Condition In Insurance Policy To Cooperate With Investigation

When making a claim against an insurance policy, knowing what the policy says is important to an insurance attorney.  Virtually all policies have as a condition to payment, the requirement that you cooperate with their investigation of the claim.

The 1994, Texas Supreme Court opinion styled, Hernandez v. Gulf Group Lloyds, makes clear that an insurance contract may impose conditions on the insured.  Most policies require that notice of the claim be given to the insurance company and that the insured cooperate with the investigation.  Sometimes, just calling and reporting the claim is not enough.  An insured may be required to file a formal proof of loss.  When a party to the insurance contract commits a material breach or the contract, the other party is discharged or excused from any obligation to perform under the contract.  The Court in the Gulf Group opinion explained this way:

In determining the materiality of a breach, courts will consider, among other things, the extent to which the nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from full performance …  The less the noon-breaching party is deprived of the expected benefit, the less material the breach ….

The other factors courts consider in determining the materiality of a breach are: (i) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (ii) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (iii) the likelihood that the party failing to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (iv) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

As an example, in Gulf Group, an insured/underinsured motorist policy required that the insured obtain the insurer’s consent to settle with the negligent driver.  The reason for this was to let the insurer protect its subrogation rights.  An insured’s settlement without consent from the insurer was not material and thus did not relieve the insurer of its obligation to pay, when the subrogation rights had no value.

Another example, in the 1993, Texas Supreme Court opinion styled, Liberty Mutual Insurance Co. v. Cruz, a liability insurance policy required that the insured give prompt notice of any suit.  The insured did not give notice to the insurer until after a default judgment was rendered against the insured.  This breach was material because it prejudiced the insurer by denying its opportunity to answer for the insured and litigate the merits of the suit or to appeal any adverse judgment.  The breach relieved the insurer of its obligations under the insurance contract.