Compliance With Insurance Policy Provisions

This Eastern District, Sherman Division opinion is good reading for how the courts look at an insured’s responsibility to comply with policy provisions in an insurance contract.  The opinion is styled, Tommy Wilson v. Allstate Insurance Company.

Wilson made a claim for damages to his home after wind and hail storm damage.  A loss suit resulted based on allegations that Allstate grossly underestimated the amount of damage to the property.  Allstate filed a motion to dismiss based on Wilson not having complied with the policy provision requiring he submit a sworn proof of loss 91 days before filing suit.

The relevant portion of the policy reads:

No one may bring an action against us in any way related to the existence or amount of coverage, or the amount of loss for which coverage is sought … unless:
a) there has been full compliance with all policy terms; and
b) the action is commenced within two years and one day from the date the cause of action first accrues; and
c) in the event that you and we fail to agree on the amount of the loss claimed by you, unless you have previously provided to us a signed sworn proof of loss, it is a condition under this Action Against Us provision that no later than 91 days prior to commencing any action against us that we receive from you a signed sworn proof of loss …
Allstate contends that because a significant dispute exists regarding the amounts necessary to compensate Wilson for the covered damages to the property, the POL requirement must be applied.  The Judge assumed that the POL provision did apply to this dispute and proceeded to analyze the prejudice, if any, imposed on Allstate by Wilson’s failure to comply with the objection.
The proof of loss provision, akin to a notice provision, is aimed, in large part, at aiding the insurer in administration of its coverage of claims.  While proof of loss and /or notice requirements afford valuable rights to the insurer, such provisions have not been established as an essential part of the bargained for exchange in an occurrence based policy such as the one at issue.  Indeed, the Fifth Circuit has held that in the case of an occurrence policy, any notice requirement is subsidiary to the event that triggers coverage.
Under current Texas law, regardless of whether a policy provision is characterized as a covenant, condition precedent, or exclusion, the insurer must still demonstrate prejudice caused by the insured’s non-compliance.
Allstate claims it has been prejudiced because it was forced to prematurely litigate this case without the benefit of each piece of information required to be submitted in the POL.  A showing of prejudice generally requires a showing that one of the recognized purposes has been impaired.  With respect to the prejudice requirement, the Texas Supreme Court has further explained:
In determining the materiality of a breach, courts will consider, among other things, the extent to which the non-breaching party will be deprived of the benefit that it could have reasonably anticipated from full performance.  The less the non- breaching party is deprived of the expected benefit, the less material the breach.
Applying the materiality principle to the facts of this case, a finding of prejudice simply cannot be supported.  Wilson timely submitted a claim to Allstate.  After receipt of the claim, Allstate had an opportunity to inspect the damage to the property and to engage in attempts to settle the claim.  The parties engaged in correspondence for several months regarding the disputes between them both as to coverage and loss amounts, providing Allstate additional opportunity to investigate and make inquiries.
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