Proof Of Loss Requirement

The U.S. District Court, Eastern District, Sherman Division, issued an opinion in May 2018, styled, James Cunningham and Tabatha Cunningham v. Allstate Vehicle and Property Insurance Company.

The Cunningham’s allegedly suffered damages during a hail and windstorm.  The claim was reported to Allstate and five days later Allstate inspected the property.  The Cunningham’s requested a re-inspection which was denied.  Without providing a proof of loss in accordance with policy provisions, the Cunningham’s filed suit against Allstate.

Allstate responded by filing a motion to dismiss for lack of subject matter jurisdiction due to the Cunningham’s failure to satisfy the policy proof of loss requirement.

Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a case for lack of subject matter jurisdiction.  In deciding the motion, the Court may consider 1) the complaint alone; 2) the complaint supplemented by the undisputed facts evidenced in the record; or 3) the complaint supplemented by undisputed facts plus the Court’s resolution of disputed facts.

The policy provides that the insured may not file suit against Allstate earlier than ninety-one days after the insured submits a signed and sworn proof of loss.  That did not happen here.

The Court has noted that a sworn proof of loss used to be a condition precedent and insured was required to show either, waiver or substantial compliance with the condition precedent.  However, the Texas Supreme Court has recently adopted a broad notice-prejudice rule.  Under Texas’s notice-prejudice rule, the insurer must be able to show prejudice caused by the insured’s failure to comply with the contract regardless of whether the terms at issue is a covenant, condition precedent, exclusion or provision.

Conditions are not favored in the law, therefore, courts read provisions to avoid forfeiture.  Treating the proof of loss clause to be a covenant as opposed to a condition, requires Allstate to prove that the Cunningham’s noncompliance was a material breach, thus avoiding the harsh consequences of a condition.

The second line of reasoning is that the proof of loss of provision is not an essential part of the bargained for exchange in an occurrence based policy because an insurance policy covers the insured for acts or omission that occur within the policy, regardless of whether the claim is brought to the attention of the insured or made known to the insurer during the policy period.
A showing of prejudice generally requires a showing that one of the recognized purposes has been impaired.  The purpose of requiring a sworn proof of loss is to enable the insurer to properly investigate the circumstances of the loss while the occurrence is fresh in the minds of witnesses, to prevent fraud, and to enable it to form an intelligent estimate of its rights and liabilities so that it may adequately prepare to defend any claim that may arise.  The Court has previously noted that a Defendant’s only loss was its expectation of a head-start to litigation via a proof of loss and this alone cannot establish prejudice for Allstate, and Allstate had not provided any other reasons that it was prejudiced.
Allstate’s motion was denied.