Lawyers And Home Owners Claim Denial Based On Lateness Of Claim

When someone in Grand Prairie, Weatherford, Fort Worth, or anywhere else in the north Texas area suffers an insured loss, how long do they have to report the claim to their insurance company? The answer is a lawyers answer: It Depends.
The Fifth Circuit Court of Appeals dealt with this issue in an opinion it issued in 2005. The style of the case is Ridglea Estate Condominium Association v. Lexington Insurance Company. Here are some of the facts.
In July 2001, after receiving notice from a roofing inspector that its building in Fort Worth, Texas has suffered hail damage, Ridglea filed an insurance claim with its carrier Chubb Custom Insurance. Upon its inspection, however, Chubb informed Ridglea that the damage was not caused by the more recent storm but rather by a storm that occurred on May 5, 1995. Ridglea did so and filed the claim with the 1995 carrier, Lexington Insurance Company. Lexington’s inspection revealed that the damage did not exceed the deductible and that there was not sufficient evidence that the damage occurred in 1995 and denied the claim. After about a year’s worth of negotiations involving Ridglea and all its insurers, Ridglea made a final demand. Lexington again denied the claim and brought a declaratory judgment action seeking a ruling that it was not liable for the damage. Both parties moved for summary judgment and the trial court granted summary judgment in favor of Lexington holding that Ridglea had failed to comply with the notice requirements contained in the policy. Ridglea appealed to the U.S. Court of Appeals for the Fifth Circuit.
The Fifth Circuit affirmed the trial court’s finding that a delay of six years before filing a claim was unreasonable, but reversed and remanded the case for a determination of whether Lexington was prejudiced by Ridglea’s delay. The Court noted that Ridglea’s own expert testified that the damage caused by the 1995 hail storm was severe enough that it required replacing the roof and that the damage would have been evident then. Further, Ridglea’s expert also testified that the 1995 storm broke windows, chipped shutters, and even damaged automobiles in the area of Ridglea’s property. As a result, the Fifth Circuit held that the damage was sufficient evidence in May 1995 that Ridglea’s delay in notifying its carrier was not reasonable.
The court rejected Ridglea’s argument that the policy’s notice requirements violated public policy. Ridglea attempted to argue that because of Section 16.071 of the Texas Civil Practice & Remedies Code that prohibits any contractual requirement requiring less than 90 days. The Court rejected this argument. The Court further distinguished between notice of a claim and notice of an occurrence that may or may not result in liability. The Court also rejected Ridglea’s argument that the policy provision was ambiguous and should be construed against Lexington noting that Texas courts have always interpreted prompt notice within a reasonable period of time.
The Court did, however, accept Ridglea’s argument that even if its notice was unreasonable, Texas law required Lexington to show prejudice in order to raise the notice defense. This is in accordance with a Texas Department of Insurance Order No. 23080 requiring an additional endorsement that states that the notice requirement will not bar coverage unless the insurer is prejudiced by the delay. Further, the Texas Supreme Court has held that an insured’s violation of the settlement without notice provisions do not bar recovery unless the insurer can show prejudice. As a result, the court remanded the case to the trial court to determine whether Ridglea had raised issues of fact on whether Lexington was prejudiced so as to preclude the granting of a summary judgment motion.