that the insurance company has suffered no harm by the delay. Id. at 381.

During the succeeding decades, many jurisdictions adopted the rule that coverage is not forfeited unless the untimely notice materially prejudiced the insurer. Traveler's Insurance Co. v. Feld Car & Truck Leasing Corp., 517 F.Supp. 1132,1135 (D.Kansas 1981) (collecting cases). However, South Carolina's courts did not follow this trend. Lee remained binding precedent. A representative case is Prior v. S.C. Medical Malpractice Liability Insurance Joint Underwriting Assn., 407 S.E.2d 655 (S.C. App. 1991).

A former patient filed a criminal complaint against Dr. Prior alleging sexual assault. Prior did not then notify the JUA of the pending criminal charges...